Many community financial institutions found themselves very busy in 2020. Between low mortgage rates and PPP loans, there was a surge in activity. Banks that had a streamlined underwriting and credit approval process found themselves able to manage the increase in loan requests. Others found themselves struggling to meet customer demands.
If your bank or credit union was in the latter group, you probably wanted to understand where the bottlenecks were occurring. Finding the parts of the process that are taking too long are key for solving the problem going forward.
Outlining the Stages of the Loan Approval Process
The first step to finding your bottlenecks is tracking the loan as it moves through your organization. From application through closing, you want to identify the people, process, and location involved.
For example, how do loan applications come into your loan department? Is it through an online portal, or physical applications, or both? How are the loan applications assigned to someone for analysis and underwriting?
Give each stage of the process a name (if you don’t have one already) and list the people who will touch that loan during that stage. Also, identify who ultimately has responsibility for the loan at that point.
Examples of different stages may include:
- Analysis and Underwriting
- Loan Approval
- Tickler Setup
- Imaging Loan Documents
- Post-Closing Review
- Annual Reviews
Tracking Time Spent in Each Stage
Once you have identified the stages of your loan process and the individuals involved, you can begin to look for the bottlenecks. Loans that are spending too much time in either one stage or with one person can slow down the entire process.
Within your loan process, see if you can pinpoint the following:
- What is the average amount of time a loan spends in each stage?
- What is the average amount of time a loan spends with each user?
- What is the average amount of time it takes a particular loan type to close?
- How long does it take to complete an annual review?
But if you see that loans, overall, are spending too much time in a particular stage, that is where you can focus your energy and see if you can improve the process. You can set benchmarks by comparing branches to try and answer the question: how much time should it take to close a loan?
Removing Bottlenecks from Your Loan Approval Process
Bottlenecks occur for any number of reasons. Sometimes, there are circumstances beyond the control of your organization. Waiting for appraisers or title companies are not something you can necessarily change. PPP funding saw several bottlenecks in the process.
However, if you identify bottlenecks within a certain stage of loan approval, you can take a closer look at the process within that department. Are staff spending too much time on manual data entry or working between disparate systems? Is it difficult for customers to provide you with required documentation? Do your staff have easy access to prior credit file information?
Setting Your Goals for 2021
While COVID-19 will not be around forever, this will not be the last time that community banks and credit unions are faced with an influx of loan requests. Past experiences have told us that changes in conditions – both expected and unexpected – can lead to increased demand for services. Will your loan department be ready?