Banks, credit unions, and other financial institutions serving small businesses face a complex landscape change in 2025. Section 1071, a new rule in the Dodd-Frank Act in the US, will be effective from 2025 onwards. Its regulator, the Consumer Financial Protection Bureau, demands detailed data reporting of all small business lending activities.
Congress enacted Section 1071 for two critical purposes:
- Facilitating the enforcement of fair lending laws.
- Enabling communities, governmental entities, and creditors to identify business and community development needs and opportunities for women-owned, minority-owned, and small businesses.
Large banks and fintech companies can easily navigate these demands through a large pool of resources and top digital lending software. However, small and community banks tend to use traditional lending and siloed technologies. These outdated lending processes overburden small financial institutions (with less than $100 million under asset management) with regulatory workloads, lower competency, and stall growth.
Modern borrower expectations further add to this frustration. According to the Digital Lending Platform Global Market Report 2025, North America topped all US regions in the digital lending platform market in 2024. The report also stated that a majority of small businesses globally preferred applying for instant loans through digital lending software. Combining the growing borrower demand with complex regulatory frameworks urges small business lenders to act immediately.
Disadvantages of Not Using Digital Lending Software in 2025
1. Prone to interest rate volatility
The stability of small and regional banks is inversely proportional to a rise in interest rates. Large fintechs have enough capital buffer to tackle volatility until the market stabilizes. Small and community banks don’t have that leverage due to limited funds. Without digital lending software, small financial institutions cannot improve profitability and net interest margins while reducing external volatility driven by interest rate changes.
2. Restricted revenue streams
Small banks rely primarily on lending as their income source. With rising competition from digital lending banks and large fintechs in small business lending, the market share of small and regional conventional lenders is decreasing. Adding new loan products without significantly increasing operational costs, resource allocation, and risks is almost unachievable without a digital lending platform.
3. Low-quality customer experience
Modern lending demands advanced lending solutions. Whether it is commercial lending or consumer lending, new-age small business owners expect digital onboarding, KYC, loan application, and loan servicing. Digital lending systems have reduced the application-to-disbursement period from weeks to days. With close competitors offering such exceptional customer experiences using digital lending solutions, those who continue using traditional lending workflows will rapidly lose clientele.
4. Risk of insolvency
Small and regional banks face a unique challenge from uninsured deposits. A Columbia Business School study reveals that regional banks have a high concentration of uninsured depositors. Without using digital lending software to increase the net interest margins, regional banks face a high risk of insolvency in case of even one adverse event, like a rise in defaulters, especially related to CRE loans in the US.
Unlock the Sustainable Power of Digital Lending Software
The digitization of the lending business has become imperative to sustain profitable operations amidst modern lending needs. Loan origination automation, real-time credit scoring, AI-powered underwriting, and API-driven loan management are some of the most in-demand capabilities to match modern small business needs. Let’s explore how digital lending banks achieve it through digital lending software.
1. Microservice Architectures
Small and community banks cannot afford disruptions in their lending business. However, quickly updating technological capabilities to meet emerging economic and regulatory trends is crucial to remain competitive. Microservice architecture also makes a digital lending system highly configurable and composable, something a modern lender needs at all times.
Digital lending platforms like Biz2X are built on microservice architectures, dividing each functionality into an independent module. Each module can be improved without causing downtime to other features, minimizing disruptions to core banking services. This helps lenders offer continued services to borrowers during upgrades, repairs, and optimization efforts.
2. Automation Across the Loan Lifecycle
Streamlining operations can provide a huge business advantage for small and community banks. Digital lending systems help achieve that by automating mundane processes like document collection, form completion, query resolution, credit scoring, and decisioning logging.
Adding AI capabilities to automation, Biz2X digital lending software not only helps free up the bandwidth of loan officers, underwriters, and customer relationship managers but also ensures minimal errors, bias, and turnaround times. Another AI capability of Biz2X is the automated initial screening of borrowers. It helps filter unwanted audiences based on your financial institution’s unique credit policies.
3. AI-Powered Credit Decisioning
The underwriting teams in the back office require extensive credit assessment and borrower profile evaluation. With AI-powered document aggregation, credit scoring, and assessment, underwriters can significantly reduce their loan processing times and human errors.
AI tools offered by Biz2X can automate the interpretation of vast amounts of data from credit bureaus, bank accounting software, and Management Information System reports. They go beyond by accessing historical transactions on credit cards, business cash flow, and repayment patterns and unlock instant financial intelligence for streamlining risk management.
4. Seamless API Integrations
One of the most powerful features of digital lending software is interconnectedness. Digital lending banks utilize API-first methodology to ensure smooth integration of all systems throughout the loan lifecycle.
