Businesses looking to make large purchases can use a portfolio officer to help them invest in their operations. This is often a high-executive position that requires a financial professional with significant experience. The portfolio officer is the person who, with the help of risk-management systems, determines whether or not a borrower should be approved for financing. This process culminates in the lending officer’s underwriting of a loan, which is essentially a decision to accept risk and extend necessary financing.
Before approving any funds for distribution, portfolio officers typically conduct research and vetting on potential borrowers. This due-diligence process is required to ensure that a financing company does not take on excessive risk, putting the company at risk of losing the entire amount due to a client default. Risk management procedures are usually in place at a financing firm so that a portfolio officer is well aware of the loan criteria. Limiting loan amounts, imposing lending conditions, and limiting loans to borrowers who meet a certain credit standard are all examples of these practices. Even if the individual makes a poor judgment call, bad loans can still be issued.
A portfolio officer must examine the health of the financial markets and economy in addition to the merits of a new or existing client before issuing a loan. When there is a higher level of default circulating among borrowers, credit markets can become especially tightened, which means the standards and cost of receiving financing rise. In such an environment, it’s more likely that the risk that underwriters must take is deemed inappropriate. Portfolio officers will then determine whether the amount of risk in the markets disqualifies certain borrowers from receiving loans. When an officer decides to underwrite a loan, he or she is more likely to do so when the loan’s interest rates are high.
To become a portfolio officer, you must go through several stages. For example, before becoming a senior officer, a finance professional may work as a junior loan officer for several years, assisting a more experienced professional. A lending officer’s responsibilities also include developing client relationships and meeting the needs of those businesses. These relationships are frequently symbiotic and mutually reliant. Companies may require funding to expand and purchase necessary materials, and portfolio officers may be compensated based on the amount of business volume generated.