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Gaining commercial lending business in a competitive market

Written by Yoram Bechler Co-founder and CEO
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Love them or hate them, online lenders are here to stay.

According to research reported by American Banker, a growing number of businesses are migrating toward digital lenders, continuing a trend that began well before the start of the COVID-19 pandemic.i  The exodus is particularly startling for C&I loans where applications to online lenders nearly equal the share received by traditional financial institutions.ii 

But there is more to the story than acquisition numbers. Even as commercial accounts move their lending business online, satisfaction remains low, with less than half of respondents expressing strong approval of their online lender.iii 

To understand why businesses are continuing to borrow from alternative lenders despite their poor track record, we have to look well beneath the surface of borrower behavior.

Why Businesses Borrow Money from Online Lenders

According to the Small Business Credit Survey of Employer Firms, fifty-eight percent of business applicants applied for funding to meet operating expenses in 2021, including critical expenditures such as rent and employee wages.iv  As we move into 2022, the need continues as more than 7 out of 10 businesses say they are seeking funding simply to deal with the rising costs of goods and services.v 

Statistics like this paint a startling picture where businesses require swift access to cash simply to remain afloat, and this is where the digital lender gains appeal. Just look at Patrick Carver, owner of Constellation Marketing, an Atlanta-based firm. He waited over a month for his bank to respond to a loan application before turning to an online lender for his funding needs.vi 

Unfortunately, Carver isn’t alone. Many business organizations prefer to work with online lenders for the simple fact that it can take the typical financial institution over a month to execute a loan.vii  Compare that to the scant 1-to-7-day turnaround time of online lenders and it’s easy to see why businesses are walking out the door of their local branch and picking up their smartphone.viii 

“Anything related to my business that requires swift action, I’ll likely go with one of these companies that’s built for speed,” says Carver.ix 

Turning the Tables on Online Lenders

Why online lenders are faster at turning out loans has a lot to do with digital adoption. Non-bank lenders employ fast-acting digital tools to speed workflows, while traditional financial institutions are weighed down by manual, paper-based processes, particularly when collecting and verifying the documents necessary to establish borrower eligibility.

Multiple email and phone requests are often required to collect documents, followed by a slow and inefficient manual verification of documentation. Errors are also common as banks and credit unions must re-enter data from loan documents into their own systems

On the other hand, digitizing the loan collection and verification process eliminates most of the hands-on steps and replaces them with automation. For example, AIO, offered through Finastra’s FusionFabric.cloud marketplace, provides a portal for businesses to upload documents and then automatically verifies authenticity before sending them to the bank.

Digital solutions like this shift responsibility for collecting documents from the financial institution to the customer and then provide the tools and guidance to streamline the process. Checklists alert the business to the documentation required, while specialized capabilities make it easy to digitally obtain documents from third parties, such as accountants and government agencies.

Once verified, applicable data can even be extracted and used to populate banking systems and documents, eliminating the need for data re-entry.

By employing automation, financial institutions can turn the tables on online lenders and even stall the twenty percent year over year growth expected by S&P Global over the next 2 years.x   In fact, the transformation is already beginning.

According to Teresa Blake, Principal of Financial Services Solutions at KPMG, institutions that delivered quick and efficient access to PPP funding during the business’ initial application process found a reliable source of repeat business as commercial clients returned to the bank or credit union for renewals.xi

Automating document collection and verification makes it possible for banks to eliminate time-consuming and efficient manual processes that lead to lengthy turnaround times and gain back market share through superior customer service. To learn more about AIO and documentation automation, check out this white paper, “Document collection and verification the smart way.

i  Allissa Kline. “Banks Losing Ground to Nonbanks in Business Lending.” American Banker, Oct. 4, 2021. Web. ii  Allissa Kline. “Banks Losing Ground to Nonbanks in Business Lending.” American Banker, Oct. 4, 2021. Web. iii  “Small Business Credit Survey: 2021 Report on Employer Firms.” Federal Reserve Banks, 2021. Web. iv  “Small Business Credit Survey: 2021 Report on Employer Firms.” Federal Reserve Banks, 2021. Web. v  Megan Leonhardt. “Almost Half of Small-Business Owners Are Taking out loans Because of Inflation.” Fortune, Dec. 14, 2021. Web. vi  Joyce M. Rosenberg. “Saved by Online Lenders, Businesses Say They’ll Borrow Again.” APNews, May 25, 2021. Web. vii  “Expediting Loan Origination Through Digital Customer Onboarding and Document Verification.” Finastra, Jan. 22, 2021. Web. viii  “Fast-track Onboarding and document Verification in Commercial Lending. “ Finastra, Oct. 6, 2021. Web. ix  Joyce M. Rosenberg. “Saved by Online Lenders, Businesses Say They’ll Borrow Again.” APNews, May 25, 2021. Web. x  “US Digital Lender Originations Expected to Rebound Strongly After Painful 2020.” SU) Global Market Intelligence, Feb. 4, 2021. Web. xi  “Expediting Loan Origination Through Digital Customer Onboarding and Document Verification.” Finastra, Jan. 22, 2021. Web.

 

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