Finding the right business lending platform for your financial institution can be a grueling process — but it can be made easier if you know what makes for a good platform.
Here’s why looking into a business lending platform might make sense for your financial institution, and the 7 key criteria to keep in mind.
Why digital lending?
Put bluntly, online lending has the potential to reduce cost and processing time, lower default rates, increase efficiencies in risk management, and sow the seeds for growth in business opportunities. Going digital means greater convenience and accessibility for customers by providing them another way to reach their bank, and opens the potential to reach customers beyond a financial institution’s immediate location.
The banking landscape is continuing to shift. Relationship banking and brand loyalty, strong characteristics of banking in the past, has steadily eroded over the years. Bank consolidation remains a strong trend as larger banks see advantages in economies of scale. Cost to maintain branches and in-person staff exert steady pressure on the industry. New FinTech companies stepped into the lending marketplace, many of which operate exclusively online. Customers are also increasingly used to using their smartphones and computers to fulfill their needs both private and professional, making for significant shifts in the small business lending space.
Even before the COVID-19 pandemic, the lending market was rapidly evolving as technology opened new channels for business and social shifts put pressure on traditional lenders to adapt. Coronavirus has exacerbated that trend, with brick-and-mortar branches decreasing in-person service and customers forced to work remotely, making online lending a crucial channel to reach customers.
A business lending platform is often the best option for lenders who need to adapt to these dramatic changes and be ready for a digital-first future of banking. Here are the most important criteria that lenders should have in mind when choosing a platform.
Top 7 things to consider when choosing a business lending platform
1. Speed
How fast would it take to get a digital business lending platform up and running?
Knowing the amount of time it would take to get a digital business lending platform working at full steam is crucial. Though speed shouldn't be the only factor in deciding on a platform, how fast you can have a platform implemented can vastly affect your business prospects in the short-term.
Speed should also apply to implementing changes in the platform once it’s in place. The roll-out of the Paycheck Protection Program (PPP) in late March was followed by a series of tweaks in rules in the months that followed; banks needed to pivot quickly to meet shifting requirements. Being aware of how adept a platform is at rolling out updates based on business needs should be a key factor you take into account when choosing a platform.
2. Smooth user experience
How long would it take for a customer to complete the application process? Can they really do the whole process online with this platform?
The internet by now has become a ubiquitous part of our everyday lives. Business customers are used to browsing the internet in their personal lives, and are more likely to expect a seamless experience accomplishing their tasks. An unintuitive, clunky loan process for prospective borrowers can push them away to other financial institutions.
Though pleasant aesthetics are certainly a bonus, solid user experience should go beyond looks. Online application processes should be easy to navigate and pertinent information — like interest rates, loan options, loan amounts, or repayment terms — should be easy to find. How much of the loan origination is automated? Responsiveness and efficiency can make or break a business owner’s decision to follow through with a loan application.
3. Product Diversity
What types of products can the lending platform handle?
Secured, unsecured, Small Business Administration (SBA) loans, working capital, line of credit, term loans — however many loan products your financial institution offers, the capacity to handle them should be an integral part of deciding on a lending platform. The capacity to roll out new products as the needs of your financial institution change should also be kept in mind. A program like the PPP is a reminder to all lenders just how quickly you need to act when competition is high and customers feel urgency.
Your lending platform should be able to offer as many lending solutions online as your bank offers in branch. You might choose to only launch some products online to start, but don’t pick a system that won’t allow you to easily add more products in the future.
4. Risk Management
Are risk management policies in the lending platform at or above your financial institution’s standards?
Risk management is one of the most complex components of business lending. Make sure a platform can integrate all of your risk management parameters. An online lending platform should offer real-time assessment, whether of a single client or an entire portfolio, incorporating information like cash flow. Your business lending platform should have the capacity to easily adjust risk policies and rules in response to changing risk parameters.
5. Security and Privacy
What security measures are in place to protect clients’ data and privacy?
It goes without saying that security should always be a cornerstone of any commercial lending business. At the very least, a provider should be certifiedSOC 2 compliant. SOC 2 is an auditing process that applies to any company that stores customer data in the cloud. A company that complies with SOC 2 will indicate strict policies and procedures are in place to protect valuable customer data such as bank account information and credit scores.
6. Customization and configuration
How much space does the platform leave for customization and integrating your financial institution’s preferences?
Banks and credit unions aren’t one-size-fits-all, and a good lending platform should cater to this philosophy. Get a good sense of what integrations are most commonly implemented, and what others can potentially be used. Are data from integrations like customer relationship management (CRM) systems easily transferable to your bank’s central database? Can settings be switched on and off as you need? Keep in mind the issues specific to your FI when you address and evaluate a platform provider.
Customizing the look of the platform makes for a better experience as well. Having the capacity to white label the platform to fit the look and feel of your financial institution can lessen confusion and leave customers feeling safe.
7. Track record of expertise
What kind of expertise and experience does the platform provider offer?
A digital lending platform provider should know the ins and outs of the lending space. Keep an eye out for varied experience across commercial and business lending. There should also be a proven track record of their expertise in data management and data access.
A great business lending platform vendor will also have a resume of clients that can attest to the quality of their platform. Variation — big and small, credit unions, merchant processors — can be a good indicator of their flexibility and expertise in the business lending space.
The takeaway
A business lending platform should have the capability to answer to your financial institution’s immediate needs, as well as the deftness to adapt to changes in the future. COVID-19 has brought unprecedented change to the business community, and proven that the nimbleness to adapt to factors like policy changes and risk parameters are crucial. Many platforms may also offer advanced technology such as machine learning — this can be hugely beneficial, so long as the basics mentioned above are covered. Ultimately, lending platforms should maintain a fair balance between automation and control, increasing efficiency for your financial institution while ensuring you’re still in the driver’s seat.
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