How Can You Improve Lending Efficiency in a High-Rate Environment?

As we head into the tail end of 2023, one thing is certain: the rise in interest rates has had a negative impact on loan origination.  Stands to reason, higher interest rates means that potential borrowers will qualify for less principal to arrive at the same periodic payment amount.  Further, the Federal Reserve reports that between June 2022 and June 2023, 14% of auto loans were declined and over 21% of all credit applications were declined. Both metrics were significant increases over previous periods.

Community bankers are seeing the decline in new loan originations, and any decline in loan volume directly impinges the largest item on the income statement, loan interest.  This makes it imperative that banks get truly innovative in seeking out new sources for loans and utilizing tools to make it easier to onboard new loan customers.  I was recently at the VenCent conference in Little Rock, AR and had a chance to visit with about fifty vendors represented there. Yet, I was particularly drawn to a couple that I believe represented innovation in the area of lending.  I want to share some high-level information with you here, but I want to specifically mention that I am prohibited from specifically mentioning any specific companies or products. But if the solutions I reference below are something you feel may have benefit for your institution, you should do your own research to locate companies that provide that service.

To be successful in lending, you need to have a way to identify lending prospects.  I was especially interested in solutions that provided a relationship-based lead generation and competitive intelligence platform built for leaders, lenders and compliance officers. These solutions are not a substitute for an institution’s CRM, rather they provide information on prospects that can contribute to a higher success rate for closing loans.  By aggregating data from multiple sources, they make prospecting and reporting more efficient. By presenting the FI with segmentation on customer type, loan segments, and lender type (i.e., banks, CUs, Farm Credit), these tools enable FIs to laser focus on targeted loans most likely to fit underwriting standards and loan segmentation.  For example, if another FI is closing a branch in a specific location, the tool can identify that lender’s customers. This fosters an environment of collaboration between lending and compliance by identifying leads that may align with an FI’s CRA and Fair Lending strategies.

Search the web for “relationship-based prospecting tool for commercial and residential lenders”.

A key element of business loan onboarding is the ability to know significant information about the borrower and if applicable, its principals.  This requires going further than the typical Dun and Bradstreet or Credit Bureau report.  Does the entity have bad sentiment from customers on the web?  Are they operating five businesses out of the same address?  Are they slow paying vendors or have outstanding liens?  The knowledge of these elements and many more are crucial to making a good onboarding decision.  The systems I reviewed provided a detailed examination of business health that provides the very information necessary to make an informed decision.  Further, once on boarded, the service monitors over 200 data points and updates nightly, meaning that there is a day-by-day update on any deterioration in business health. This is especially important if you are extending unsecured credit, such as an ACH originator.  Your ability to know if there is a significant decrease in a company’s credit worthiness is critical and should not be left up to an annual cursory review.

Search the web for “Manage and mitigate 3rd party risk for financial institutions”.

Another area of lending focus is Small to Medium Businesses (SMBs). The fact is that SMBs represent the largest volume of new loan opportunities for community banks. I saw solutions that target SMBs that standardizes the onboarding, underwriting and reporting elements that conform to the specifics of an FIs loan policies.  Using this type of service removes significant friction in the amount of time needed for the end-to-end process of SMB loan origination. Once the SMB completes the online application, the solution uses third party data as well as bank statements, tax returns or other borrower supplied data to evaluate the prospective borrower. Bank underwriters are presented with an enhanced view of the loan and related SMB information making decisions informed and easy.  Best of all, the solution has enabled their application to be easily integrated into the bank’s existing online platforms with a “no code” approach, including configurable and customized workflows.  The end result is that loan operations staff can be more efficient, processing more SMB loans with a streamlined workforce while providing an enhanced customer experience for new and existing SMB loan customers.

Search the web for “No-code loan origination and servicing small business lending platform”.

The three solution types that I’ve outlined above are by no means the only three lending-oriented types that were featured at Vencent. In today’s high interest rate environment financial institutions particularly community financial institutions must be looking for advanced ways to up their game relating to finding and onboarding new loan prospects. Perhaps one of the services I have described above may be something worth checking out.  Regardless of whether these services or others like it are considered, it is imperative that you seek out and find some type of system that will enable your institution to thrive as rates remain at high levels.


The views expressed in this blog are for informational purposes. All information shared should be independently evaluated as to its applicability or efficacy.  FNBB does not endorse, recommend or promote any specific service or company that may be named or implied in any blog post.