Making an SMB loan book profitable
You can grow a profitable SMB loan book quickly and efficiently, but you have to be prepared to change your processes if they aren’t already automated.
Expectations around the customer journey are constantly evolving. As a result, consumers now expect instant gratification in the services they receive from institutions they do business with. This is why alternative lenders are so successful; they meet the small business owner where they are – online, and outside of normal business hours. Making your SMB loan book profitable can and will happen! Keep reading to learn how you can grow a quality loan book and compete with alternative lenders.
An untapped market
We’ve heard it before: SMBs have a hard time getting quick access to capital, even though they make up the majority of businesses in our economy. Historically, financial institutions are disinclined to lend to small businesses, especially startups, due to the high risk involved. As a lender assessing a business owner’s credit worthiness, you are likely looking at a number of variables, including the cash flow of the business each month, financial statements of the business/business owner, if the business owner has any collateral, and what kind of debt the business owner already has – and young SMBs likely will not have enough financial history for your institution to be able to adequately assess the SMB owner’s risk.
How can I assess an SMB owner’s credit worthiness in a way that will make my loan book profitable?
Overcoming the hurdles to a profitable SMB loan book
Traditionally, underwriting small business loans are:
It takes as long and costs as much to underwrite a $10,000 loan as it does a $1,000,000 loan and the more time you spend decisioning the loan the less profitable it becomes – it’s no wonder most financial institutions won’t go near them.
So, if spending less time on a loan makes it more profitable, what can you do to ensure you are spending less time on each loan?
SMB loans are costly because the processes behind them are inefficient.
Efficient lending can be exemplified by
- The way you collect your borrower’s information
- Do you have a paper application potential borrowers fill out? Or, do you have an online portal the borrower can log in to from any device at any time of the day?
- Where you store the information
- Can your applicant upload information directly to your platform? Are they able to add supporting documents instead of bringing them into your branch?
- Do you have a centralized place where you keep the borrower’s application information? Or are you still scrambling to input data manually from various pieces of paper submitted to you by your applicant?
- How your team accesses application information
- Does this centralized platform offer a workflow that allows for increased collaboration across departments
- How your team makes decisions using the information
- Does the platform automatically connect to various data sources in order to verify applicant information, or does your team have to manually check each data themselves?
One of the reasons alternative lenders do so well is because they rely upon and leverage technology to its full advantage and use it as their in-house risk expert. We’re not saying your Head of Risk is not an expert in the department of risk, but we are saying that to compete with online lenders, stay relevant to your target members and keep progressing in your institution’s digital transformation, you have to be willing to innovate, change, and meet the competition on the battlefield.
SMB lending can be profitable!
All you need to do is implement automated, efficient processes that will help your institution process higher quality loans at a higher volume. You can use multiple technologies to achieve this, or you can use the one platform to rule them all– AI Adjudicator™ is fully configurable to your credit policies and risk appetite. Use it to augment your current risk assessment process, allowing you to say yes more, with less risk and to streamline your approval process. As a result your organization will be able to provide decisioning answers instantly and disperse funding in a short amount of time. Remove the back and forth between departments, and the back and forth between account managers and your members – utilize technology and reap the benefits.