Unlocking the Potential of Small Business Lending

Community banks have long played a pivotal role in supporting small businesses, providing the necessary capital for local entrepreneurs growing or expanding their ventures. It is estimated that community banks account for approximately 60% of small business loans, according to the Independent Community Bankers of America.

Despite their essential role, many community banks still operate with traditional, manual processes, missing out on the efficiency-enhancing benefits of technology. Approximately 80% of community banks with assets under $5 billion do not utilize a commercial loan origination system provider. However, embracing technology can be a game-changer for community banks looking to reduce lending costs, enhance efficiency and expedite the delivery of capital to small businesses.

One of the key factors in small business lending is speed. For small and medium-sized businesses, or SMBs, efficient access to capital can often have a dramatic impact on operations. These businesses often manage their cash flow strategically; delays in securing funding can have serious consequences. The time from application to funding is critical for SMBs, meaning community banks must continue finding ways to reduce this end-to-end turn time.

While the traditional relationship-based model of community banking remains invaluable, integrating technology into lending processes can be a win-win for both banks and their customers. Here are three steps that community banks should consider to drive efficiencies in their lending processes, even if they are not yet ready for a full-scale commercial lending platform.

1. Consult Your Team
The first step in any innovation journey is to consult your bank’s internal experts. Engage your lending and credit teams to identify pain points in the lending process and how technology and automation could alleviate these challenges and enhance efficiency. Often, those on the front lines of lending have valuable insights into where improvements can and should be made.

2. Embrace Platforms
While a full-fledged loan origination system may not be immediately necessary for your institution, community banks can benefit from platforms that streamline the financial document collection process and client communication. These solutions can make it easier for customers to securely upload and submit their financial documents and communicate directly with the bank, which can simplify the initial stages of the lending process. These tools can have the added benefit of assisting credit teams in digesting and spreading financial data, reducing the time needed for manual data entry and analysis. This accelerates the lending turnaround time and provides a better overall experience for customers.

3. Augment Your Credit Teams
We often see the main challenge for banks trying to speed up the lending process isn’t the technology but their resource constraints. During periods of staffing shortages or high demand for loans, community banks can consider leveraging external pools of subject matter experts to supplement their in-house teams. These experts can help banks expedite lending decisions, providing the necessary labor around financial spreading and the resulting narratives, which can help ensure that businesses get the capital they need promptly.

Community banks are the lifeblood of many small businesses, offering not only financial support but also personalized service and relationships. While the traditional community banking model remains vital, embracing new technology and innovative solutions is essential to meet the evolving needs of small businesses. By taking these steps to improve lending processes and reduce turnaround times, community banks can continue to serve as crucial partners for small and medium businesses, helping them thrive and contribute to local economies.