The good news is that many of the improvements ag lenders can make are tied to modernization efforts already underway within the financial institution. They’re also aligned with common institution goals of resetting the cost base and prioritizing automation.
Whether the institution offers an ag operating loan, an ag real estate loan, or a loan for farm equipment, it can create a better ag lending process with these seven best practices:
Provide a mobile experience.
Farmers are mobile, and they are using the Internet to make decisions about their farms and their finances. The most recent Iowa Farm and Rural Life Poll on farmers’ use of communications and computing technologies found in 2020 that 66% of farmers said they use a smartphone, up from 30% in 2014. Forty-one percent use a tablet computer like an iPad that has mobile access to the Internet, up from 19% when the question was first asked in 2014.
Especially since the pandemic, farmers and people everywhere are relying more on technology, and being able to apply for a loan online, submit documents electronically, and sign the loan papers remotely all result in a more efficient process for busy farmers. Instead of taking time out of the field to visit a branch, they can sit down at night or on a break to fill out as much of the application as they have time for, and then upload their financials as they track them down rather than responding to multiple emails or calls for missing items.
For lenders, 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,” said Rob Newberry during a recent Abrigo webinar on the ag lending outlook.
Limit data entry to a single point.
One benefit of an online ag loan application for financial institutions is that it promotes a better lending process because it streamlines data entry. Instead of a staff member keying in data from a paper application or another system, the ag borrower keys it in initially. After that, the data is used throughout the approval process, transferring to other integrated downstream processes as the credit analysis is conducted, the decision is rendered, and the loan is booked.
In Abrigo’s 2021 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. If ag lending staff are entering data multiple times, the opportunities for human error are numerous. 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 a loan origination system 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 one system for ag, consumer, and commercial loans.
Inconsistencies in the application of institutional lending policies are 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, the reliability and objectivity of loan decisions are questionable. On the other hand, by using the same system for ag loans that the institution uses for other commercial or consumer loans, examiners know spreads and financial ratios are consistent.
Staff also benefit from a centralized system that houses data and documents for multiple loan types. They spend less time switching software applications and more time reviewing complex borrower applications.