It’s a simple premise for community banks and other lenders: if you extend a loan to a creditworthy borrower, you can turn a profit. For borrowers of scale—typically larger businesses with accounting departments and ready documentation—this is easy to put into practice. In contrast, evaluating the creditworthiness of small businesses is often tricky and time-consuming, leading your loan officers to pass up desirable revenue for your bank. Nearly 40% of small business applications are rejected by banks (some estimates put it as high as 80%)—and that’s only counting the businesses that apply.
Now imagine for a minute that lenders suddenly had an efficient and accurate way to evaluate businesses and release funding: if they did, they might find these otherwise rejected loans to be surprisingly profitable. In time, small businesses grow into large businesses—and it’s great if you already have a strong relationship in place. The benefits don’t end there: when growing businesses receive the capital they need to expand, hire, and do meaningful work, it’s transformational for an entire community.
Here’s how you can say ‘yes’ to more business borrowers, elevate your profitability—and fuel the economy in the process.
Why your small business lending strategy may not be working
Performed manually, small business evaluation and underwriting are frequently a drain on time. It can take weeks for your loan officers to process a single small business application because of all the external sources they must evaluate. As a result, large business applications eclipse their small business counterparts.
But at your detriment.
You and your staff invest time in strategic business decisions. What if you could say ‘yes’ to more small business borrowers in less time—and gain valuable income from these newfound relationships?
A Wells Fargo study found that 66% of older business owners would pay more for added convenience and speed in banking. In the same study, 76% of Millennial business owners reported they were willing to pay higher rates for quicker service. The key to revolutionizing how to lend to small businesses is technology—which helps you achieve faster decisions, without relinquishing control.
How to modernize your business to boost profits
Today, fintech has moved beyond consumer banking and firmly into the business sector. There are plenty of loan origination, management, and servicing platforms—and software like LendingFront covers the entire process from end to end.
With modern tools, you can evaluate data that’s relevant to small businesses’ typical profiles and determine creditworthiness on the spot. For loans under a certain amount, such as $25,000 or $50,000 (or whatever you determine), you can automate the entire process—and return to your loan officers precious time to interact with large-scale accounts. With a digital servicing and management dashboard, you can track repayments with ease.
An end-to-end technology solution extends the manpower of your team while eliminating many of the administrative burdens that translate to wasted time and dollars—and customer frustration. By adding efficiency to the way you process small business loans, you can fulfill more requests and increase the level of service you provide.
Interested in reading more about small business lending? Explore other dispatches from LendingFront here.