The good news for banks and credit unions? Small-business borrower satisfaction is higher for these lenders than for online lenders, according to a new Small Business Credit Survey by the Federal Reserve. The not-so-good news? Satisfaction with online lenders has increased over the last two years, even as net satisfaction with large and small banks has stayed relatively flat or declined. Online lenders also saw a moderate increase in their share of applications from small businesses, to 24 percent from 20 percent in 2015.
“Applicants to online lenders report being attracted by the speed of credit decisions, improved funding chances, and lack of collateral requirements,” the 2017 report said.
Top complaints from business borrowers
Long waits for decisions and a difficult application process are the most common challenges faced by small business owners when applying for loans at banks and credit unions, according to the study. Applicants to online lenders less frequently reported aggravation in those areas, as they have in past surveys. Instead, high interest rates and unfavorable repayment terms are the most common challenges cited by business owners dealing with online lenders. Those are two areas where banks and credit unions continue to get more favorable reviews.
The latest Fed survey also found that applicants tend to choose a lender based on their chance of being funded rather than the cost or interest rate. For business owners who applied for loans through small banks, speed of decision also outweighed both product flexibility and lack of collateral requirements in level of importance.
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For most banks and credit unions, the current lending process largely dictates turnaround time. Bottlenecks tied to missing borrower or financial information and the need to enter data in multiple systems can delay decisions. A credit analyst typically won’t review an application until the application and any related documents are completed, presenting a first major obstacle to a speedy decision or positive funding outcome. In fact, during a recent Sageworks webinar, nearly half of the bankers surveyed said that almost every process involved in lending takes twice as long as it should.
Growth-seeking banks and credit unions that aim to streamline the lending process and provide faster decisions increasingly are looking to:
- online loan applications
- digital portals for uploading required application documents and
- automated decisioning aids.
Removing some of the friction from the existing application process as well as improving coordination among the roles involved in the approval process will enable financial institutions to provide decisions more quickly and have a more efficient organization.
Another advantage of digitizing the credit analysis process with technology is that banks and credit unions are then able to efficiently handle loans that previously might not have been profitable to pursue. With the efficiencies in place across the board, diversification of the loan portfolio is made easier with automatic decisioning in clear-cut decisions as well as robust underwriting for more complex situations.
Net satisfaction (or the percentage of applicants approved for at least some financing who were satisfied minus the percentage who were dissatisfied) for online lenders rose to 35 percent in the 2017 survey, compared with 19 percent in 2015 and 26 percent in 2016. For small banks, net satisfaction dipped from 75 percent in both 2015 and 2016 to 73 percent in the 2017 survey. Net satisfaction with large bank lenders was 49 percent in 2017, compared with 47 percent in each of the previous two surveys. Net satisfaction with credit union lenders was 74 percent, about the same as in 2016 but higher than a rate of 66 percent in 2015.
Banks and credit unions should also consider whether existing small business loans can be renewed more profitably by incorporating technology. Shrinking the amount of time chewed up by labor- and paper-intensive steps in a loan renewal process can reduce the labor cost per loan by more than 90 percent, or $2,159. Faster decisions without credit interruption can preserve important relationships with business borrowers, keeping them from taking critical core deposits and fees to other institutions.
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