7 Strategies for Achieving Balanced Loan Growth with Lending Software

Strategies for understanding relationships and optimizing for growth with lending software.

The year 2020 and 2021 were full of unique challenges for financial institutions, and 2022 shows no signs of that slowing down.

As economists continue to evaluate the repercussions of COVID-19, competition from traditional and new alternative players in the financial markets will be smart. In this intensely competitive landscape, banks and credit unions must look for strategies that meet the needs of their customers.

In this guide, our banking experts cover the seven strategies for achieving balanced loan growth on achieving these goals.

Read on to learn why a bank’s best bet is to tap into what’s in its digital vault and leverage the seven critical strategies with help from the best available lending software solutions.

Understanding Your Customers

Each line of business, calling officer, and service team member should know and be able to exceed individual performance targets with up-to-date metrics from your CRM.

First, banks and credit unions must bring people and processes together with a solid banking customer relationship management (CRM) system, combining business processes and client information across all departments, integrating data into one simple tool to enhance the client experience and support loan growth strategies.

A financial institution can gain and retain business with an effective CRM. Still, it must also focus on the sales management stage of the relationship cycle, addressing the need to attract and retain valuable clientele. The CRM should also facilitate communication across the institution regarding client activity, goals, and opportunities, working towards a more streamlined sales process. This agnostic approach captures the best of the institution’s business development and credit pipelines.

Each line of business, calling officer, and service team member should know and be able to exceed individual performance targets with up-to-date metrics from their lending software.

The CRM should also facilitate communication across the institution regarding client activity, goals, and opportunities, working towards a more streamlined sales process. This agnostic approach captures the best of the institution’s business development and credit pipelines.

Additionally, a CRM should support each stage of the relationship management process, delivering a solid return on investment throughout the institution. This encourages strategic sales planning and service integration across lines of business.

A quick-view interface that offers a snapshot of client value and risk should also be in place. Call activity management is critical, ensuring clients can speak to any relationship manager and receive a consistent experience.

Finally, a solid CRM should prioritize opportunities by the probability of close, stage, and anticipated close date while tracking sales opportunities types, amounts, and fees.

team collaborating on project

Efficiencies for Accounting, Tax Returns & Financial Statement Processing

Beyond an effective CRM, financial institutions must also look for areas to streamline within their accounting and financial departments with lending software.

By leveraging an automated tax return and financial statement processing system, institutions can eliminate the tedious work of inputting financial statement and tax return data into statement spreads, thus ensuring an accurate and consistent approach to analyzing financial risk every time.

Lending software allows analysts to be analysts, not just data entry clerks. Financial institutions can then improve the quality and consistency of financial analysis to support loan growth strategies.

Additionally, an institution’s statement spreading solution should include unprecedented insight into the commercial lending underwriting process. It should facilitate reporting, data collection, global cash flow, covenants, a comprehensive credit memorandum, and more—all in one central location.

Flexible formats are also crucial in lending software. Statement spreading analysis software should offer a wide range of formats and features to meet the institution’s financial analysis needs, including standard formats and specialized industry formats that must be built-in. It should also have the ability to add covenants quickly and easily using standard templates without leaving the application.

Banks and credit unions also gain commercial real estate insight. With a flexible, dynamic structure of lending software, underwriters and credit analysts will gain the reporting options they need to make sound credit decisions.

Customized charts of accounts tailored to the real estate industry should contain multiple levels of analysis for various types of borrowers and properties, enabling institutions to group properties based on ownership or other types of underwriting criteria. Beyond CRE, this approach could apply to any specialized lending.

The right statement analysis feature in lending software should also offer a reliable source of comparative data and provide direct access to the complete database of the latest version of the RMA’s Annual Statement Studies, a source of comparative industry benchmark data that comes directly from the more than 150,000 financial statements of small- and medium-sized businesses across 600 unique industries.

typing on keyboard

Deal Pricing

To further understand the relationship and optimize for growth, banks and credit unions must accumulate all the essential factors such as cost of funds, risk premiums, and other overhead costs that make up loan pricing.

Being able to price commercial loans accurately is critical to a financial institution’s profitability and success. If applied in a disciplined manner, the profitability of the institution’s portfolio should improve even if adding more risk, which is accounted for in the rate received.

Competitive pressures can force institutions not to be compensated on single transactions, so the relationship value aids in making up a single transaction’s shortfall.

