Eight Questions For Prospective Small Business Lending Partners

Written by

For many banks, the ability to offer small-business loans efficiently, quickly and compliantly has been more of an aspiration than a reality. The technical, financial and staffing obstacles involved in launching small business loan products have created daunting barriers to entry, while the need for small business credit persists in the post-pandemic economic recovery.

This creates a fertile breeding ground for new fintechs that claim they can streamline loan processing time, increase the profitability of even the smallest loans and improve the entire experience for banks and their customers.

But how can you distinguish between achievable goals and lip service? Bank executives need to ask the right questions to break through the noise and get real, honest answers. As a provider in the space, we spend countless hours researching the competition, talking with banks about their challenges and enhancing our small business lending platform. Here are the top eight questions to ask a prospective partner when considering a small business lending platform.

1. Is there a white-labeled borrower website option that can be branded with the bank’s colors, graphics and messaging?
It takes years to establish a well-known brand identity that your customers recognize and trust. It is crucial that any prospective loan origination platforms have the capability to incorporate bank branding, corporate color palette and distinct messaging to create a seamless experience for customers.

2. How much time does it take for business borrowers to complete and submit a full loan application?
Research shows that one of the top complaints of business borrowers is the amount of time it takes to complete an application. Any digital process will certainly be quicker than a manual method, but every step of the application process should be optimized for efficiency, resulting in a fully submitted loan application within 20 minutes or less.

3. Is the application process straightforward and intuitive for the borrower and back-office team?
We mentioned the importance of an efficient application, but efficiency can only be achieved if the application is clear, intuitive and guides users along the way. Ask potential vendors how applicants and the bank’s back office can track their progress through the application, and whether the system has measures in place to identify and alert the applicant to inaccurate or incomplete entries. It is also important that FAQs are prominently displayed, and that users have easy access to support.

4. Are there methods in place to ensure that borrowers are selecting the right loan product?
Your applicants don’t know your products as well as you do, so rather than asking them to select a loan product, a top-tier platform will incorporate an automated, intelligent “rules engine.” This type of technology gathers pertinent information throughout the application process and selects the most appropriate product(s) based on the applicant’s inputs. This streamlines the application for the borrower and saves your staff valuable time and resources.

5. Does the system help identify and filter out unqualified applications?
Once the borrower starts the application, the rules engine should activate, dynamically collecting data points to ensure that the application is meeting the bank’s specific product requirements. Further, it should also evaluate the data against the bank’s credit policy to verify the applicant meets the minimum acceptance criteria. The best loan platforms will identify such issues and prevent the applicant from progressing by redirecting them to a different page, product or contact method.

6. How does the system ensure compliance and security?
Ask a potential vendor whether their system supports all federal regulations that impact small businesses and lending practices, such as Know Your Customer/Know Your Business, anti-money laundering, Americans with Disabilities Act and web content accessibility guidelines , among others. The best systems will incorporate a bank’s credit and risk policy into the platform, so there is no impact to your bank’s risk profile with the regulators. Ask whether the system utilizes 24/7 monitoring to ensure the integrity and safety of bank data, whether they are SOC 2 compliant and whether they undergo regular third-party audits of their infrastructure and systems.

7. How does the system ensure quality control and prevent fraud?
Advanced loan technology should integrate into numerous background check sources and employ digital fraud detection using AI-powered captchas and two-factor authentication, among others. Specific criteria should immediately disqualify borrowers, such as zip-code, signing rights and industry type. The best systems will ensure that exceptions are identified and shown to the bank, so your staff doesn’t waste time trying to find them.

8. Does the platform provide automated document management?
Secure, efficient document management is one of the most critical functions of digital loan technology. Ensure that all documents are securely uploaded in transit and at rest. Here are just a few of the features an advanced platform should offer:

  • A centralized document library housing all documents.
  • The ability to collect any necessary form at the right time and have it electronically signed.
  • Functionality that allows the lender to easily approve, reject or request individual documents with explanatory notes for the borrower.
  • Protection of personal information by restricting the viewing of information to only the individual who owns it.

How Peoples Bancorp Prevailed Through PPP

Written by

“You only learn who has been swimming naked when the tide goes out,” wrote Warren Buffett in his 2004 annual letter.

He was referring to operations that trade derivatives. You don’t really know the value of what you hold in opaque markets, he explained, until it’s tested in hard times.

The same can be said about banking.

Rarely has the industry faced an environment as acute as today.

“The scope and speed of this downturn are without modern precedent,” said Federal Reserve Chairman Jerome Powell earlier this week. It’s “significantly worse than any recession since World War II.”

It’s hardly an exaggeration to say that bankers bear much of the burden of saving the economy from oblivion. “If doctors and nurses are first responders to those who are sick,” says Robyn Stevens, chief credit officer at Peoples Bancorp, “bankers are the first responders for businesses, communities and economies.”

