2020 was a historic year in business. For some it was dismally so, while for others, it was a boon time for all the wrong reasons. For many small banks and credit unions, the ability to generate revenue and profitability was hindered by incredibly low interest rates and a high-risk, nervous market. In such a climate, many shareholders were willing to give small banks and credit unions a free pass. But in 2021, with the COVID-19 vaccine promising a return to normalcy, expectations are higher. 

If doing less lending last year left your cash reserves overflowing, that’s idle cash sitting on the table, and it’s not working for you. So what’s your plan to generate profits and keep your shareholders happy? Your answer should include: to deploy reserves and stimulate positive asset growth. As the economy slowly re-opens, small businesses present a ripe opportunity for lending, if you’re equipped to efficiently (and intelligently) distribute that capital. Here’s how to develop a game plan to get reserves out of the vault and into small businesses to boost your profitability in 2021. 

Step 1: Assess why business lending wasn’t a significant part of your revenue stream last year. 

Small business lending should be a clear path for small banks and credit unions, but for many, it can be a roadblock to profits. There are a variety of reasons why this may be, including:

  • Too time-consuming
  • Too inefficient
  • Too little interest relative to the cost of underwriting 
  • Too much risk
  • Too low of a priority

All of these factors lead back to one central problem: the approach to small business lending is broken. Manual processes are burdensome on your team, often pushing small business loan requests aside in favor of large businesses. An outdated system means the evaluation criteria weighs heavily in favor of large businesses rather than small ones. The result? Small banks and credit unions turn away worthy applicants and obstruct what could be a highly profitable arm of their business. 32% of small business loan applicants have sought funding from an online lender after being denied by their bank—meaning if they don’t get capital from you, they’ll get it elsewhere—and let your competitor reap the profits.

Step 2: Revamp your small business lending processes. 

Once you know what’s dragging your small business lending down, you can identify a solution. The best place to start is with modernization. Adopting a digital platform specifically geared toward small business lending needs means you can streamline the process and increase your brand visibility at the same time. Going digital offers major benefits, from enabling you to process more loan applications more efficiently… to decreasing your decision time (whether the answer is “yes” or “no”). 

Step 3: Use data to gain an edge.

Digital small business lending software is the key to becoming a more competitive financial institution. It enables you to gain greater insights on your customers, and even gives you an edge over other lenders. Why? Because you already have depository relationships with your existing customer base, you know their financial habits and what’s in their account. 

While you can expect to attract new customers through an online application, the main money maker is in those you already do business with (and there’s no cost involved in acquiring them). Digitizing your lending process also makes it easy to extend pre-approvals to credit-worthy customers in your pool. 

As 2021 leads into economic recovery, you need a strong plan to deploy your cash reserves and generate greater revenue. Investing in your online lending channel could be the key to stimulate growth and increase your profits—making it a win-win situation for everyone involved.