Amidst the COVID-19 pandemic, digital lending has not so much flourished as it’s been forced upon banks—but that doesn’t mean it hasn’t proved its merit. The migration—across industries and around the world—has been crystal clear: as face-to-face interactions have become impossible, digital has become the new default. And for banks, it’s mostly working—helping them streamline processes and manage an overwhelming influx of applications.
What remains uncertain for banks is what comes next. As typical underwriting criteria become increasingly irrelevant and untrustworthy—and as the weaknesses of standard small business lending processes rise to the surface—one big question remains: how can banks avoid capital drought and remain profitable in the era of post-COVID-19 lending? Informed by our recent webinar and as a precursor to our full ebook, here are 3 first steps to a profitable post-COVID-19 lending approach.
- Rethink everything.
Standard underwriting criteria has always been dependent on historical data which, by their nature, are lagging indicators of performance—from credit histories to tax statements and prior payment patterns. While this worked in our stable—even thriving—economic environment, COVID-19 came in as an unexpected disruption, skewing everyone’s behavior and rendering historical data (for the most part) irrelevant. The factors that informed your lending decisions before COVID-19 won’t work anymore, and they won’t work for a while—especially as reports say that COVID-19 and its effects will be lingering for years to come. That’s why the first step to taking a profitable approach to post-COVID lending is rethinking everything, starting with your methods for assessing wealth, credit scores, delinquiences, and eligibility. If you don’t, you’ll find yourself without borrowers who meet your criteria—and that’s not profitable for you or your small business customers.
- Invest in digital.
Digital loan origination channels, digital document uploading, and digital loan processing channels—all of which can automate workflows from accepting and rejecting loans, to funding and repaying them—aren’t just logical solutions for when face-to-face isn’t an option, they’re effective and efficient tools for faster, easier, and more profitable small business lending. When your ability to deliver a loan to a small business is the basis not just for their success—but for their survival—ensuring that you’re accessible from a distance is integral to keeping both of your businesses running at all, let alone as smoothly, efficiently, and as profitably as possible.
- Shift your focus.
In normal economic conditions, a forward-thinking approach to small business lending is key. Assessing the future success and viability of any borrower is essential to determining whether they are both credit-worthy and a worthwhile investment for your bank. But in times when the majority of businesses are just trying to survive in the long-term—and when nobody knows what the next ten days will hold, let alone the next ten years—shifting your focus to the short-term is a smarter approach. Leaning on day-to-day positions and cash flow rather than monthly or annual markers is one way to keep tabs on your small business customers—and it allows you to endure less risk while extending credit over time.
For a deeper look at the specific steps to take—and for more actionable strategies like the above—download the full ebook on how you can meet the changing capital needs of small businesses.