Processing, underwriting, and approving smaller loans for businesses can be as costly for banks and credit unions as handling larger loans, in large part, because extensive data entry is involved in each stage of the process. Financial institutions rightly concerned about being able to capture this business efficiently should look to reduce or eliminate data entry as much as possible.
This issue of eliminating data entry is especially relevant as community banks and credit unions look to grow revenue and earnings by recapturing some of the small business lending that smaller institutions have ceded to large banks and financial technology firms over the last decade. Indeed, a recent survey of banks and credit unions identified loan growth as the institutions’ top marketing priority in 2018.
In addition, the $700 billion small business lending market in the U.S. is undergoing demographic changes that provide opportunities for efficient and forward-thinking institutions to capture profitable small business loan volume. Baby boomers are retiring and passing on or selling their businesses to younger entrepreneurs, and many of these younger owners expect the ease of Amazon or Uber with the services they use – including banking and borrowing. Banks and credit unions don’t have to be financial technology companies in order to be attractive to these business customers and to boost institutional efficiency and loan profitability.
Instead, by incorporating technology advancements into their lending processes, financial institutions can reduce or eliminate data entry. Data entry in these areas ties up the time of higher-paid commercial lenders – time they could instead spend on developing new business. Manual data entry also lengthens turnaround times for business loan requests and annual renewals, and it introduces erroneous data that creates additional costs and risks for the bank or credit union.