If you’re a business, applying for a loan from a bank is not a fun experience. For most borrowers, it’s as bad today as it was 20 years ago. Banks in 1997 required borrowers to meet in person with a banker. They asked for piles of paper documents like tax returns and articles of incorporation. They took their time getting back to the business with an answer. And all of that’s true in 2017.
Silicon Valley noticed and turned its sights on business lending 10 years ago. In those days most banks ignored them. And rightly so — early fintech iterations failed to grab hold for any number of reasons. Ignoring the fintechs at that time was a good strategy.
Now it’s time for business banks to respond with their own innovation.
Why now? One reason is that fintechs are figuring out ways to win on their own or with large partner banks. These firms give business borrowers a world-class user experience: Websites are beautiful, minimal data is required to start and a loan request can be answered immediately. Fintechs will continue to get better and better, and borrowers will end up pursuing the path where it is easier to borrow. After all, business owners are consumed on a daily basis with simply running their business; in many cases, they’d rather pay a higher interest rate than spend scarce time on a lengthy process with an unsure outcome.
The other reason banks need to respond now is that business lending innovation is within reach. Let’s be honest: Almost anything will help given that 20 years of zero investment leaves most banks with no modern infrastructure for business lending. Here are a few obvious opportunities.
Put your application online
This isn’t just a fillable .pdf form. Use a real data entry form, streamline what you ask for and use the form to get data directly to your underwriter. This technology is widely available, yet when I conducted a recent survey of top business banks in the country less than 10% offered a pure digital application.
Allow your borrowers to upload required documents
Don’t make them find and print tax returns from three years and then schlep them down to a branch. Give them a secure online portal where they upload from the comfort of their business or home (or have their accountant do it for them), and where they can see what’s outstanding. This isn’t just good for the borrower, by the way. By putting the burden of finding and uploading required docs on the borrower, bankers or lenders are freed up from chasing down those documents.
Eliminate the paper
In one bank where I worked, we shocked ourselves when looking at the stacks of forms and documents required for our business lending process. Over the years this list proliferated, so we pruned down to the truly required. Then we made them 100% digital, including signatures. Again, this provides advantages for the borrower because it means less paperwork. But it was our benefit too, as we stopped tracking endless numbers of meaningless documents from our missing required reports.
Publish your criteria and your process
Most bankers recoil at the idea of this kind of transparency. But imagine you are a business borrower looking for a loan — how else are you going to know if the bank even lends to your industry unless the bank says it does? And why not publish the list of required documents, plus a description of the standard process? Won’t all the information help the borrower have realistic expectations? There are a few banks out there — very few — that do this. “We lend to operating companies in our county in business more than 24 months, in most industries except. … ” Make that clear to the borrower.
Create a fast lane
I’ve seen far too many banks have one process no matter the loan request. That means a $30,000 truck loan gets the same scrutiny and due diligence as a $750,000 complex credit request. Simple credits (low dollar, standard structure, clear collateral) should get to fly down the fast lane.
Communicate with your borrowers
Once you’ve digitized and streamlined, you should be able to share more information with borrowers about their progress. How about creating a process for emailing or calling to tell borrowers where the request stands — in terms they understand?
None of these are cutting-edge innovation ideas. But when business lending shops start modernizing, they improve the borrowing experience for businesses and give businesses fewer reasons to look elsewhere.
