The small business lending industry in the US is rapidly embracing digital technologies. According to a 2024 FDIC small business lending survey, nearly 50% of US banks are using or considering using financial technology to fulfill small business lending needs.
Nearly half of the large banks in the US can approve a small business loan in one day. For small banks, the lack of government-backed schemes, delayed risk assessment data, and traditional lending practices slow down the process. The main difference lies in technology. Large banks use unified small business loan software to make instant lending decisions.
While small banks use technology at multiple lending stages, they are often disconnected, lack integration, and are unscalable. Legacy systems are not designed to meet the modern small business lending standards. They reduce efficiency, lower profits, and result in a loss of growth opportunities. They continue to use such tech because they lack visibility into the ROIs of investing in a small business lending software. This guide aims to simplify the ROI calculation before investing in lending software for small businesse
Factors impacting the ROI of small business loan software
Application-to-fund rate – The number of loans funded out of the applications received in a year.
Net Interest Margin – The difference between loan interest income and interest paid to depositors.
Resources allocated – The total number of employees involved in the lending process.
Growth to application volume - Process more applications in the same period.
Technology support – It can be none for traditional processes, partial for hybrid processes, and full for digital-first processes.
Processing time – The total number of days taken from application date to disburse the loan.
Benefits of measuring the ROI of small business loan software
A small business loan platform unlocks various benefits. However, your bank may have achieved some of them already. Measuring the ROI of investing in lending software for small business helps:
- Take data-driven decisions. You can present an objective comparison report of financial benefits to your stakeholders.
- Enhance budget planning. Calculating ROI helps allocate funds better and prioritize profitable technology upgrades.
- Create new benchmarks. You can compare your bank's small business loan software performance with top industry standards.
- Minimize risks. The small business lending software can help quantify default risk reduction, indirectly boosting revenues.
- Support long-term strategies. ROI insights can help strategists plan short and long-term goals earlier.
How to calculate the ROI of a small business loan software
The ROI of lending software for small businesses can be calculated using a combination of growth, efficiency, and cost reduction. It also includes the cost of a platform provider's service compared to your legacy process. Let's see how it works.
First, collect all the data you need to calculate the ROI:
- Total annual funded loans - Sum the total amount of loans funded annually. You can gather it from portfolio reports.
- Average loan size - Divide the total annual funded amount by the number of loans funded. You can gather this from loan records.
- Approval rate - Divide the number of approved applications by the total received in a year. Then, multiply the result by 100 to get a percentage.
- Application-to-funded rate - Divide the number of funded applicants by the total number of applications. Then, multiply the result by 100 to get a percentage.
- Estimated Net Interest Margins - Minus the interest paid to depositors by income earned from loan interest. Then, divide it by the total number of assets earning interest.
- Resource allocation - Sum the total number of resources allocated for lending.
- Processing time - Sum the total number of days each resource takes to fund a loan. Divide it by the total number of resources allocated to get an average.
- Future loan growth rate - Predict future loan volumes based on your historical trends or market standards.
- Cost of current technologies - Sum all the costs of technologies used in the lending process.
- Gross revenue - The total revenue generated through lending in a year.
Second, calculate the total expenses incurred by summing up the below-mentioned aspects:
- Total operational cost
- Resource cost
- Technology costs
- Miscellaneous spending
Third, calculate the net revenue:
Subtract the total expenses from the gross revenue. This will act as the basis for all ROI calculations.
Fourth, look for the claims made by various small business loan software vendors.
The claims may include details related to:
- 15% lower processing times
- 20% less operational costs
- 1-2% increase in NIM
- 10% higher application-to-fund rates
Based on these numbers and percentages, recalculate your gross revenue. Revise the expenses after considering the new processing time, technology, and operational costs. Subtract the total expenses from the final gross revenue to get your new ROI.
Manually calculating the ROI of multiple small business loan software can be a tiring exercise. If you are evaluating the potential ROI of investing in Biz2X’s small business lending platform, the calculation becomes much easier and faster. Think of it as almost automated.
