Digital Transformation Starts With the Customer

Digital transformation isn’t an end unto itself; the goal should ultimately be to make your customers’ financial lives easier. Without figuring out what customers need help with, a bank’s digital journey lacks strategic focus, and risks throwing good money after bad. In this video, Devin Smith, experience principal at Active Digital, walks through the key questions executives should ask when investing in digital transformation.

  • Customer Centricity
  • Creating a Cohesive Experience
  • Build versus Buy

Are Bank Directors Worried Enough About Fair Lending?

Bank directors and executives, be warned: Federal regulators are focusing their lasers on fair lending. 

If your bank has not modernized its fairness practices, the old ways of doing fair lending compliance may no longer keep you safe. Here are three factors that make this moment in time uniquely risky for lenders when it comes to fairness.

1. The Regulatory Spotlight is Shining on Fair Lending.
Fair lending adherence tops the agendas for federal regulators. The Department of Justice is in the midst of a litigation surge to combat redlining. Meanwhile, the Consumer Financial Protection Bureau has published extensively on unfair lending practices, including a revision of its exam procedures to intensify reviews of discriminatory practices.

Collections is one area of fair lending risk that warrants more attention from banks. Given the current economic uncertainty, collections activities at your institution could increase; expect the CFPB and other regulators to closely examine the fairness of your collections programs. The CFPB issued an advisory opinion in May reminding lenders that “the Equal Credit Opportunity Act continues to protect borrowers after they have applied for and received credit,” which includes collections. The CFPB’s new exam procedures also call out the risk of “collection practices that lead to differential treatment or disproportionately adverse impacts on a discriminatory basis.”

2. Rising Interest Rates Have Increased Fair Lending Risks.
After years of interest rate stability, the Federal Reserve Board has issued several rate increases over the last three months to tamp down inflation, with more likely to come.

Why should banks worry about this? Interest rates are negatively correlated with fair lending risks. FairPlay recently did an analysis of the Home Mortgage Disclosure Act database, which contains loan level data for every loan application in a given year going back to 1990. The database is massive: In 2021, HMDA logged over 23 million loan applications.

Our analysis found that fairness decreases markedly when interest rates rise. The charts below show Adverse Impact Ratios (AIRs) in different interest rate environments.

Under the AIR methodology, the loan approval rate of a specific protected status group is compared to that of a control group, typically white applicants. Any ratio below 0.80 is a cause for concern for banks. The charts above show that Black Americans have around an .80 AIR in a 3% interest rate environment, which plummets as interest rates increase. The downward slope of fairness for rising interest rates also holds true for American Indian or Alaska Natives. Bottom line: Interest rate increases can threaten fairness.

What does this result mean for your bank’s portfolio? Even if you conducted a fair lending risk analysis a few months ago, the interest rate rise has rendered your analysis out-of-date. Your bank may be presiding over a host of unfair decisions that you have yet to discover.

3. Penalties for Violations are Growing More Severe.
If your institution commits a fair lending violation, the consequences could be more severe than ever. It could derail a merger or acquisition and cause a serious reputational issue for your organization. Regulators may even hold bank leaders personally liable.

In a recent lecture, CFPB Director Rohit Chopra noted that senior leaders at financial institutions — including directors — can now be held personally accountable for egregious violations:

“Where individuals play a role in repeat offenses and order violations, it may be appropriate for regulatory agencies and law enforcers to charge these individuals and disqualify them. Dismissal of senior management and board directors, and lifetime occupational bans should also be more frequently deployed in enforcement actions involving large firms.”

He’s wasting no time in keeping this promise: the CFPB has since filed a lawsuit against a senior executive at credit bureau TransUnion, cementing this new form of enforcement.

How can banks manage the current era of fair lending and minimize their institutional and personal exposure? Start by recognizing that the surface area of fair lending risks has expanded. Executives need to evaluate more decisions for fairness, including marketing, fraud and loss mitigation decisions. Staff conducting largely manual reviews of underwriting and pricing won’t give company leadership the visibility it needs into fair lending risks. Instead, lenders should explore adopting technologies that evaluate and imbed fairness considerations at key parts of the customer journey and generate reporting that boards, executive teams, and regulators can understand and rely on. Commitments to initiatives like special purpose credit programs can also effectively demonstrate that your institution is committed to responsibly extending credit in communities where it is dearly needed.

