Credit unions have long been highly regarded by their customers, who are grateful for the lower fees, higher savings rates, and more personalized customer service offered to members. However, when it comes to small business lending, credit unions lag behind other financial institutions despite offering lower interest rates on loans.

Part of the issue, contend the credit unions, is the loan caps imposed on them by the Federal government. The industry continues its fight to have loan caps raised, which they say would free up billions of dollars, allowing credit unions to make more loans to small businesses. 

Financial institutions, such as big banks, small banks, institutional lenders, and alternative lenders, have increased their loan activities, while credit unions have lagged behind, showing less growth.

So, what’s holding credit unions back from effectively serving small business borrowers?

The State of Credit Union Business Lending

To enable credit unions to better serve the small business market, credit union expert Mark Ritter suggests taking the following three steps to improve both consumer lending and small business lending:

  1. Evaluate your credit union’s products and policies to remove unnecessary roadblocks for new borrowers.
  2. Make lending solutions and loan servicing a priority.
  3. Invest in systems that can simplify the lending process for your members, so they’re as user-friendly as they are at other financial institutions.

Most borrowers will leave their bank, credit union, or alternative lender for more choices, especially regarding loan types. To offer members a better lending experience, credit union leaders should start by comparing loan products that they offer compared to alternatives their clients may seek out, and the many software solutions available to streamline the lending process.

Why Lending Software Matters to Credit Unions

Big banks became big by offering a variety of plans and options, so they are essentially one-stop-shops for all the borrower’s financial needs. Most provide a broad array of financial accounts and services, including various loan products, ranging from working capital lines of credit to short-term and long-term commercial loans to equipment leasing loans and sometimes business credit cards for business loans.

These financial institutions employ sophisticated loan origination solutions requiring comprehensive cloud-based, specialized software products to handle the large capacity of loan products and servicing. From onboarding to underwriting to loan decisions and monitoring, lending software streamlines workflows, leaving more time for loan officers to build better customer relationships.

Here’s more specifically where loan origination software can help credit unions improve their client service for small businesses:

  • Onboarding and the loan application. With automation, lenders can capture data in real-time, follow fraud prevention guidelines, offer customers a good lending experience, and drastically cut down on time-consuming verifications. 
  • Wider target market. Credit unions can eliminate any potential biases from the lending decision equation with loan software. Using loan origination software, credit unions can institute better inclusivity practices and spend more time evaluating borrowers who have historically had difficulty getting credit approval, such as minorities and low-income consumers.
  • Banking API. Instead of manually gathering the financial data needed in the loan decision process, lending software uses an “application programming interface” or API. API allows separate bank systems to share information at any time, without any human interaction. With API automation, information gathering occurs quickly and seamlessly.
  • Fraud protection. Lending software contains multiple stages of fraud detection by cross-checking data on each loan application with borrowers’ bank statements and other documentation. Lowering risk means improved approval rates and better cost of capital for all borrowers.
  • Post loan monitoring. Lending software is an essential component of a lender’s risk management strategy. Even after the loans are approved and the funds disbursed, the software continues to monitor borrowers. If the borrower’s financial stability changes, the loan origination software notifies the financial institution if the loan is at risk of default, helping reduce the lender’s exposure to risk. 

The Lending Software Solution for Credit Unions

Although credit unions are still subject to a federal lending cap, loan software can help to increase loan approvals and improve efficiency and accuracy in the lending process, helping credit unions more effectively serve the borrowers they are working with. In addition, today’s lending software companies provide advanced solutions to streamline your operations, boost member experience, and simplify customer onboarding.

The Biz2X digital lending platform, for example, is a software solution that enhances loan management, servicing, and risk analytics and drastically improves the lending experience for the borrower. The whole platform can be activated in as little as a month, so digital transformation of a credit union’s lending program doesn’t need to take years.

With advanced underwriting technologies, lenders can digitalize and analyze customer information in an organized, easy-to-follow system—from the moment the borrower submits an application. The lending software also includes Know Your Customer (KYC) information to identify and verify the company’s entity registration, directors, authorized signatures, ownership structure, and recent bank statements. Biz2X also offers a range of tools such as a Bank Statement Analyzer and Smart Banker Dashboard to aid in the lending process.

Biz2X enables financial institutions to institute a proprietary credit scoring model to determine the creditworthiness of the institution’s applicants based on their bank statements or transaction data. The platform determines the applicant’s revenue and expenses from raw transactional history, and then generates a cash flow analysis for the customer, which is used to assess their credit risk.

With more data and better organization, lenders can focus more time on customer service, growing their portfolios, and cross-selling their other products. Platforms like Biz2X offer end-to-end loan management features, including:

  • A Risk Analytics Tool Suite
  • Credit Policies Configured to Lenders’ Needs
  • An Intelligent, Dynamic Application for Each Product Type
  • Low to No IT Work Required
  • Cross-Device Compatibility

The Biz2X platform also includes a Bank Statement Analyzer (BSA)tool that automatically extracts information from a small business’s raw PDF or API bank statements. It classifies information such as the type of transaction and transactional trends (e.g., cash flow increase/decrease) and creates financial spreads for underwriting a loan (e.g., Debt-Service Coverage Ratio). As a result, the Bank Statement Analyzer lowers a financial institution’s credit risk by integrating the institution’s credit policies from account opening to the application stage, speeding up loan decisions, a boon to both credit unions and the members they serve. 

Opportunities for Lending Growth

With a record number of small businesses in the market, there will continue to be a growing demand for loans. Credit unions have the opportunity to play a bigger role providing financial products to business owners. Adopting cloud-based software solutions focused on the lending experience is a smart way to create long-term relationships with small businesses and take advantage of market opportunities.

Biz2X is one such platform that credit unions can use to transform their lending operations digitally. The platform uses a streamlined user interface, AI-driven analytics, and a configurable environment to help credit unions and other financial institutions enhance their core services. Learn more by speaking to a lending platform specialist.