From application processing and third-party data gathering to AML/KYC compliance and decision-making, the right loan origination software can help small lenders crush it in the second-generation PPP loan market. Learn how to extend your customer-winning streak into 2021 and beyond.
The Wall Street Journal recently conferred the honorary title of “economic first responders” on local and regional banks for their performance under the twin challenges of the COVID-19 financial downturn and the complexities of administering the SBA’s Paycheck Protection Program (PPP). Indeed, with many of them relying on the best loan origination software available, small lenders punched above their weight. They delivered 28% of the funds extended under the PPP to struggling small businesses, even though their assets amount to just 12% of those held by the banking industry overall. Congress recently refueled the PPP, so the opportunity is there for small lenders to hold onto their MVP title into 2021. Is your institution equipped for the challenge? Let’s take a look at some of the fintech tools you need to compete in the upcoming season.
Strengthen Your Core with the Best Loan Origination Software
Customer relationships often live or die by the loan origination process. Delivering a first-rate customer experience each time you process a loan application should be your foremost goal.
A surprising number of small business lenders still rely on outdated loan origination systems and technology to manage their lending business. They aren’t accessing the tools that would allow them to optimize it—at least according to the criteria that matter most to merchants. A survey by Moody’s Analytics found that fewer than 20% of lenders have automated the key steps of loan processing and servicing. Among loan origination tasks, the study found that credit analysis and decisions/approval are somewhat more routinely automated, but only at an adoption rate of barely over 20%. The implication is clear: using a top-notch, comprehensive digital lending platform can give local banks, credit unions, and small financial institutions a significant leg up over much of the competition.
What Do Customers Care About?
The bedrock of every successful marketing plan is understanding customers’ overall mindset and specific product needs.
A recent, post-PPP study by PWC found that, from a merchant’s perspective, speed, transparency, and simplicity matter most during the loan origination process. With many small businesses hanging on by a thread due to the COVID-19 crisis, the need for speed is self-evident.
While speed is important, it isn’t the quality small businesses’ covet most. Transparency is. The administrative fits and starts that accompanied the roll-out of the PPP program, as well as the SBA’s failure to clearly lay out loan eligibility terms, loan forgiveness rules, and other aspects of the program, undoubtedly played a role in pushing transparency to the top of merchants’ wish lists.
It’s yet to be seen whether the SBA will improve its communications during the next round of PPP funding. But savvy small business lenders will be poised to fill in the gaps in customers’ knowledge and provide the transparency merchants are seeking at every stage of the PPP loan process. Some of what merchants may have learned through previous rounds of PPP funding is superseded by the new regulations attached to this round.
Some of these changes are good news for merchants, including how loan limits are calculated (leading to higher loan limits in some cases), greater flexibility around how loan proceeds can be spent, and a simplified process for applying. But other changes? Not so much. Merchants seeking a second PPP loan, for example, may only borrow a maximum of $2 million. Some second-time applicants won’t be eligible at all. Merchants will undoubtedly have a lot of questions. Lenders who can quickly unravel the intricacies of the latest version of the PPP will be in a strong position to gain customers’ trust and solidify their customer relationships.
None of this is to say that speed doesn’t count. It counts a lot. Many small business owners are even willing to pay a premium for faster approval and delivery of loan proceeds. That’s yet another argument for automating the lending process. From a merchant’s perspective, the right loan origination software makes providing required documents easier and faster. It can also move lenders closer to one-day prequalification, effortless AML/ KYB compliance, faster underwriting, and other speed gains that win them kudos among merchants—and business.
Are you thinking of making the leap to automation? Let’s talk about some of the things you should look for in a digital lending platform.
A Full and Flexible Suite of Options
Be sure your choice of lending software can support the way you do business. The best digital lending platforms offer comprehensive and customizable features.