No matter what actions you take, a winning strategy will be proactive, not reactive. The time to modernize is now, before the old systems fail your institution.

Research Report: An Uphill Struggle for Talent

The banking business became more expensive last year, as banks were forced to pay up to attract and keep talent. Some of the talent pressures stem from temporary hurdles, such as inflation. But Bank Director’s 2022 Compensation Survey, sponsored by Newcleus Compensation Advisors, points to broader existential challenges the industry faces in cultivating talent for the long term.

Respondents almost unanimously report that their banks raised non-executive pay last year to keep talent, and a majority also raised executive compensation. But higher pay did not necessarily translate into an easier time recruiting, with clear majorities of bankers and directors indicating that it had also become more difficult to attract and retain talent in 2021.

“Banks are just one industry. I don’t think they’re going to be spared what every other industry is experiencing in terms of the shortage of talent and a reluctance, perhaps, of some people to come back,” says Flynt Gallagher, president of Newcleus Compensation Advisors.

Of course, the banking industry has some unique nuances to its particular talent challenges. Competition for commercial bankers has always been stiff, for instance, and it’s likely to intensify as banks look to commercial lending to offset net interest margin compression.

Demand for talent hasn’t been limited to specialty roles; entry-level and branch staff were also difficult to hire and retain in 2021. Some of that, no doubt, was influenced by the pandemic and its ripple effects, but banks also had a lot more competition for even entry-level workers. Job candidates with cash handling experience pretty much had their pick of opportunities, and banks weren’t competing solely with other financial institutions.

“In many of our markets we’re not just competing with banks anymore,” says Eric Thompson, chief human resources officer at San Antonio-based Vantage Bank Texas. “We’re competing with the grocery store that’s now offering $20 an hour.”

To read more about talent challenges and managing compensation expenses, read the white paper.  

To view the survey results, click here.

Managing Risk When Buying Technology for Engagement

No bank leader wants to buy an engagement platform, but they do want to grow customer relationships. 

Many, though, risk buying engagement platforms that won’t grow relationships for a sustained period of time. Most platforms are not ready-made for quality, digital experience that serve depositors and borrowers well, which means they threaten much more than a bank’s growth. They are a risk to the entire relationship with each customer.  

Consumers are increasingly expressing a need for help from their financial providers. Less than half of Americans can afford a surprise $1,000 expense, according to a survey from Bankrate; about 60% say they do not have $1,000 in savings. One in 5 adults would put a surprise expenditure on a credit card, one of the most expensive forms of debt. More than half of consumers polled want more help than they’re getting from their financial provider. However, the 66% of those  who say they have received communication from their provider were unhappy about the generic advice they received. 

This engagement gap offers banks a competitive opportunity. Consumers want more and better engagement, and they are willing to give their business those providers who deliver. About 83% of households polled said they would consider their institution for their next product or service when they are both “satisfied and fully engaged,” according to Gallup. The number drops to 45% if the household is only satisfied. 

Banks seeking to use engagement for growth should be wary of not losing customer satisfaction as they pursue full engagement. As noted earlier, about 66% of those engaged aren’t satisfied with the financial provider’s generic approach. What does that mean for financial institutions? The challenge is quality of engagement, not just quantity or the lack thereof. If they deliver quantity instead of quality, they risk both unsatisfied customers as well as customers who ignore their engagement. 

According to Gallup, only 19% of households said they would grow their relationship when they are neither satisfied nor fully engaged. This is a major risk banks miss when buying engagement platforms: That the institution is buying a technology not made for quality, digital experiences and won’t be able to serve depositors and borrowers well any time soon. 

But aren’t all engagement platforms made for engagement? Yes — but not all are made for banking engagement, and even fewer are made with return on investment in mind. Banking is unique; the tech that powers it should be as well. Buyers need to vet platforms for what’s included in terms of know-how. What expertise does the platform contain and provide for growing a bank? Is that built into the software itself?

A purpose-built platform can show bankers which contact fields are of value to banking engagement, for example, and which integrations can be used to populate those fields. It can also show how that data can become insights for banks when it overlaps with customers’ desired outcomes. And it offers the engagement workflows across staff actions, emails, print marketing and text messaging that result in loan applications, originations, opened accounts or activated cards.   

Previously, the only options available were generic engagement platforms made for any business; banks had to take on the work of customizing platforms. Executives just bought a platform and placed a bet that they could develop it into a banking growth tool. They’d find out if they were right only after paying consultants, writers, designers, and marketing technologists for years.  

