Formula for Business Lending Success: Minimize Delays

Mary Ellen Biery
February 27, 2020
Read Time: min

Be ready to weather tighter times better than peers

Financial institutions seeking to maintain a healthy share of business lending this year and through potentially tougher economic times ahead want to be in the best position possible before trouble hits.

This means having processes and people in place for bringing in borrowers, identifying the right loans to book, pricing them correctly, and closing loans quickly and efficiently enough to meet customer needs and institutional goals.

Abrigo’s 2020 Business Lending Readiness Survey found many bankers are dealing with processes that stymie those efforts. They are routinely experiencing processes that add costs, delay turnaround times, and can lead to inconsistency in pricing and risk management. Lending Readiness-Length to close a loan  The types of inefficiencies and delays are those that can also result in unhappy customers and staff.

For example, nearly a third of more than 300 bankers surveyed said closing a commercial loan takes 5 to 7 weeks at their financial institution. Respondents were lenders, credit analysts, chief credit officers, chief risk officers, as well as other professionals involved in the lending and credit risk processes at banks and credit unions. Another 9% of respondents said turnaround is 8 weeks or longer.

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Survey: Repetitive data entry common

Pervasive inefficiency related to data entry is one of the problems. At most banks and credit unions, staff re-enter the same data point between 1 and 5 times, according to the survey.

Abrigo Credit Consultant John Millman said that when institutions use multiple, unconnected systems, staff must repeatedly enter the same information. That wastes time and risks data entry errors.

About 1 in every 5 bankers at financial institutions with more than $500 million in assets said the same data is entered up to 10 different times. As banks or credit unions grow their assets, it's likely that an increased number of loan applications contributes to the expansion, but repetitive data entry can quickly add up to higher staffing costs that eat into profitability.

“Maybe they kick off the data-entry process by having a lender enter customer info into a [customer relationship manager software], but if that CRM doesn’t integrate into their core, then someone at the institution has to take that info and enter it in the core system,” he said. “If they pull credit for loans, that same customer info has to be put into whatever system they pull credit from. If they need to look up OFAC separately from credit reporting, then they would pull OFAC in another system. Before closing a loan, they need to look up any outstanding UCCs or liens to ensure the institution is in first position, and this is another system or website where they would search. The list goes on, and we haven’t even gotten into creating closing documents or credit presentations. The amount of times in the lending process that the same info needs to be entered could be massive.”

If financial institutions have inefficient processes now, it’s vital that they address them if they are to compete effectively for fewer borrowers and manage any increased credit risks arising if the economy weakens. Many community bankers expect a recession will start by at least mid-2021, according to the most recent Community Bank Sentiment Index.

“I’m surprised at how inefficient and poorly automated things are,” said David O’Connell, Senior Analyst with research firm Aite Group, after reviewing the survey results. Lending, he noted, is the “tip of the spear” – the activity that gets a financial institution into a business, allowing it to deploy its capital and create a profit through lending as well as cross-selling other products or services that can carry high margins, such as treasury management, corporate cards, or wealth management services.

Efficiency in these essential lending and credit operations ensures a good customer experience, instills discipline for underwriting quality control, and helps meet institutional financial goals, according to O’Connell and others.

Standardizing, automating processes leads to scale

“Standardizing inconsistent processes is an easy win for productivity,” added Alison Trapp, Director of Client Education at Abrigo. “It lets everyone know what they need to do and allows people to focus on accomplishing that, rather than figuring out what they need to do next.”

Digital technology standardizes and automates many of the tasks causing the biggest headaches and delays described in the survey. For example, an online loan application that feeds into a credit analysis solution allows the borrower to enter personal and financial information, such as tax returns, at their convenience, even outside institution business hours. It not only eliminates the repeated data entry, it also tackles what survey respondents identified as the largest obstacle to the commercial lending process: gathering documents efficiently and consistently. 

“When things are really well automated, and folks aren’t rekeying data, and they’re focused on the right things, and it only takes two weeks to turn around instead of a month and a half, then you can do things like … grow your loan portfolio by 30% and grow your headcount by only 5%,” said O’Connell. “That’s scale.”

See more of Abrigo’s 2020 Business Lending Readiness Survey: Preparing Now for Economic Uncertainty Ahead.

Survey Methodology: Abrigo asked 15 questions in an online survey of Abrigo customers and non-customers from Nov. 21, 2019 – Jan. 10, 2020. Across the survey, between 252 and 303 respondents answered each question, as some respondents failed to complete the survey. The sample, while not necessarily representative of the entire universe of U.S. financial institutions, represents a large number of lending and credit professionals familiar with bank and credit union lending and credit processes.

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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