Automation can make each stage of the loan origination process—and loan servicing after the fact—far more efficient. But chances are you’ve relied on your own unique system to do business for some years. You may love the customer management software you’re using right now or how your system streamlines internal communications. The right solution won’t force you to throw those babies out with the bathwater. It will integrate easily with those elements of your system that are working well for you. It will also allow you to deliver a unique, branded experience that strengthens your customer relationships. In other words, loan management software should adapt easily to your business needs and not require you to bend to its own.
Look for a digital lending platform that affords your company loan product flexibility. While the lion’s share of your business may be in PPP loans now, down the road, you may focus on opportunities to increase the lifetime value of your customers via business lines of credit, invoice factoring, mortgage lending, and other commercial loans. The smartest, most empowering platforms can help you identify and pursue greater revenue through cross-selling. Any system worth considering will streamline the process of amending your protocols to keep pace with regulatory and market changes—for example, changes to the PPP—which, judging by recent experience, are all but inevitable.
The best lending software seats customers comfortably in the driver’s seat.
As we’ve become more digitally-reliant, we’ve also become demanding of technology. We can take a lesson from the retail realm, where research shows that more than 80% of online shopping carts are abandoned before the completion of a purchase. Banking is a retail business, of course. A glitch in your online loan application process could cause merchants to close the window on you. The best digital lending platforms make filling out forms, financial document management, and tracking loan status quick and painless for merchants. Look for a platform that features an intuitive design and illuminating graphics and builds in real-time, positive feedback for customers as they upload loan documents and move through the application process. Providing access to your system via mobile app is crucial in this day and age, too.
Bring More Rigor to Risk Assessment
Limiting financial exposure is job one for lenders. Technology can—and should be—your first line of defense in managing risk.
Beyond earning you more business, the right digital lending solution can earn you better business. At the very least, automating basic commercial lending tasks—including requests to credit bureaus and other third parties—can reduce the time you spend collecting and repeatedly entering data manually and free you up to focus on risk assessment. But the best systems do more. They give you access to solid science as you practice the art of decision-making. They provide qualitative and quantitative risk analysis and deliver automatic scoring to guide you. But they don’t tie your hands. The most effective platforms allow lending professionals to customize lending criteria to reflect their institution’s risk tolerance, build their own yes/no pathways, and otherwise control credit decisioning. They allow you to amend your risk analysis parameters as the market or your institution’s strategy change. The most powerful loan origination solutions also provide insights at the portfolio level to help lenders manage risk globally and not just on a per-loan basis.
Get Superior Support on Compliance
The best-equipped digital lending platform can help you cut time—not corners—on compliance.
Running afoul of KYB and AML regulations can damage both your reputation and your bottom line. But regulatory compliance is a time-consuming process. While automation can save you hours on every loan you process, speed doesn’t necessarily correlate with accuracy. Look for a digital lending platform that draws on robust data sources and uses advanced image recognition technology to detect fraudulent activity. And be sure the system doesn’t just stop at the doorway of the application process. It should see you past merchant onboarding, support you fully over the life cycle of the loans you write, and provide a clear audit trail. In short, it should help you avoid compliance management issues at every juncture.
Positive Indicators for Prospecting
The year ahead looks promising for small lenders. PWC’s survey of small businesses uncovered some other compelling facts that underscore the opportunity ahead for local and regional lenders. Some 22% of small business owners surveyed said that they were considering switching banks in the coming 12 months.
Two factors seem to underlie their motivation. Some were unhappy with their first PPP loan experience. Others were simply denied PPP loan service from their banks because they didn’t have pre-existing loans or lines of credit. These merchants are seeking alternatives. Lenders who position themselves through automation to counter customers’ previous negative experiences stand to capture more business. And there’s plenty of it. The first round of PPP funding was just a Band-Aid to some businesses. Many are still bleeding and undoubtedly will be lining up—quite possibly at your virtual door—for additional aid. Be sure you’re ready to greet and service them. You can learn more about our comprehensive, all-in-one digital lending platform by scheduling a live, personalized demo or by watching here.