Change Happens Fast – Can Commercial Lending Keep Up?

Borrowers seeking commercial loans want to work with lenders that are fast, accessible, transparent, and easy. In fact, ease of doing business is paramount in whether a customer chooses you or someone else to service their lending needs. Doing things “the way it’s always been done” won’t work any longer in today’s fast-moving economy.

However, lenders still need to be prudent in their lending decisions. In the credit-sensitive cycle we’re in today, decisions that were a sure bet yesterday can become tomorrow’s bad credits. That said, regardless of how quickly your commercial lending technology can pull and process financial data, your ability to quickly recognize changes in the current economic environment and react accordingly is paramount.

Fine-Tune Your Credit Policies

As each financial institution considers its credit policies, it can choose to hold onto capital and decline many would-be profitable deals. Or, the institution can look to expand its lending by developing deep knowledge in a niche market, such as physicians practices, so their team can recognize good deals that other lenders may miss. According to Jack Henry’s latest Strategic Priorities Benchmark study, most banks and credit unions plan to pursue niche markets, whether those markets are demographic-based or profession-based. However, to do this well requires a sound credit culture.

A sound credit culture is not always just about the data used in underwriting, it’s also about having the right people with the right knowledge. Board members, management and staff must be aligned on the loans that should be approved and under what parameters versus those that should be declined.

Optimize Your Pricing Strategy

Economic swings happen and today’s 24-hour news cycle can make the market seem particularly volatile. This makes it easy to want to change or constantly rethink loan decisions.  To make informed decisions about commercial loans that stand the test of time, financial institutions need to have a thorough understanding of the objective and subjective factors impacting the businesses and owners looking to borrow.

This requires an intelligent pricing strategy.  Such a strategy includes not only the price of the loan itself, but consideration of the overall relationship with the borrower to determine if the loan will be profitable for the institution. You also need to consider the industry and, for commercial real estate loans, the location of any properties. Many technology companies are cutting back on staff, while companies are seeing the value of commercial real estate dropping in major metropolitan areas. You need to understand how the current economic conditions affect the underlying credit of companies you are considering lending to as well as those already in your portfolio. A relationship pricing model enables you to be competitive in lending while also valuing the total business relationship, including any loans, deposits, treasury services and other products.

Spend Less Time on Manual Work; More Time with Customers

To establish a presence in a niche market and to price loans competitively means your team needs time working directly with customers. Yet, the relationship managers and lenders who need that time with customers are often stuck spending time on tedious, manual and time-consuming tasks, such as inputting data into financial spreads.

To give team members the time they need with customers requires efficiencies throughout the organization. Your relationship managers should be focused on helping your commercial customers, not entering data into financial spreadsheets. Manually entering data takes too much time. Credit applicants want quick loan decisions, or they will go to a competitor. Even if they don’t qualify for the credit they seek today, they will appreciate a quick “no.” By leveraging automation to handle the minutiae, the commercial lending staff can spend time applying their expertise to determine the loans that offer the best balance of risk and reward, and ultimately, build lasting relationships with commercial customers.

Relationship building is more important than ever as customers look critically at interest rates as they continue to rise in the wake of a softening economy. However, your institution’s team also needs to be nimble enough to recognize changing economic conditions that affect the loans waiting to be decisioned, as well as those already on your books.

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Author Bio

Baker Hill empowers progressive financial institutions to increase revenue, reduce risk, and drive more profitable relationships.

Streamline business, consumer direct and indirect lending with our common origination platform. Understand profitability and risk at every level with our sophisticated business intelligence and analytics. Monitor and maintain a healthy financial portfolio with our statement analysis, exception, and risk management solutions.

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