Financial services providers no longer need to take these risks. A much better experience awaits them and their current and prospective customers clamoring for a relationship upgrade.

Preparing for Institutional Risks as Cryptocurrencies Expand

Two words that highlight why digital assets — in particular, cryptocurrencies — are a valuable addition to the financial services ecosystem are “speed” and “access.” However, banks and other organizations that transact in cryptocurrency need to be aware of, and prepare for, unique risks inherent to the digital asset ecosystem.

The technology that supports cryptocurrencies has accelerated the speed of clearing financial transactions. Over the last 25 years, financial institution technology has progressed significantly, but transfers can take several days to clear; international wire transfers take even longer. Cryptocurrency transaction clearing is immediate.

Cryptocurrencies are also increasingly adopted by individuals who have been previously unbanked or “underbanked” and have had difficulty accessing traditional banking systems. Transaction speed, customer experience and an expanding market of digital asset users make cryptocurrencies attractive for more institutions and organizations to adopt, but they need to think about and prepare for a number of risks.

Current State of Regulation
One of the reasons the traditional banking industry is trusted by the public is because of the regulatory environment. Regulations, including those within the Bank Secrecy Act (BSA), outline the customer identification program and know-your-customer requirements for onboarding new customers. While the cryptocurrency ecosystem is often panned for its perceived lack of regulation, there are layers of regulation that some crypto companies must comply with. For example, the BSA applies to money transmitters, like crypto exchanges. U.S. Securities and Exchange Commission Chair Gary Gensler recently noted, when prompted about large crypto exchanges, “It’s a question of whether they’re registered or they’re operating outside of the law and I’ll leave it at that.”

Does that mean that crypto is regulated as strictly as financial institutions? No, but regulation is progressing. President Joe Biden’s March 2022 executive order included a provision requesting the Financial Stability Oversight Council (FSOC) convene and report on the risks of digital assets to the financial system and propose any regulatory modifications needed to mitigate the risks posed to the financial system by cryptocurrency. Treasury Secretary Janet Yellen, who has been tasked with convening the FSOC, has been a vocal proponent of crypto regulation.

The Treasury Department also released a fact sheet outlining how the United States would work with foreign governments in regulating digital assets.

What does that mean for crypto companies? Considering digital assets were mentioned over 40 times in the FSOC 2021 Annual Report, and since the total market cap of crypto has fallen from $3 trillion in November 2021 to $900 billion as of June 28, 2022, it’s likely regulators will propose new requirements.

Risk Management
Emerging or evolving regulation over large exchanges may not be the panacea that enables financial institutions the carte blanche access to offer all cryptocurrency products. However, it is a step toward being able to offer new products or access to products within the confines of a regulatory framework, and it creates a standard against which banks can measure their offerings.

However, risks remain. Retail banking customers still interact with virtual asset service providers that operate under innocuous-sounding names and decentralized crypto exchanges run by decentralized autonomous organizations (DAOs) without the corporate governance or regulatory requirements of financial institutions. As regulation evolves, institutions wishing to participate in this market will still be responsible for monitoring and mitigation activities. The good news is that as these risks have evolved, so have the tools used to monitor and mitigate them.

When it comes to risk, adding a new category of services requires changes throughout the organization that include people, process and technology. The digital asset ecosystem requires a different skill set than traditional banking and capital markets. The lexicon is different, the technology is different and the market is more volatile. Trusted information sources have transitioned from global business publications to social media. Institutions looking to participate are going to need to partner with different service providers to help facilitate programs, build infrastructure and provide access to the knowledge, skills and expertise to be successful. These institutions are also going to need to reassess their strategy, how and where digital assets fit, the organization’s new risks resulting from this strategic shift and how they plan to mitigate those risks.

The crypto market has garnered the attention of the current presidential administration, the regulatory environment is continuing to evolve, retail participation continues to increase and the technology supporting the marketplace has the potential to become more efficient than traditional infrastructure. Banks that aren’t assessing their strategy as it relates to digital asset risk will be left behind. Institutions planning on participating should understand the people, process and technology needed to execute their strategy, as well as the potential risks to the organization. Regardless, the cryptocurrency marketplace has given institutions and those charged with governing them a lot to consider.

