Lending and Credit Automation: Before and After

Mary Ellen Biery
August 28, 2019
Read Time: min

Slow lending decisions and frustrating loan application processes are among borrowers’ biggest gripes with traditional financial institutions vs competitors such as online or alternative lenders. Ask the staff of banks and credit unions about the loan application, underwriting, and onboarding processes at their respective institutions, and you’ll likely hear some complaints from them, too.

Commercial lenders often find inefficiencies of a manual lending process frustratingWhen commercial bankers making $200,000 a year are driving all over town to pick up supporting documents just to get the completed loan application moving forward instead of calling on prospects, inefficiencies of a manual application system are personally frustrating. When commercial credit analysts earning $25 or more an hour are performing data entry for every tax return of a business entity tied to a loan application, the underwriting process is taking too long and requiring too many hours of labor by skilled workers for repetitive tasks.

“Automating the entire life of a loan – from application, through credit analysis, decisioning, onboarding, and beyond to annual reviews or even loan renewals – can save financial institutions substantial labor hours,” says Abrigo Vice President of Banking Neill LeCorgne. “It’s a generational opportunity to enhance earnings. That’s what 99% of bankers are trying to do. You’re always trying to enhance earnings.”

LeCorgne, the former president of multi-bank holding company who, before that, managed a corporate banking team at a super-regional bank, says technology can transform the business lending process from one that consumes 35 labor hours at a cost of $2,422 to one that takes 16 hours at a cost of just over $1,000. He estimates that a technology lending solution can shorten renewals of small business loans to a process that takes just over 3 hours at a cost of about $300. Typically, financial institutions send loan renewals along an underwriting process that parallels that of a new loan – a highly inefficient path that is also frustrating for the customer, he notes. The time and labor savings leave lenders more time to develop their pipelines and provide credit analysts more time to focus on complex deals – without hiring additional staff.

Where do the time savings come from when a community financial institution switches from manual lending and credit processes to systems leveraging automation? A look at the steps of an institution relying on manual processes and an institution utilizing technology sheds light.

Origination

During pipeline development at a traditional bank or credit union, lenders will maintain a “little black book” of prospects and track large borrowers for renewals using a personal spreadsheet. Contacting a branch manager might yield insight on depositors for potential upsells for loans. Automated community financial institutions utilizing a relationship manager solution have access to customers’ ongoing financial activities and history, profitability and relationships, providing them immediate insight into lending opportunities. They also have the ability to create ticklers to remind them of opportunities to help keep business from slipping through the cracks.

Bankers can grow revenue by deepening customer relationshipsA bank or credit union utilizing an online loan application can provide borrowers the option of filling out the form at their convenience, from home or their office around the clock. Alternatively, the institution can offer to help the prospect fill out the online application in the branch or over the telephone. Either way, current customer information is automatically pulled into the form and borrowers are prompted for the required forms, which they upload through a secure, online portal. The document manager system captures applicant information more efficiently and accurately than when staff must key in data from paper applications. This reduces bottlenecks and is easier for borrowers and lenders. Importantly, the borrower can upload financial statements and tax returns from home or the office. Not only does this reduce manual data entry, it also allows borrowers to avoid going to a branch if they want to do so, and it simplifies the document-gathering process for lenders, satisfying the goal of ending those around-town trips seeking out documents. Loan officers and administrative teams across locations have real-time visibility into the status of documentation without having to track them on spreadsheets, and they can build out templates for quick reports, such as a loan proposal, term sheet, commitment letter, etc., throughout the loan process.

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Underwriting

Once the loan is ready for credit analysis, a financial institution relying on manual processes needs to key all of the tax return and financial data into a spreadsheet and check it for accuracy. The analyst must also spread the financials, tracking the source documents and the spreadsheet versions to ensure all of the changes are incorporated. A bank or credit union relying on technology, however, is able to quickly spread and analyze loans using automatically calculated metrics selected by the institution. Financial data can be auto-imported from the individual’s bank accounts and a personal financial statement will be created automatically. Real-time credit scores can be pulled in without leaving the platform. A global debt-service ratio for multiple businesses, people, and properties quickly provide a thorough understanding of the financial health of the borrower, and the analyst is able to focus on analyzing large, complex scenarios rather than focusing on data entry and spreadsheets.