Stevens would know.

Within its three-state footprint spanning Ohio, West Virginia and Kentucky, Peoples was the top-performing bank in the first round of the Paycheck Protection Program measured by dollars of PPP loans approved per assets.

“A culture is tested when times get tough,” says Ryan Kirkham, general counsel at the $4.5 billion bank based in Marietta, Ohio. “You find out whether it is real or just lip service. We passed the test.”

The success of Peoples in the first round of PPP reveals a flaw in one of the principal narratives that has emerged from the unfolding crisis — that banks with the most advanced technology were the ones best positioned to manage the onslaught of loan applications.

It’s not that Peoples Bank hasn’t invested in technology in recent years, because it has. But the secret to its success in the first round of PPP was simple elbow grease.

Personnel from the top of the bank to the bottom volunteered to enter data into the Small Business Administration portal to process customer loan applications.

“Banks had to decide whether they were going to do it automated or whether they were going to do it manually,” says CEO Chuck Sulerzyski. “Peoples tried an automated approach but then opted for manual.”

“Many of our most senior executives have done data entry until 8, 9, 10, 11, 12 at night,” he adds. “We did over 100 of these loans on Easter Sunday. And when they shut banks over $1 billion out from 6 p.m. to midnight one evening, we had a couple dozen people volunteer to work midnight to 4 a.m. putting in the entries.”

This success reflects a culmination of a decade’s worth of effort, spearheaded by Sulerzyski, who joined the bank from KeyCorp in 2011.

The 62-year-old CEO spent the previous four decades working up the corporate ladder at multiple prominent banks. He worked at Citibank during the Walter Wriston era. He was at Chemical Bank when Walter Shipley was CEO. And he spent eight years at Bank One, working closely with President Don McWhorter and CEO John B. McCoy.

Sulerzyski has been there and done that, in other words. One lesson he’s learned along the way has been the importance of culture and customer relationships. It’s a lesson that has paid off in spades over the past three months.

“From a competitive standpoint, a lot of the large banks struggled with PPP,” Sulerzyski says. “One of the large regionals couldn’t do any loans the first few days. Another one started, but then had to shut down. Each of the bigger banks we compete against had their own degree of difficulties with this. Because our customers were well taken care of, CPAs and attorneys started referring business to us and it kind of snowballed on itself.”

Sulerzyski’s team speaks in single voice on this.

“Our commitment to our communities and the importance that plays resonates with our employees,” says Thomas Frawley, senior vice president, consumer lending. “They start the call as a banker and end the call as a counselor, listening to the fears of our customers while assuring them that we are going to do our best to help them.”

“We have several associates who are working day and night,” says Ann Helmick, director of enterprise risk management. “They are doing this for the good of the client. For most, there will not be a personal gain.”

“It is easy to come up with a mission, vision and values. And when times are good, it can be easy to live by those values,” says Jason Phipps, regional president. “It is when a company or person faces adversity that you find out who a person or who an organization really is.”

One can argue all day long about the importance of scale and technology, and how it could soon be a principle competitive differentiator in banking. But technology is only a tool to help bankers ply their trade. The soul of any organization, and the true source of performance, lies instead in the people who run it.

“Bankers may have got a bad rap during the last crisis,” says Stevens, “but ours have been heroes during this one!”

Citizens Bank and Fundation Mobilize Credit Delivery

Written by


partnership-5-16-18.pngWhile Citizens Bank and Fundation are certainly not the first bank and fintech company to work collaboratively together, theirs is unlike any other, both parties say, because of the relationship that exists between the two organizations.

Providence, Rhode Island-based Citizens, a top-20 U.S. bank at $152 billion in assets, partnered with Fundation, a fintech firm in Reston, Virginia that focuses on credit delivery to improve the efficiency and turnaround time for small business loans under $150,000.

Fundation’s technology serves as the entire front end, essentially a white-labeled online application, for Citizens’ commercial lending line of products, providing a technology platform that includes underwriting, closing and engagement tools, and features a decision engine that, based on certain criteria, determines “up front” which loan goes to Citizens and which to Fundation, according to Jack Murphy, president of the business banking division at Citizens.

“What makes the partnership unique is there’s a fair amount of folks in this space who outsource this type of lending to the partner,” Murphy said. Instead, the application process is integrated into Citizens’ own digital platform, a top priority for the bank, Murphy said.

“We wanted to integrate (it) into our technology.”

Citizens and Fundation won Bank Director’s Best of FinXTech Partnership award, presented May 10 at the FinXTech Annual Summit, held at The Phoenician resort in Scottsdale, Arizona.