Using Embedded Finance to Grow Customers, Loans

Embedded finance is all around us, whether you know it or not.

Embedded finance is a type of transaction that a customer conducts without even realizing it — without any disruptions to their customer experience. Companies like Uber Technologies, Amazon.com, and Apple all leverage embedded finance in innovative ways to create impactful customer engagements. Today’s consumers are increasingly used to using embedded financial products to pay for a ride, buy large items and fill in cash-flow gaps.

But the explosion of embedded finance means that financial transactions that used to be the main focus of customer experiences are moving into the background in favor of more intuitive transactions. This is the whole point of embedded lending: creating a seamless customer experience centered around ease-of use, convenience and efficiency to enable other non-financial experiences.

Embedded lending extends embedded finance a step further. Embedded lending’s invisibility occurs through contextual placements within a product or platform that small to medium-sized businesses (SMBs) already use and trust. Because of embedded experiences, SMBs can get easier, faster access to capital.

All of this could put banks at a disadvantage when it comes to increasing their reach and identifying more and more qualified, high-intent SMBs seeking capital. But banks still have compelling options to capitalize on this innovative trend, such as:

  • Joining embedded lending marketplaces. Banks can capitalize on embedded lending’s ability to open up new distribution channels across their product lines. Banks can not only protect their services but grow core products, like payments and loans, by finding distribution opportunities through embedded lending partners that match businesses looking for credit products and lenders on a marketplace.

Banks can take advantage of this strategy and generate sustained growth by using platforms, like Lendflow, that bring untapped distribution opportunities into the fold. This allows them to easily reach qualified, high-intent businesses seeking capital. Even better, their applications for credit occur at their point of need, which increases the likelihood they’ll qualify and accept the loan.

  • Doubling down on traditional distribution channels. Another viable growth strategy for banks is to double down on providing better financial services and advice through traditional channels. Banks possess the inherent advantage of being in a position to not only supply products and services, but also provide ongoing advice as a trusted financial partner. Incorporating additional data points, such as payroll and cash flow data or social scoring, into their underwriting processes allows banks to leverage their unique position to develop more personalized products, improve customer experience and better support customers.

Embedded lending platforms can aggregate and normalize traditional and alternative data to help banks improve their credit decisioning workflows and innovate their underwriting processes.

  • Reverse engineering on digital banking platforms. Banks can replicate this approach by embedding fintech products into their existing mobile app or digital banking platforms. Consider a bank that decides to provide shopping access through their online portals. In a case like this, a customer may apply for a car loan through the digital bank portal. The bank can then connect that customer to a local car dealership with whom they have a partnership — and potentially maintain revenue share arrangements with — to complete the transaction.

Lenders’ Crossroads Choice
Embedded finance’s effective invisibility of its services and products poses the biggest threat — or opportunity — to banks and traditional lenders. The convenience and ease of access of embedded financial products through platforms that customers already know and trust is an ongoing challenge traditional financial services providers. Yet embedded lending doesn’t have to be a threat for banks. Instead, banks should think of embedded lending as an opportunity to innovate their product lines and expand their reach to identify underserved small and medium-sized businesses in highly profitable industries.

Embedded lending opens a new world of underwriting possibilities because it relies on smarter data use. Platforms can pull data from multiple third-party sources, so lenders can efficiently determine whether or not a customer is qualified. With better data and smarter data use, fewer qualified customers get turned away, saving lenders time, cutting down underwriting costs and increasing conversion rates.

Chief Risk Officers Help Community Banks Navigate Uncertain Environment

The role of chief risk officer is no longer relegated to the largest banks. Ever since the Great Recession of 2007 to 2008, banks of all sizes have begun incorporating chief risk officers into the C-suite.

Nowadays, the role could be more useful than ever as community banks confront an assortment of risks and opportunities, including cybersecurity, emerging business lines such as banking as a service, as well as rising inflation and a potential recession.

In the earliest days of the pandemic, Executive Vice President and Chief Risk Officer Karin Taylor and the teams that report to her helped executives at Grand Forks, North Dakota-based Alerus Financial Corp. understand the potential impacts on the business and coordinate the bank’s response. They addressed employee concerns, made decisions about how to sustain the business during the pandemic, performed stress tests and helped human resources with establishing new policies and communication.

