How community banks can level the business-lending playing field
For a perfect example of how technology has the potential to level the playing field between large, national banks and community banks when it comes to business loans, look at First National Bank of Layton in Layton, Utah.
The 7-branch, 113-year-old bank with about $320 million in assets shares a market where banking giants Wells Fargo, Chase and U.S. Bank are players. Nevertheless, it has found a way to compete effectively.
“If you ask most community bankers what sets their bank apart from the competition, they will answer ‘customer service’. And yet, in the same breath, the same banker talks about how they need to improve their efficiency ratio,” says Jordan Harrison, vice president of commercial lending at First National Bank of Layton. The challenge, he adds, is that community banks must do both: provide excellent customer service and maximize limited staff and resources. In other words, they must find an efficient way to offer a reason for the borrower to choose the bank over a bigger rival.
“As a community bank, we need to compete on value and not price in order to survive and thrive,” he says.
Using technology to catch up, level playing field
First National Bank of Layton has used a workflow solution from Sageworks to shorten turnaround times for commercial and small business loans – allowing the bank to level the playing field and better compete on value.
“Most banks, whether a large national bank or a community bank, have a very similar loan approval process and timeline,” Harrison says. “For the most part, it takes the same amount of time and heartache to get a loan.”
Indeed, more than a third of bankers surveyed in an informal poll by Sageworks last summer said it takes more than six weeks to close a new commercial loan. Another 39 percent polled said it takes three to six weeks from handshake to handshake.
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When business borrowers know they will be waiting weeks for a loan from most banks, they are more inclined to shop around for the best interest rate and terms. This can tempt banks to loosen standards on interest rates and terms to secure the business customer’s business. In fact, in the latest Federal Reserve survey of senior loan officers on lending practices, those that had eased standards or terms on C&I loans over the past three months cited increased competition from other lenders as a reason for easing.
“How focused on price would your borrower be if they knew they could get a decision from your bank literally weeks before the competitors?” Harrison asks.
Bottlenecks in the community bank lending process
Often, bottlenecks in the lending process start at the beginning, the application, and continue through closing. Gathering required documents can require back-and-forth calls, emails or trips to pick up paper files. Waiting for others in the bank to finish work on a credit file can delay the next person from doing their part in the process. Missed notifications for the borrower or for the next party in the process to take action are also some of the factors that can stretch loan approvals from days into weeks or months.
Since implementing Sageworks Workflow in 2017, First National Bank of has been able to accelerate its loan-approval process. Additionally, the new system has made it easier for the loan officer and credit analyst to set accurate expectations with borrowers regarding timing and approval steps. This transparency translates into better customer service.
The workflow solution is beneficial to bankers because it:
- Shows bankers where individual loans are in the process
- Reduces the risk of losing data as the loan passes between departments
- Prevents incomplete credit files by using required steps and documents in the workflow
- Streamlines data entry, correspondence and reporting to help manage workflows across the pipeline
- Provides notifications to prompt action from others working on the credit file
Coupled with the use of automatic financial spreading and decisioning software, Harrison says, “a loan approval can be a measured in hours instead of days and weeks.”
“A lending department utilizing the Sageworks Work Flow Module now has a unique selling proposition (USP) because of the speed and transparency it provides to the borrower,” Harrison says. “A lending department that is using this module will no longer have to issue Term Sheets; they are competing on value and not price.”