Booking new loans can translate into increased earnings for community banks, so long as financial institutions are efficient in how they obtain, underwrite and onboard those loans. Small business loans, in particular, can contribute to an improved bottom line if an institution can increase the loan volume while booking those loans more efficiently than they have in the past.
“If you can add new loans to the balance sheet and at the same time improve efficiency in how you originate and onboard these loans, that translates into ROE,” says Sageworks Vice President Neill LeCorgne, a former bank president. Banks with efficient lending workflows can more efficiently manage portfolios of existing loans with less labor investment, freeing up loan officers to build additional, new relationships that bring in new earnings, LeCorgne notes. “Imagine replacing a loan origination and closing process that often takes more than 30 hours with one that takes 15 hours, if not less, and a loan renewal process which takes less than 3 hours.”
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Efficient lending best practices
Here are 5 ways to make small business lending more efficient, along with practices to avoid in order to achieve superior bank performance and returns.
Do this: Tie lending relationship management to the core system. Doing so will: create a dynamic, centralized place for logging prospects, outstanding loan applications, conversations and sales activities; improve transparency in co-mingled relationships of applicants; and build lending forecasts.
Not that: Track prospect and application information and to-do lists in out-of-date static spreadsheets, calendars and sticky notes that are tied to the loan officer, who will need to create and share summary information to management periodically.
Do this: Provide a secure online portal that allows applicants to upload directly to the lending system pre-determined information, including digital tax returns and related financial documents, and allows for e-signatures on loan documents.
Not that: Send loan officers out on the road, sometimes in multiple trips to the same applicant, to collect the necessary financial documents and applicant signatures missing from an application. Then have the officers scan the documents into the bank’s system and key in application data.
Do this: Utilize a solution that stores and tracks documentation in a transparent and accessible lending platform, allowing all users to access files for improved handoffs and version control and allowing management to better track what has been completed and by whom.
Not that: Rely on time-consuming manual processes and disparate systems that require staffers to enter the same data in multiple systems tied to commercial lending and portfolio risk management and requires hunting down specific loan officers, credit analysts or processors to determine the status of a loan application.
Do this: Use a solution that provides automated interaction between lending products so that pushes and pulls of data from the core are ongoing and seamless, facilitating granular and big-picture reporting and easing compliance concerns.
Not that: Use a mixture of spreadsheets and multiple solutions from various vendors to capture data and generate reports, resulting in staffers entering the same data in multiple systems and time-consuming periodic reporting.
Do this: Utilize an automatic scoring system customized for the financial institution to calculate the result of each weighted risk factor metric and aggregate all of the metric scores into a final score, including metrics on all of the businesses, individuals and entities tied to the loan. Using the same system, base the price appropriate to the risk and automatically generate a customized credit memo.
Not that: Use a manual loan scoring matrix developed by the bank. Next, convert the total score to a loan grade and make it a part of the manually created credit memo. Price the loan and then develop and distribute the credit memo to the approving officer or loan committee with a recommendation.
The result? Better SMB lending
Banks that can leverage the trust, history, local knowledge and professionalism associated with their traditional role in the community can book more loans profitably and provide borrowers with a response more in line with customer experience received from FinTech companies. This not only protects the bank’s business, it helps develop new business that can boost returns for directors and shareholders.
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