“[CROs] bring some discipline in planning and operations because we facilitate discussion about risks, help identify risk and help risk owners determine if they’re going to accept risk or mitigate risk. And then we do a lot of reporting on it,” she says. “If anything changed in the pandemic, perhaps it was a better understanding of how [the risk group] could better support the organization.”

At $3.3 billion Alerus, Taylor reports directly to the CEO and serves as the executive liaison for the board’s risk and governance committees. Her reporting lines include the enterprise risk group as well as the bank’s legal, compliance, fraud teams, credit and internal audit teams (internal audit also reports to the audit committee). Those kinds of reporting lines allows CROs to help manage risk holistically and break down information silos, says Paul Davis, director of market intelligence at Strategic Resource Management. Their specific risk perspective makes them useful liaisons for community bank directors, who are usually local business people and not necessarily risk managers.

“You’re going to have one member of the management team [at board meetings] talk about opportunities,” he says. “It’s the CRO’s job to say, ‘Here are the tradeoffs, here the potential risks, here the pitfalls and the things we need to be mindful of.’”

Southern States Bancshares, a $1.8 billion institution based in Anniston, Alabama, decided to add a CRO in 2019 as the company prepared to go public. Credit presented the largest risk to the bank, so then-Chief Credit Officer Greg Smith was a natural fit.

His job includes reviewing risk that doesn’t neatly fit into other areas of the bank. He also serves as liaison for the risk committee and sits in on other meetings, like ALCO, to summarize the takeaways.

“While I was focused on risk the entire time I’ve been at the bank, this broadened that horizon and it expanded my perception of risk,” he says.

For instance, the bank’s rollout of the new loan loss accounting standard made him consider risk in the bond portfolio. Working with several attorneys on the board made him think about reputation risk when the bank launched new products and services. That expanded perspective allows him to raise considerations or concerns that different committees or areas of the bank may not be focused on. He can also help the bank price its risk appropriately.

Taylor sees her role as helping Alerus and its directors and executives make empowered decisions; her job isn’t just to say “No,” but to help the bank understand and explore opportunities based on its risk appetite. However, she doesn’t think all community banks need a CRO. Banks of similar asset sizes may have very different levels of complexity and strategies; adding another title may be a strain on limited resources or talent. The most important thing, she says, is that executives and the board feels that they have the right information to make decisions. To that end, Taylor shared a list of questions directors should ask when ascertaining if banks have appropriate risk personnel.

Questions for Directors and Executives to Ask:

  • Do you feel you have a holistic view of risk for your organization?
  • Do you think you have the information you need to understand your risk profile and identify potential pitfalls or risk to your strategy, as well as being able to address opportunities?
  • Is there a good understanding of the importance of, and accountability, for risk management throughout the organization?
  • Can these questions be answered by existing staff, or should we consider hiring for a chief risk officer position?

Digitizing Documentation: The Missed Opportunity in Banking

To keep up in an increasingly competitive world, banks have embraced the need for digital transformation, upgrading their technology stacks to automate processes and harness data to help them grow and find operational efficiencies.

However, while today’s community and regional banks are increasingly making the move to digital, their documentation and contracting are still often overlooked in this transformation – and left behind. This “forgotten transformation” means their documentation remains analog, which means their processes also remain analog, increasing costs, time, data errors and risk.

What’s more, documentation is the key that drives the back-office operations for all banks. Everything from relationship management to maintenance updates and new business proposals rely on documents. This is especially true for onboarding new clients.

The Challenges of Onboarding
Onboarding has been a major focus of digital transformation efforts for many banks. While account opening has become more accessible, it also arguably requires more customer effort than ever. These pain points are often tied back to documentation: requesting multiple forms of ID or the plethora of financial details needed for background verification and compliance. This creates friction at the first, and most important, interaction with a new customer.

While evolving regulatory concerns in areas such as Know-Your-Customer rules as well as Bank Secrecy Act and anti-money laundering compliance have helped lower banks’ risks, it often comes at the expense of the customer experience. Slow and burdensome processes can frustrate customers who are accustomed to smoother experiences in other aspects of their digital lives.

The truth is that a customer’s perception of the effort required to work with a bank is a big predictor of loyalty. Ensuring customers have a quick, seamless onboarding experience is critical to building a strong relationship from the start, and better documentation plays a key role in better onboarding.