The platform allows for an entirely electronic application process, and enables Citizens’ lending team to physically go to and visit its small business customers to start or complete that application. Customers can also begin the application process in a branch, and finish at home, “or in their car,” Murphy joked, though he doesn’t advocate driving and applying for a commercial loan at the same time.

“It’s really become the front-end to our core underwriting system,” Murphy said.

Fundation has multiple bank clients, but its credit delivery platform uses data and a decision engine to automate much of the decision-making framework that many banks have and still use when reviewing applications. It also simplifies the compliance assessment, including the Customer Due Diligence (CDD) final rule that was developed just two years ago and became effective in May 2018.

There is automated scoring in approving small loans, allowing Citizens to focus its human capital on other strategies, like bigger, more intensive applications and projects that need more careful review while also reducing paperwork that can be cumbersome. It also has in some ways upended the entire underwriting process—they use bank statements instead of financial statements as part of the application process, and the technology determines which loan goes to the bank and which goes to the partner automatically up front.

The technology has only been available to all customers since the end of March 2018, but getting to that point involved months of due diligence, whittling down a list of nearly two dozen other firms before ultimately selecting Fundation.
“We took about a year to research who might be the best partner for us,” Murphy said, noting that it all began with the goal of improving the customer experience through a digital platform.

The board considered whether to buy, build or partner with a fintech, but ultimately there was only one choice.
“The fintechs have not had the balance sheets or cost of funds or the customer bases that the banks have, so partnership is really the best way for the two companies to business,” Murphy said.

Culture and cohesion between the two companies was half the driving force behind the decision to choose Fundation, Murphy said, in a crowded and competitive fintech market. Murphy said they wanted to partner with somebody who was “not just a tech company,” but a “partner that has a similar vision.”

Like other banks, Citizens has several relationships with fintech companies which provide other services, like SigFig, for instance, a tech-based personal investment platform. But Fundation offered something that was new to the bank, and has in just a short time already proven its worth.

It’s shortened the time from application to credit delivery to as little as three days, which in previous generations could have taken weeks, and generated “many multiples” of increased demand since a series of pilots with the software last fall.

The transformation of this credit delivery, he said, is far more than what some banks have done, which Murphy described rudimentarily as simply taking a paper-based loan application and converting it to an online webform.
“That’s not digital,” Murphy said. “Digital is literally the entire experience being electronic.”

Citizens wanted to make its application process fully digital, Murphy said, which has reduced costs and improved efficiency for the bank. And that result has not only transformed the bank’s commercial lending process, but how it strategizes its future.

“This is for us, I would say step one in a journey of multiple products and multiple ways of making it easier to do business with the bank, not vice versa,” Murphy said.

Seven Costly Mistakes Banks Make With Their Small Business Loan Applications

Written by


lending-10-30-17.pngAll aspects of banking are going through a remarkable technological evolution. Customers are clamoring for all things digital, from making deposits to easily paying the babysitter. Small business owners are not immune. They are now starting to demand that their bank embrace technology after seeing the benefits that come from an accessible, digitized lending experience online, thanks in part to the technology being utilized by modern banks and alternative lenders.

Here are seven costly mistakes banks make with their current loan applications:

1. Your loan application process takes too much time.
Does this sound familiar? Your potential borrower drives to a branch to pick up a paper application, fills it in, realizes he or she doesn’t have all the information and leaves the bank, returning the application to the branch days or weeks later. Your team looks it over, and there are still missing documents, so the whole process from beginning to end can take weeks and sometimes months.

It’s a universal struggle in lending. With the correct technology, the documents your staff needs can be uploaded easily online, automatic reminders can be sent to the borrower for missing documents, and when terms are offered the technology will automatically request the documents your bankers need. It’s amazing how much time technology can and will save your team.

2. Your applications are still only on paper.
It’s a risky business when your prospective borrower goes to your website to apply for a loan only to be met with a prompt to “contact us to apply.” Your most eager customers will call but who knows where everyone else will go? Are you losing business to alternative lenders? That’s a possibility.

3. You need to reduce the workload for your team.
Let’s be honest. Your staff wears many hats in today’s modern bank branch. More and more branch managers are having to chase after documents for small business loans. Take the burden off the team and let technology do the hard work. Look for technology to utilize automation to request missing documents via a secure portal and let your managers get back to what really matters: providing great customer service.

4. Your bank needs to conform to the Americans with Disabilities Act (ADA).
Is your current application accessible to the blind or those who have low vision? An interactive pdf that your borrower can fill out and send via email will no longer be acceptable as those forms are often not accessible to blind people who use screen readers. Your bank needs technology that has created software that exceeds current standards and requirements for accessibility.

5. Reporting and analytics take too much time.
You and your team need a transparent workflow. When your team has the analytics and the ability to track how many people are viewing, starting, and completing your application, your team can do a better job of forecasting the week ahead along with creating targeted marketing campaigns.