A good pricing tool in lending software should:

  • Provide complete insights into your commercial relationships.
  • Leverage the power of your data
  • Create actionable opportunities

Provide Comprehensive Insights

When it comes to pricing, the right lending software tools must be able to take a customer’s overall relationship with an institution into consideration when evaluating a new opportunity.

This allows you to price each loan consistently based on your data and calculate the expected return accurately. You need to leverage data from your core/internal systems, your existing risk rating criteria, and data from new applications.

Leveraging the power of data from an institution’s internal systems can create actionable opportunities that empower banks and credit unions to develop effective pricing strategies for new and existing loan relationships.

Leverage the Power of Your Data

Utilizing as many inputs as possible to run “what if” pricing scenarios empowers you to quickly arrive at the pricing structure that best benefits both you and your borrowers.

A one size fits all pricing structure will never be as accurate or successful. The best lending software must be customizable to take a customer’s overall relationship with an institution: existing loan data, deposit data, and ancillary income products.

All aspects of the relationship must be included at the client and deal level to determine the overall profitability, making the right solution even more of a necessity.

Create Actionable Opportunities

By taking a more data-centric and strategic approach to loan pricing and using lending software, banks and credit unions better understand their portfolios’ performance. Therefore, they can develop robust pricing strategies for new and existing loans.

The financial institutions accomplishing this will also find themselves well-equipped for the new current expected credit loss standard (CECL), which requires institutions to calculate expected credit loss over the life of the loan, rather than waiting until the threshold of loss becomes probable.

Efficient Loan Origination

The ability to leverage CRM, core, application, pricing, and additional third-party data sources all in one common lending software platform will help ensure that loan decisions are consistent. 

Also, efficient institutions will benefit from linking the ties between their small business and commercial lending clients.

As we see those small businesses grow and develop their relationship, their historical insights (from lending software) must help nurture a profitable future commercial relationship.

Commercial Lending

Within corporate lending, banks must empower their commercial relationship managers to grow client wallet share by meeting the more complex commercial clients’ needs. 

A commercial loan origination solution should help address all commercial lending needs in a single, integrated lending software platform that allows the institution to:

Manage the Entire Commercial Lending Process

Financial institutions must have loan growth strategies that provide a framework to automate, integrate and streamline commercial lending.

An integrated lending software platform should also address all commercial needs by finding all the different types of commercial loans and addressing their unique needs while at the same time providing consistency.

Grow and Develop Client Relationships

Strategic sales planning and service integration across lines of business to nurture relationships with clients should be encouraged.

There should be a single entry point for prospects and clients, and connections must be grouped to understand exposure concerns.

Improve Regulatory Compliance & Mitigate Risk

Financial institutions must also stay on top of changes in clients’ abilities to meet obligations. With aggregate exposure information and deposit data available in lending software, they can gain a complete view of each client. As a result, they maintain insight into relationships with the bank, along with existing and potential exposure.

Drive Underwriting Efficiency

Institutions should create the most efficient decision process. For instance, an optimized credit approval process should leverage workflow automation and business rules. Ultimately, using one lending software solution dramatically improves efficiency.

Consumer & Small Business Lending

Banks and credit unions must also streamline their consumer and small business lending process. On the business loan side of the equation, institutions must tap lending software solutions to manage business credit requests of all sizes with greater speed and consistency.

By facilitating consistency and effectiveness in the lending process, they will minimize portfolio risk and be more responsive to clients’ needs, as well as other benefits, including:

Effortless Operations

An effective lending software tool empowers institutions to process applications, easily track the effectiveness of the process and generate reports anywhere with an Internet connection. Web-based accessibility generates reports anywhere but should also process applications safely through a highly secure processing environment.

Integrated Financial Analysis

Institutions will gain the data needed to have a complete view of every applicant to make quality lending decisions. For small business lending specifically, lending software should aggregate personal and business financial history and use relevant data as part of the underwriting process.

Analysis Based on Credit Policies

Small business and consumer lending software should support multiple decision strategies and approaches for business applications, including scored or non-scored/judgmental and autodecision, auto-decision with a manual review, and always manual review.

Expedited Loan Applications

Financial institutions can automate and speed up the application process by prefilling loan applications with applicant information. This decreases the amount of data entry in your lending software (and training required) while reducing the potential for errors.

Specifically to the consumer side, institutions must process loan applications more efficiently and at competitive rates, while controlling credit risk with a solution that conforms to their policies, mitigates credit risk, and ensures compliance. In consolidating lending application processes, institutions must look for:

Automated Solution

Similar to commercial and small business, banks and credit unions must use lending software to automate the entire lending application process from submission to booking and reporting.

