In today’s competitive lending environment, a leading temptation for financial organizations is this: to focus on interest rates and terms to secure the small business customer. But is that a sustainable way to drive business loan growth? Think about it—especially given the regulatory scrutiny, the hazards of approving credit not appropriately priced for risk and the need to grow loan portfolio profitably. In the face of such challenges comes welcome news: Innovation and technology help banks compete for the best business customers and promote profitable growth.
Alternative and online lenders have shown how to disrupt markets when service providers offer true innovation, as opposed to small tweaks to loan terms. Banks and credit unions can also benefit from examining their existing business lending processes. More than ever, the focus must turn to radically improving value to member and client borrowers.
Nearly all banks claim they add that value through the personal relationships they’ve cultivated with clients. But is that enough? At the same time, time-consuming or even unnecessary work bogs down many traditional lenders and prevents them from offering business or financial advice to applicants—services that truly enrich the bank-client relationship.
The traditional view of technology centers on replacing humans. But innovative banks know that technology can minimize or eliminate redundant, unnecessary work to generate bandwidth that lets people step in and offer personal interaction. That manifests in ways from offering advice on how to run a business to helping an applicant reach credit worthiness.
A 2015 Federal Reserve survey of small business credit issues found that lenders far and away represent the top source of financial advice for small business owners, followed by an accountant, and family and friends. Some financial institutions can use technology to provide peer comparisons of key financial metrics—and perform “what-if” scenarios along with forecasting to show how operational tweaks can drive improved cash flow or revenue. Institutions also use peer comparisons in correspondence that denies a loan application to help applicants understand how they can become more creditworthy.
Besides utilizing technology to assist with the shift to value-added services, banks can employ it to make borrowing easier for applicant and lender alike.
Easier applications, applied
Connecticut-based Nutmeg State Financial Credit Union offers a digital loan application that streamlines information gathering and reduces paper-based back and forth between applicant and lender. A digital application also expands access for borrowers, allowing them to apply whenever and wherever it is most convenient.
Shane Dugan, small business solutions manager for Nutmeg, says the institution utilizes a secure online portal for applicants to upload financial documents. This way, tax records or other financial information automatically gets forwarded to the institution without requiring the applicant to make photocopies or physically delivering them. It also offers the option to designate an accountant or CPA, prompted automatically by email to gather and submit the borrower’s required documentation.
From frustration to automation
Lack of communication over where loans sit in the pipeline frustrates business borrowers, especially when they want to know when a decision might be reached. Besides saving time, an automated application process also improves transparency and customer satisfaction.
When technology automatically pulls the relevant application data, it saves staff from rekeying data and ensures consistent profile data through the life of the loan. Moreover, it speeds the application forward. Electronic tax return reader technology can streamline credit spreading and global cash flow calculations by pulling tax return data.
Technology plays an important role as community banks work to boost small business lending. When financial institutions understand borrowers’ needs and concerns—and use technology to automate some processes and minimize redundant work—their staff can do more for business borrowers and make the lending process easier for all.
It is then that banks can offer the innovative services and relationships that build client loyalty and profitable portfolios—moving borrowers from automatic frustration to satisfaction via automation.
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Mary Ellen Biery is a research specialist at Sageworks. She is a veteran financial reporter whose work has appeared in the Wall Street Journal and on Dow Jones Newswires, CNBC.com, MarketWatch.com, Nasdaq.com and other sites.
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