Human touch + high tech = business lending growth
Even though mobile apps and online services are the norm in most people’s everyday lives, research shows that when it comes to borrowing, business owners still value personal service and existing relationships, too. About 90 percent of small business owners in a 2016 Aite Group survey said familiarity or previous relationships with the financial institution, banker or branch staff were important factors in determining where they applied for a loan.
Combining high tech capabilities with human touch is one option financial institutions are pursuing to achieve aggressive loan-growth goals. Tapping into technology creates greater capacity for staff to focus on the relationship aspect of relationship lending. When routine data entry tasks and certain aspects of credit analysis are automated, lenders have more time to provide the personal level of service that distinguishes community banks and credit unions from larger institutions or alternative lenders.
Technology can also speed up decision times and provide more transparency on the loan decision. Both of these issues were top reasons cited by business owners who were dissatisfied when they were approved for bank loans, according to a 2016 Federal Reserve study. Of course, speed and transparency are positive for lenders, too. A small, informal survey by Sageworks recently found that bankers believe almost every part of the loan process takes too long. In fact, nearly half of respondents said that almost every part of the loan process takes twice as long as it should. Bankers in the survey pointed to underwriting or credit analysis and loan operations as the areas of their institutions that needed the most process improvement.
Technology already available allows end-to-end automation of the loan process throughout the life of the customer’s loan – starting with origination and ending with portfolio risk management. Being able to complete credit analyses faster helps shorten turnaround times for loan decisions. Streamlining the entire process means that the bank can grow the loan portfolio without adding more personnel resources than necessary.
“Small business lending is a very inefficient lending segment for community banks if they handle it in the traditional way of chasing down the borrower for financials, spreading financials traditionally, filling out credit approval memos, etc.,” said Neill LeCorgne, Sageworks vice president of banking. “With Sageworks’ automated lending solution, we’ve seen banks automate all of that.”
Time available for cultivating relationships
With less time spent tracking down paperwork and keying it into a computer system, lenders have more time for proactive steps that can aid business development and manage risk. For example, lenders can visit prospective clients and current business borrowers, gaining vital information and distinguishing their service from bigger banks. Lenders can see for themselves and hear from the owner about various short- and long-term borrowing needs as they see current operations and ask about future plans. Lenders can also pick up clues on how the business is doing. Those clues may come in the form of happy, productive employees, inventory piled up on the shelves or any number of observations made in person that can shape the bank’s view of credit risk.
On the credit analysis side, spending less time on spreading financials by utilizing technology affords analysts the time to use more critical thinking skills in evaluating the loan application and to view the loan in the context of the bank’s overall strategy and risk profile. Some financial institutions also incorporate automated loan decisioning. Automated loan decisioning allows the institution to define what data to collect and what ratios to use in order to more quickly render decisions in straightforward applications.
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On both new originations and business loan renewals, automation can drastically reduce the time needed to prepare the credit approval memo. Instead of spending hours researching deposit, loan and fee information about existing business loan customers, technology can be used to automatically update this information for the credit memo. As recent or additional tax returns and financial statements are electronically uploaded, an updated global cash flow calculation will be triggered to take the new information into account. This contributes to faster credit decisions, and 97 percent of small business owners in the Aite Group survey said the speed of the credit application evaluation was important in determining where they completed a loan application.
Sageworks estimates its technology improvements can reduce the time required for new originations and onboarding workflow to 16 hours from 35 hours and for renewals to 3 hours from 35 hours.