They must process and decide direct loans, revolving lines, and home equity loans securely and efficiently.

Single Point of Origination

All lending software solutions must share a common database, simplifying implementation and improving user acceptance. This enables the sharing of applicant information and combined reporting and analysis of performance and pipeline.

Full Range of Credit Reporting Company Scores

To assess credit risk, an advanced full range of credit reporting company scores via single or tri-merge reports, along with credit policy rules, must be leveraged.

Banks and credit unions should evaluate credit application and credit reporting agency data through lending software with an included option that leverages Fair Isaac Application Risk Models.

man working on laptop at desk

CECL as a Strategic Business Initiative

A big topic that will get only bigger, CECL will likely affect banks and credit unions across many different areas and departments, not limiting credit modeling, regulatory capital impact, operational implications, financial reporting, technology investments, and so on.

Like a broken record, it has been repeatedly stated as one of the most significant changes to bank accounting—and it is. CECL requires financial institutions to calculate the expected loss over the life of each loan and set aside reserves to cover those losses at the time of origination.

Rightfully so, banks and credit unions are concerned this change will require a significant increase in the loss allowance on their loans, thus impacting their net income.

However, rather than viewing CECL as another regulatory headache, the financial institution has a serious competitive advantage that understands the risk and costs associated with its loan portfolio by using lending software.

Even the American Bankers Association argues that “rich data used to create CECL models will allow financial institutions to price their products more accurately, again creating an opportunity to bolster profitability by creating products that better suit the needs of borrowers and lenders alike.”

Not Just Data But the Right Data

While CECL has the potential to help position institutions to have more control over capital and minimize earnings volatility, to leverage it as a strategic business initiative successfully will hinge on having access to quality data through lending software.

This means banks and credit unions must first ensure they have the correct data to gain a longer view of risk and understand how it will affect their portfolio.

Data elements that detail the contractual terms and value of a loan or credit product, like variable or fixed rate and amortization schedule, will be needed. Still, risk attributes and collateral information, like collateral type, amount, guarantees, and risk rating, will also be critical.

Institutions must determine what data is available and which data elements are still needed.  Holistic views of loan data using lending software give institutions multiple advantages, so identifying and closing any data gaps should be a priority.

Data Accessibility Is Key for Banks and Credit Unions

Having the correct data is only part of the puzzle. Having access to it with lending software will be crucial. Banks and credit unions must create teams from various departments within their institution to locate data points and determine how to access them.

Stakeholders from accounting, finance, IT, credit, and possibly even the asset/liability committee should be included in lending software solution decisions. They should all be aware of the institution’s data governance policies to ensure data ownership and quality expectations are clear.

Quality Over Quantity

Having data and knowing where it is still isn’t enough. The data needs to be consistent and high-quality. Therefore, assessing the data will be critical.

Banks and credit unions must establish a protocol to mitigate any inconsistencies with the help of lending software. In doing so, the data will be easier to use, and institutions can better segment to identify trends in their portfolio.

Issues like missing amortization schedules, data stored on paper or in Excel spreadsheets, or incorrect collateral codes can hinder an institution’s ability to monitor and predict the performance of a loan portfolio.

Even minor inconsistencies can pose problems. For instance, discrepancies in how loan data is entered will make it harder to segment the portfolio and cross-analyze data sets. Ensuring consistency in the data will eliminate any unnecessary headaches down the road.

S&P Global projects that the industry may need to increase its reserve levels up to $246 billion—1.5 times the reserve amount under the current model.

Onboarding & Minimizing Friction

Over the last decade, tech giants like Amazon have disrupted every industry, including banking. This has prompted change within loan origination, with online lenders improving the loan application experience to meet customer expectations for convenience and speed.

Banks and credit unions must take steps to modernize their old, archaic approach (by converting to lending software) or else risk losing market share. This is especially critical as more and more consumers seek funding from online lenders due to the fast, seamless, and often paperless loan application process. 

Their online application process with lending software typically takes less than 30 minutes, sometimes as fast as five. Even more, their systems have been designed to fund approved loans within just a few days. With basic credit requests, funds can be disbursed within 24 hours.

Comparatively, consumers who apply for loans at traditional banks cite frustrations with the “difficult application process” and “long wait for a credit decision,” according to the Federal Reserve. And can you blame them? On average, it takes a small business owner upwards of 25 hours to complete paperwork before obtaining funds.

This makes for a bad customer experience and poses severe challenges for a financial institution’s profit margins.