Manually assigning a risk rating to each application requires additional analysis by the traditional financial institution, and this process needs to be repeated each year with updated financial information in order to make and track and changes in risk ratings. An automated lender is able to generate a risk rating with full documentation by pushing a button, and it is based on the borrower’s information and the institution’s standardized rating system, using customized factors and ratings. The benefits of automation include increased objectivity, accuracy, and speed of ratings, as well as transparency into any changes over time.

Many bankers aren't pricing loans correctlyPricing loans manually can be tricky since prices are based on a review of financial spreads, the institution’s credit policy, and its profitability goals. A technology-based lending platform will automatically generate loan pricing that reflects the credit policies and profitability targets of the financial institution, capturing the costs of administering the loan and the risk of the borrower while taking into account the entire relationship. It can produce multiple pricing scenarios and pull in funding curves generated by the software and tied to the market. All of this allows the bank or credit union to take a tailored approach based on insight into the entire customer relationship, paving the way for higher customer satisfaction and more profitable relationships.

Credit memos are among the most important components of a loan package, and they can be some of the most time-consuming for financial institutions relying on manual processes. Writing up the credit memo can require compiling all of the customer and financial information, loan data, metrics, pricing, risk rating calculations, collateral photos, and attaching spreadsheets of the financials, then reviewing all of the information for accuracy, especially if previous versions of a credit memo are used as a template. A financial institution using an automated life-of-loan platform is able to generate presentation-quality credit memos at the push of a button to autopopulate the required information into an institution-customized credit memo template. Not only do lenders save time and aggravation by avoiding having to re-key all of the information, but the loan committee receives memos that are consistent from loan to loan, streamlining reviews. The approval process can be streamlined, too. The memo can be shared digitally and modified online as needed or approved either online or in person, rather than having to re-compile the memo and track down individual signatures in person. Similarly, commitment letters created manually will take longer and require duplicate data entry compared to a technology-driven process.

Onboarding

Infographic of lending and credit automation - before and after

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Once the financial institution and borrower agree to the loan, the last thing anyone wants is to let paperwork get in the way of getting the loan on the books quickly. A manual process requires copying and pasting the agreed-upon terms from other documents, or entering all of the ratios, disclosures, loan structure verbiage, and more into the proper data fields. A financial institution could utilize a third party to generate required legal documents, but this can take weeks for turnaround. Due diligence can also be time-consuming when the institution has to track document collection and repeatedly notify clients of required documents. Automating loan document preparation and administration generates considerable time savings on data entry and leads to faster turnaround. Using loan administration software, the information from the loan is electronically pushed into legal loan documents populated with the necessary disclosures and formats, ready for electronic signature. The software sends emails listing the required due diligence documents, along with a link to upload them in a secure online portal, and notifications alert the lending team when documents arrive for easier tracking. Closing can be expedited with e-signatures through the portal. Trailing documents, such as insurance and flood determination documents, can be collected and tracked in the same way, saving staff from repeated calls, emails, and tracking.

Community financial institutions that utilize technology to enhance the loan application, analysis, approval, and onboarding processes allow lenders, credit analysts, and approving officers to focus on the borrower and the merits of the loan instead of the administrative processes. In addition, these institutions can make more efficient, faster decisions, creating a more positive experience for applicants.

About the Author

Mary Ellen Biery

Mary Ellen Biery is a Senior Writer and Content Specialist at Abrigo.

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About Abrigo

Abrigo is a leading technology provider of compliance, credit risk, and lending solutions that community financial institutions use to manage risk and drive growth. Our software automates key processes — from anti-money laundering to fraud detection to lending solutions — empowering our customers by addressing their Enterprise Risk Management needs.

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