6. Your bank struggles with data.
Creating, storing, and using data will become more and more important as new regulations are created. Use technology to your advantage and gain a significant competitive edge through automatic reminders to complete applications and the ability to gather data for retarget marketing.

In addition, reduce risk and time spent rekeying information by having a central location for data. Your goal should be to have the borrower enter their information when they are ready. No longer would your staff have to waste valuable time rekeying information from paper.

7. Communication within the bank is less than stellar.
You are ready to make internal collaboration easier and knowing where each loan is in the process gives visibility so everyone on your team can stay on track and know what’s coming their way, helping facilitate cross departmental communication to accelerate the loan’s end-to-end time.

Increased efficiency, profitability, productivity and enhanced customer experience are all reasons why digitizing your loan application should be a top priority for next year. For example, in most banks, the administrative and overhead costs to underwrite a $50,000 loan and a $1 million loan are essentially the same, making $50,00 loans less attractive to the bank. Simplifying the process and achieving greater efficiency may grow your loan volume as well. It’s time to make the shift from traditional applications and revolutionize the lending experience for your borrower.

Beating SMB Alt Lenders at Their Own Game

Written by


small-business-lending.png

Small businesses are an important segment for banks and credit unions with aggressive growth goals. In the United States, small businesses make up 99.7 percent of employer firms, according to the SBA FAQ Sheet. The top concern for these firms is managing their cash flow needs, which creates a great lending opportunity for banks and credit unions. Unfortunately, it can be a difficult opportunity for them to take advantage of because of their antiquated processes.

As Steven Martin, vice president of strategy at Sageworks, discussed during a recent webinar, the demographic composition of small business owners is shifting away from baby boomers and towards Gen X’ers and millennials. These younger business owners are more tech-savvy than their parents. They are more used to shopping online, including for credit and financing solutions. Additionally, many small business owners are too busy running their businesses to leave to visit a branch to begin the application process. When these small business owners go online looking for loans, they find that over 80 percent of banks and credit unions do not offer a way to apply for a loan online. This causes many small business owners to turn to alternative lenders for credit. These “alt lenders” can provide the funds faster and offer an end-to-end online experience. The number of small business owners who turn to alt lenders instead of banks and credit unions is growing. If financial institutions want to preserve and grow their SMB lending business, they will need to revisit two aspects of their loan origination strategy.

Small business borrowers deserve a better experience
Slow and complex loan application processes at many financial institutions frustrate small business borrowers. On average, an application for a small business loan takes two to four weeks. By the time borrowers submit an application, they have already spent an average of 26 hours researching capital options. Once borrowers decide they are ready to apply for a loan, they do not want to spend weeks waiting to receive their funding.

Many of the alternative online lenders charge much higher interest rates than banks and credit unions, yet, business borrowers short on time are increasingly willing to pay more in fees or interest rates to fix their cash flow problem.

Additionally, the difficulties of traveling to a branch and chasing hard copies of documents make the application process even more tedious. Improving the borrower experience is critical for banks and credit unions that want to grow their SMB portfolios.

Costly origination of SMB loans
A second challenge to growing the SMB portfolio is the cost of originating small loans. On average, the cost to originate a small business loan is almost as high as the cost to originate a much larger loan. The lower profits on smaller loans means that many banks and credit unions struggle with achieving sufficient profitability on SMB loans.

However, simply ignoring the SMB market narrows the institution’s opportunity to grow. Also, banks that already have a depository relationship with a small business may risk the entire relationship if they can’t provide a loan.

How then to increase profitability of small business lending?

First, the institution can reduce costs by making the job easier for lenders. Leveraging tools such as an online loan application, which allows borrowers to enter their information and submit documents online, saves loan officers the time of tracking down all the necessary documentation. Institutions can also reduce the time analysts spend entering data by utilizing a tool such as the Sageworks Electronic Tax Return Reader. The ETRR reads and imports data from the borrower’s tax return into the spreading software.

Another major cost of loan origination is the time spent analyzing and decisioning a loan, and automated tools can help here as well. For example, a bank that specializes in agricultural lending may be very familiar with equipment loans. This bank could see significant time savings by implementing loan decisioning software that can be tailored to its risk appetite for ag loans. The bank sets the required metrics and approval criteria, and the software provides a recommendation on the loan. This allows analysts to enter less information and make a faster decision while maintaining pre-existing credit standards.

Small business lending is an important segment for growth-minded banks and credit unions. However, frustrating borrower experiences and expensive application processes make it difficult for many institutions to build profitable SMB lending programs. By leveraging technology to improve the borrower experience and increase profitability for the institution, banks and credit unions can build a path to growth with business lending.