Credit Policy 1: Why Every Lender Needs a Credit Policy

There’s a moment in many lending careers when policy stops being just a reference document and starts becoming a principle to live by. Imagine a deal that gets pushed through not because it meets all the criteria, but because everyone involved wants it to work. There’s no fraud, no deception, just a shaky credit decision made in the absence of clear, enforceable guidelines. By month three, the borrower defaults.

Scenarios like this are a wake-up call. They shift the perception of credit policy from bureaucratic red tape to essential risk management. It’s no longer about ticking boxes, it’s about protecting the business and ensuring consistent, sound decision-making.

Policy Isn’t About Saying No - It’s About Saying Yes, Wisely

In the private and non-bank lending world, flexibility is our selling point. We fund deals the banks can’t—or won’t. But without a credit policy, flexibility becomes chaos. You’re making one-off decisions, reacting to broker and borrower pressure, and hoping your gut’s right every time.

A credit policy provides structure. It answers key questions before the deal hits your desk:

• What’s our risk appetite?

• Who are we lending to?

• What kinds of loans fit our mandate?

• What’s our threshold for exceptions?

These aren’t theoretical questions. They shape real decisions. And in a fast-moving market, clear guidance is the difference between a sustainable portfolio and a pile of surprises.

What Happens Without One?

I’ve worked with lenders who didn’t have a clear credit policy or had one that hadn’t been updated in years. The symptoms were always the same:

• Inconsistent approvals

• Exception fatigue (“We made that one work, so let’s make this one work too”)

• Over-concentration in one risk tier

• Confusion between front-line and credit teams

• Surprises in the delinquency report

None of that builds confidence - with investors, underwriters, or borrowers.

The Best Policies Reflect Real Lenders

One of the most common misconceptions is that credit policy has to be rigid. It doesn’t. In fact, a good policy should reflect your lending philosophy. If you’re a MIC that specializes in short-term, high-LTV second mortgages -great. Build a policy around that. If you’re a more conservative private lender focused on AAA clients who don’t quite fit the bank mold, your policy should look very different.

The point isn’t to copy a bank’s playbook. It’s to build your own and to make sure every member of your team can use it confidently.

It’s Not Just Compliance - It’s Culture

I’ve come to see credit policy as a culture document. It tells your team what matters. It gives your brokers clarity. It helps your investors sleep at night. And when applied properly, it empowers underwriters to make great calls without second-guessing every decision.