We’ve simplified ROI calculations for Biz2X small business lending software
Our experts built an advanced ROI calculator that automates this process for you. The calculator uses our historical performance for global clients to predict your ROI. You can compare your traditional process, hybrid process, or even compare existing small business lending software performance.
Pro tip: The Biz2X ROI calculator can also help understand where your bank stands compared to the industry standards.
The calculator can precisely show the potential revenues you could be tapping in both short and long term. It also helps make better-informed decisions while evaluating a small business lending software.
With Biz2X small business loan software, your bank can achieve more:
Up to 40% faster decisioning times
Biz2X offers advanced AI capabilities at multiple stages of the lending process. Using AI, underwriters get instant borrower reports gathered from all sources. Its omnichannel dashboard provides a single window of every detail required to make accurate lending decisions.
A smooth user and team workflow
Biz2X small business loan software provides an easy-to-use application process. It allows rule-driven credit assessment to automate eligibility. Your teams can customize dashboard access for various roles to limit data sharing.
Up to 2X loan portfolio growth
Biz2X lending software for small businesses is designed to facilitate multiple loan products. Bringing multiple services under one roof improves team efficiency and helps grow application volume. The AI-powered insights show cross-selling opportunities for rejected borrowers for a certain loan product.
Advanced third-party integrations
Biz2X small business loan software is designed to integrate third-party services flawlessly. It helps your bank offer integrated services beyond your core platform for repayment, tracking, and other user needs.
~10% fewer defaults
Biz2X small business loan software automates borrower application completion through smart follow-ups. The Biz Analyzer Score tool helps lending teams interpret borrowers’ financial health faster. As a result, applicants at default risk are detected early, lowering default rates. It also helps identify low-risk applicants and prioritize underwriting for them. This helps maintain and improve the health of your loan portfolio.
Long-term competitive advantage
Biz2X powers America’s largest digital lending marketplace, Biz2Credit. With Biz2X, the organization has disbursed over USD 32 billion in small business loans. It has helped the Biz2Credit underwriting team serve 250,000+ small businesses since 2007. These metrics are proof of the long-term competitive advantage Biz2X provides to banks and credit unions.
Measure the potential revenue your small business lending can tap with Biz2X?
Frequently Asked Questions
1. How does the Biz2X ROI calculator measure the impact of my existing software?
The Biz2X ROI calculator works on the historical performance of its small business lending software for banks and credit unions. To calculate the performance of your existing software solution, simply fill in the values achieved by it in the form fields. It also provides the potential ROI your bank can tap with Biz2X. This will help you generate a data-driven comparative analysis.
2. How long will it take to see the ROI of Biz2X's small business lending platform?
The ROI calculator can help predict this as well. Simply subtract the cost of ownership from the predicted net revenue. Since the calculations are based on annual revenues, the returns can be interpreted accordingly. If the result is positive, then you have already achieved it. If the calculation shows a negative, then it will most probably reach a positive number by the next year.
3. Why should I measure the ROI of my small lending business?
Measuring the ROI of your small lending business is critical for both short and long-term strategies. The details offered by the Biz2X ROI calculator can help:
- Identify areas of improvement
- Optimize technology budgets
- Match and go beyond industry standards
- Cut risky lending decisions
4. What additional benefits does Biz2X's small business lending solution offer?
With Biz2X, you unlock multiple AI capabilities to reduce errors, eliminate bias, and automate compliance. By reducing the time taken from application to funding, the platform frees up your resources’ bandwidth and energy to attend to more loan applications. The platform supports a smooth user journey for your consumers and internal teams. AI-powered insights help generate actionable reports for stakeholders. The unified omnichannel dashboard automates the collection, storage, and management of sensitive data securely. Overall, Biz2X efficiently simplifies lending for your bank.
5. Where can I find the Biz2X calculator?
To find and use the Biz2X ROI calculator, you can save the link provided here: ROI Calculator. You can also visit our website to find the ROI calculator on the home page itself. If you face any issues, simply connect with our team, and we will gladly assist with your query on priority.