More often, financial institutions process a small business loan of $100,000 the same way they process a $1,000,000 commercial loan, which drives institutions to prioritize high-dollar commercial loans more significant profit margins.

On average, it takes a small business owner upwards of 25 hours to complete paperwork before obtaining funds.

However, by modernizing the loan origination process and leveraging lending software technology, financial institutions can reduce the transaction costs for small business loans to boost profit margins and ultimately provide more funding to small businesses.

Some banks and credit unions have, in fact, digitized part of the process, but there are still portions of the application that require a visit to the branch or mailing physical documents.

Additionally, according to the American Bankers Association, some institutions only offer a digital option for certain loans categories, like mortgages, personal loans, and auto.

Even of the banks that offer digital loans, an overwhelming majority (96 percent) have only digitized the application process. Financial institutions must also digitize document uploads, support e-signatures, and facilitate direct communication to customer service through digital channels like email or instant messaging.

Replicating a paper-driven loan application process online won’t cut it, as it does little to improve the customer experience.

To offer the level of convenience today’s consumers demand, financial institutions must go beyond converting paper into a digital document (with lending software) and instead digitize back-end processes, including minimizing data entry by providing pre-fill functionality within the online loan application, offering a “Save & Resume” function to allow prospective borrowers to upload supporting documentation without leaving the application; and making obtaining loan status updates easy through a customer portal.

These initiatives will require effort, but advancements in current technology mean that delivering a streamlined and more transparent experience is possible for institutions of all sizes.

Sound Portfolio Management is Critical

Once you have that deal, how do you manage it? Lending software can strengthen client relationships and maximize the return on an institution’s lending relationships through risk monitoring, proper credit decision-making tools, and insightful profitability analysis.

By combining effective risk management capabilities with data and scores, banks can save time, mitigate risk and gain a complete view of their loan portfolio with automated monitoring.

Continuous, automatic portfolio monitoring is essential. The system must monitor accounts daily, weekly, monthly, or quarterly with significantly less manual intervention. Lending software should flag high-performing loans for streamlined renewals and cross-selling opportunities while identifying and monitoring potentially troubled accounts.

Remember, it’s about striking a balance in this steel-cage match. The institution is minimizing risk while also uncovering growth opportunities.

Portfolio concentrations and stress testing are also critical. Financial institutions should develop strategies using the information for origination and pricing.

Lending software should drive concentration analyses either by specific regulatory requirements or even unique identifiers by the institution to determine a pool of risk within the portfolio. With the addition of statement spreading, stress testing can be conducted on a portfolio segment and for individual clients.

Robust data is also needed for this. Financial institutions must manage risk and enhance processes with current and accurate bureau data, loan, deposit, and collateral data, and financial statement data from internal and external systems.

In doing so, they gain a complete, 360-degree view of their portfolio, thus enabling more strategic, data-driven decisions. The data should also identify problem loan indicators before delinquency occurs using the complex score and behavioral logic daily, weekly, monthly, and quarterly.

Finally, lending software should be easily configured to import data from the bank’s core or other external systems. Data must be updated daily and continuously analyzed following the institution’s policy, and standard reports should include delinquency of scoreboard, frequency of trigger and statue, and triggers by delinquency.

By combining effective risk management capabilities with data and scores, banks can save time, mitigate risk and gain a complete view of their loan portfolio with automated monitoring.

Selecting a loan origination system is one of the most important decisions your financial institution will make.

Learn how to Choose the Right Loan Origination System

Growing Confidently in an Uncertain Market

With so many different forecasts of what to expect in the year 2020 and beyond, institutions need to remove the guesswork and execute strategies that win using modern lending software.

By deploying these seven strategies, your positioning for success is genuinely optimized because of alignment with your customers’ needs, your bankers’ demand for efficiencies, and the market’s demand for growth.

Baker Hill is your trusted partner to help quickly implement marketing campaigns amidst the COVID-19 pandemic. Request a consultation to see how our lending software can help your institution with these specific concerns and much more.

About Baker Hill

Baker Hill’s loan origination system empowers financial institutions to work smarter, reduce risk and drive more profitable relationships. The company delivers a unified platform with modern solutions to streamline loan origination and portfolio risk management for commercial, small business, and consumer lending.

The Baker Hill NextGen lending software platform also delivers sophisticated analytics and marketing solutions that support sound business decisions to mitigate risk, generate growth and maximize profitability. Baker Hill is the expert solution for loan origination, portfolio risk, and relationship management, CECL, and analytics for financial institutions in the United States. 

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