For instance, Biz2X’s loan origination system allows lenders to pre-approve small businesses through AI-powered credit scoring and offer attractive loan services at the Point of Sale. This expands the lending options available to small businesses, helping them confidently make business growth transactions instantly. Customer acquisition at the loan provider’s end improves dramatically, unlocking higher revenues from new revenue streams.
5. Cloud-Based Scalability
The trend of lending business needs of small businesses can change suddenly due to various economic factors like new tariffs, policy updates, or new financial services. The digital lending software must be capable of handling the changes in volumes effortlessly.
Loan origination software like the one offered by Biz2X runs on cloud-based SaaS infrastructures. Small banks, credit unions, and other regional financial institutions can scale their operations on demand. Cloud-based digital loan management software can also handle abrupt surges in loan application volumes.
6. Personalized Borrower Management
Small and community banks rely on relationship lending with small business owners. This is also a major reason why they hesitate to transform lending operations digitally. While this thought stands true for financial institutions using siloed technologies, unified digital lending solutions change the perspective.
Biz2X’s digital lending software enhances the borrower journey end-to-end. Its AI-powered tools guide the borrower through the loan application process. An omnichannel experience elevates user convenience by ensuring continued progress on multiple devices. Instant credit assessment empowers underwriters to share transparent, data-driven decisions with applicants in minutes instead of days.
7. Retaining Top Talent with Future Technology Training
Legacy financial institutions’ resources lack the knowledge of using new technologies, making adoption a long and exhausting exercise. This ultimately slows down the lending workflows during the training and induction period, harming the top line. In some cases, adopting new technologies leads to attrition from some of the best manual resources.
Biz2X leverages its decade-long experience in lending to provide training to your bank or credit union staff in industry-best timelines. While the tech experts work delicately to integrate the new digital loan software into your existing lending ecosystem, your resources upgrade their knowledge with in-demand industry skills. This helps your financial institution retain top talent by assisting them in becoming ready to tackle modern small business lending requirements.
Gain Advantages Only Large Financial Institutions Have Leveraged till Now
Biz2X aims to empower small businesses in the US through digital lending. Small and community banks are the first point of contact for micro, small, and even medium-sized businesses. That’s why the digital lending software Biz2X offers is tailored to solve the unique challenges small banks and credit unions face and unlock capabilities that only large banks and other financial institutions have experienced till now.
- Lend with data-driven confidence to the smallest of small businesses while quantifying risks and offering better pricing.
- Gain the agility to offer any loan product at any scale without disruptions.
- Cut down operation costs, default risks, and non-compliance penalties.
- Grow our lending business on an end-to-end integrated ecosystem to capture multiple revenue streams simultaneously.
- Empower relationship lending with AI-powered tools and configurable technologies, strengthening brand reputation.
- Become ready to take on any new lending trend immediately and make your existing offerings future-ready.
Also, by implementing Biz2X digital lending software, your business can achieve the following numbers:
- Up to 40% faster decision-making times.
- Up to 2X growth in the loan portfolio.
- ~10% reduction in default rates.
Ready to take a customized demo of Biz2X digital lending software based on your unique credit policies, scale, and loan products?
FAQs about Digital Lending Software
1. What is a digital lending software? Why does a small bank need it?
A digital lending software is a consolidated platform used by banks, credit unions, and other financial institutions to offer loan services and products to small businesses. It automates mundane tasks and transforms conventional lending processes across the loan lifecycle. Collectively, these features improve bottom line, top line, and competitiveness with large fintechs.
2. What is the role of AI in a digital lending platform?
AI-powered digital loan software offered by seasoned providers like Biz2X unlocks AI-driven document collection, customer relationship management, credit assessment, and underwriting. For small and community banks, it helps significantly lower operational costs, lower default risks, and scale the loan portfolio without coding or steep overheads.
3. How long does it take to implement a digital loan platform?
The implementation depends on the existing systems in use, the configurability of the digital loan software, and the training required for existing manual resources. If your financial institution is upgrading from traditional loan servicing, the new lending platform will face fewer technology integration challenges. If you use some siloed digital lending solutions, configuring the new lending platform for smooth integration can take more time. However, the decade-long experience of Biz2X working with small and community banks can help reduce that by a huge margin.
4. Which loan products can I offer through a digital loan platform?
By adopting a digital lending software, you can become an end-to-end digital lending bank or credit union. A highly configurable digital lending platform, as offered by Biz2X, acts as a unified solution to offer multiple loan products. Biz2X clients use the SBA loan software for lending all SBA loan products.
5. How do I request a demo for Biz2X digital lending software?
To get a customized demo of the Biz2X digital lending platform, you can simply click here.
