In 2015, 20% of small business credit applications were generated through online lenders. This number is staggering when you consider that the market for online business loans was virtually non-existent just 10 years ago. This rate of growth is similar to what we have seen in the mortgage lending sector. In 2015, 23% of mortgages were originated online, up from 4% in 2005.*
Why have we seen such growth during this period? What’s the appeal? A review of satisfaction rates reveals the answer. When it comes to the application process and turnaround time, business owners clearly prefer online lenders to traditional banks. Banks still, however, have the advantage when it comes to other criteria such as payment terms and interest rates. Small business owners like the service, rates, and terms associated with traditional banking relationships, but they prefer the efficiency of the online option for fulfilling the application process.
Some lenders think that business owners do not want to submit applications and financials online, but that is not what the data is telling us. This may be part of the millennial demographic shift, or it may be that the consumer is spoiled by the ease of online applications for mortgages and car loans. Or it could be a case of consumer loan conveniences bleeding over into the commercial sector. Whatever the reason, the genie is out of the bottle and it does not appear to be going back any time soon. Banks should consider deploying tools to accommodate this market. For small institutions, there is a clear opportunity here to play to your strengths while improving upon your weaknesses, which are turnaround time and ease of use.
Here are seven benefits of using online application fulfillment:
- Ease of use – borrowers never have to leave their home or office.
- Time savings – no waiting for e-mails or phone calls to be received and returned.
- Cost savings – time is money for both you and the applicant.
- Security – since data is encrypted.
- Communication – everything is documented and there is no opportunity for miscommunication.
- Easily receive and blend data from multiple sources – such as IRS, business accounting software, credit reporting agencies, etc.
- Borrower education – the borrower’s financial information can be scanned and compared to their peer group to provide them with valuable feedback to manage the business.
Clearly, online fulfillment of commercial loans involves much more than simply accepting a credit application, or having an “apply now” button on your web site. It requires an integrated solution that allows your applicant to submit financial statements, tax returns, and other supplementary data to build a complete credit profile for your consideration.
The changes in technology, processes, and even culture required to ebrace an all-digital approach to commercial lending are significant, but so too is the payoff. After all, if your goal is to grow loans in 2017, can you really afford to ignore 20% of the market?
*Source: Accenture: 2015 North America Consumer Digital Banking Survey for Lenders