An additional challenge for many banks is that employees see onboarding and its associated documentation as a time consuming and complicated process from an operations perspective. It can take days or even weeks to onboard a new retail customer and for business accounts it can be much worse; a Deloitte report suggests it can take some banks up to 16 weeks to onboard a new commercial customer. Most often, the main problems in onboarding stem from backend processes that are manual when it comes to documentation, still being largely comprised of emails, word documents and repositories that sit in unrelated silos across an organization, collecting numerous, often redundant, pieces of data.

While all data can be important, better onboarding requires more collaboration and transparency between banks and their customers. This means banks should be more thoughtful in their approach to onboarding, ensuring they are using data from their core to the fullest to reduce redundant and manual processes and to make the overall process more streamlined. The goal is to maximize the speed for the customer while minimizing the risk for the bank.

Better Banking Through Better Documentation
Many banks do not see documentation as a data issue. However, by taking a data-driven approach, one that uses data from the core and feed backs into it, banks transform documents into data and, in turn, into an opportunity. Onboarding documents become a key component of the bank’s overall, end-to-end digital chain. This can have major impacts for banks’ operational efficiencies as well as bottom lines. In addition to faster onboarding to help build stronger customer relationships, a better documentation process means better structured data, which can offer significant competitive advantages in a crowded market.

When it comes to documentation capabilities, flexibility is key. This can be especially true for commercial customers. An adaptable solution can feel less “off the shelf” and provide the flexibility to meet individual client needs, while giving a great customer experience and maintaining regulatory guidelines. This can also provide community bankers with the ability to focus on what they do best, building relationships and providing value to their customers, rather than manually gathering and building documents.

While digitizing the documents is critical, it is in many ways the first step to a better overall process. Banks must also be able to effectively leverage this digitized data, getting it to the core, and having it work with other data sources.

Digital transformation has become an imperative for most community banks, but documentation continues to be overlooked entirely in these projects. Even discounting the operational impacts, documents ultimately represent the two most important “Rs” for banks – relationships and revenue, which are inextricably tied. By changing how they approach and treat client documentation, banks can be much more effective in not only the customer onboarding process, but also in responding to those customer needs moving forward, strengthening those relationships and driving revenue now and in the future.

3 Reasons to Add SBA Lending

There were nearly 32 million small businesses in the United States at the end of the third quarter in 2020, according to the Small Business Administration.

That means 99% of all businesses in this country are small businesses, which is defined by the agency as 500 employees or fewer. They employ nearly 50% of all private sector employees and account for 65% of net new jobs between 2000 and 2019.

Many of the nation’s newest businesses are concentrated in industries like food and restaurant, retail, business services, healthy, beauty and fitness, and resident and commercial services. This is a potentially huge opportunity for your bank, if it’s ready and equipped for when these entrepreneurs come to you for financing. But if your bank is not prepared, it may be leaving serious money on the table that could otherwise provide a steady stream of valuable loan income.

That’s because these are the ideal customers for a SBA loan. If that’s not something your bank offers yet, here are three reasons to consider adding SBA lending to the loan portfolio this year.

1. New Avenue for Long-Term Customers
Small business customers often provide the longest-term value to their banks, both in terms of fee income generated and in dollars deposited. But not having the right loan solution to help new businesses launch or scale means missing out on a significant and lucrative wave of entrepreneurial activity. That’s where SBA lending comes in.

SBA loans provide the right solution to small businesses, at the right time. It’s an ideal conversation starter and tool for your bank team to turn to again and again and a way to kick off relationships with businesses that, in the long run, could bring your bank big returns. It’s also a great option to provide to current small business customers who may only have a deposit relationship.

2. Fee Income With Little Hassle
In addition to deeper relationships with your customers, SBA lending is an avenue to grow fee income through the opportunity for businesses to refinance their existing SBA loans with your bank. It broadens your portfolio with very little hassle.

And when banks choose to outsource their SBA lending, they not only get the benefit of fee income, but incur no overhead, start up or staffing costs. The SBA lender service provider acts as the go-between for the bank and the SBA, and they handle closing and servicing.

3. Add Value, Subtract Risk
SBA loans can add value to any bank, both in income and in relationship building. In addition, the SBA guarantees 75% to 85% of each loan, which can then be sold on the secondary market for additional revenue.

As with any product addition, your bank is probably conscientious of the risks. But when you offer the option to refinance SBA loans, your bank quickly reduces exposure to any one borrower. With the government’s guarantee of a significant portion, banks have lots to gain but little to lose.