Suntell CEO Corner
Status Quo vs. Efficiency
As we enter the fall season of 2021, I begin to both reflect on the year we have had while beginning to plan and forecast for 2022. It has been good to see our customer banks and credit union MBL’s finally move past PPP origination and processing that consumed so much of their time and bandwidth and return to the normal pace and course of lending. The COVID pandemic that resulted in two rounds of PPP loans from early 2020 through mid-2021, did force many community financial institutions to adapt to more efficient ways of originating and servicing commercial loans.
The most positive impact was the increased adoption of technology and software and related digital transformation of aspects of commercial lending in order to more efficiently request, receive, and manage documentation. In addition, we are seeing an increased number of institutions responding to the need to find more efficiencies as net interest margins continue to decline. But where are the inefficiencies? What are the obstacles? Despite the acceleration of digital technology and the desire of most to become more efficient in commercial lending, the majority of financial institutions continue to keep the ‘status quo’ in place for a number of reasons, right or wrong.
Let’s examine this a bit closer.
- Slow Loan Turnaround Time – It is estimated that well over half of community financial institutions take up to 5 to 7 weeks to originate a new loan. The goal in my opinion should be 3 to 4 weeks or less.
- Multiple Data Entry – the leading cause of slow turnaround times is the multiple & repetitive data entry of up to 5X or greater in those institutions that take 5 to 7 weeks to originate a new loan. The second leading cause is the inability to gather documents efficiently and consistently. The goal is to reduce data entry to 1X to 2X tops.
- Excel Limitations – The predominant software tool used by community financial institutions to analyze financial information for commercial loans continues to be Excel. I recommend killing this application in your bank as quickly as possible and migrating to a secure database driven software analysis application. Excel limitations are many and include: limited team collaboration, sharing is typically not secure and, as a file grows, scalability becomes an issue inviting errors, etc. Beyond these limitations however is that entering and updating customer information is time consuming and prone to human error. Secondly, the data is not centralized with commercial credit customer analytical data stored in excel files in multiple locations on various drives and networks, for example.
- Manual Credit Memos – Similar to the issues with inefficiencies caused by Excel, it is estimated that over half of community financial institutions continue to use Word to create Credit Memos, instrumental in documenting and conveying the proposed loan terms and supporting analysis to a credit approval. The total labor hours for a majority of commercial lenders to originate and close a commercial loan is well over 25 hours over the course of 5-7 weeks, as previously mentioned. Word has the same issues as just outlined as Excel. It is ripe for human error and centralization of data across a loan portfolio is problematic. For those institutions with multiple lending branches and locations, consistency of the credit memo is lacking, as the Word template gets modified from location to location.
- Manual Loan Ticklers – Adding to the overall inefficiencies, leading to slow turnaround times and large manual labor hours to originate a commercial loan, is the need to track and manage required documents for each commercial loan transaction. The manual tracking of document due dates and missing documents only adds to the labor hours needed to close and service a commercial loan.
In conclusion, I think I have made a strong case for those lending institutions desiring greater efficiencies to implement an integrated LOS software solution such as the Square 1 Credit Suite. An integrated LOS and servicing solution centralizes data in a secure environment, reduces data entry to 1X to 2X depending on system interfaces in place, reduces the opportunity for data entry human error in the process, leading to improved turnaround times and significantly lower labor hours.
The number one reason I encounter on why obsolete processes and stand-alone Microsoft Applications continue to be the predominant approach to commercial lending is fear of change and maintaining the ‘status quo’. Are you sacrificing efficiency to maintain the ‘status quo’? Something to ponder as you look ahead to 2022.
Thank you for your business.
Suntell CEO and Founder
Makers of the Square 1 Credit Suite