Below are seven best practices ag lenders can incorporate while business is slower. Each contributes to a loan process that pleases farm borrowers and enables the institution’s profitable portfolio expansion. Indeed, several ag lending best practices included here complement modernization efforts already underway within many financial institutions.
Provide a mobile experience.
Farmers are mobile, and many routinely use the Internet to make decisions about their farms and finances. More than 8 in 10 farmers have a smartphone, and nearly 7 in 10 have a laptop or desktop computer, according to the USDA’s latest Technology Use Survey.
This means having an online ag loan application is mandatory. “You have this kind of niche of some older folks finally getting to understand the importance of technology and newcomers expecting it, and if you [as a lender] don’t have it, they’ll find someone that does,” Abrigo Senior Consultant Rob Newberry said.
Give busy farmers the option to apply for a loan online, submit documents electronically, and sign the loan papers remotely and at their convenience. Rather than taking time out of the field to visit a branch, farmers can fill out as much of a digital loan application as they have time for during a break or at night. They can upload the required documents as they track them down.
The lending and credit team will be able to focus on structuring and analyzing the loan rather than on contacting the borrower for missing items. Farmers will appreciate not having to receive or respond to additional requests repeatedly, and they’ll like the faster decision.
Limit data entry.
Another way an online ag loan application promotes a better lending process is that it streamlines data entry. The ag borrower data is ported from the application and throughout the underwriting and approval process. This simplified process avoids having staff key in data from a paper application or other records only to re-enter the same data point in another field or system multiple times. It also reduces the chances of errors.
In Abrigo’s latest Business Lending Process Survey, two-thirds of respondents said their financial institution re-entered the same data point for a loan in another field or system up to five times. Manual data entry also means staff spends time on mind-numbing tasks like checking data entry or reports for errors when they could be otherwise cultivating relationships with customers or members.
Using ag lending software that handles ag loans removes the risk tied to the manual processes of collecting data and eliminates bottlenecks so the institution can provide faster yes or no decisions to borrowers.
Use the same system for ag, consumer, and commercial loans.
Inconsistencies in how different lenders apply institutional lending policies to various loan products can be a recipe for risk management challenges. If lenders for one line of business spread tax returns into financial statements one way and lenders from another business line do it differently, then the reliability and objectivity of loan decisions can be questioned. Using one system that handles ag loans as well as other commercial or consumer loans ensures that spreads and financial ratios are consistent for examiners and risk management.
Staff also benefit from a centralized system housing data and documents for multiple loan types. They spend less time switching software applications and more time reviewing complex borrower applications. Anyone involved in the application can determine the loan status without emailing or calling others.