One of my favorite TV shows is CNBC’s The Profit. In the show, Marcus Lemonis (aka “the Profit”) invests and partners with small businesses that typically need dramatic changes to their business model in order to improve performance and profitability.
The Profit’s method focuses on three primary elements: people, process, and product. It is quite entertaining. The people he gets involved with are usually even more interesting than the business challenges faced in each project. I suspect that any banker who has seen the show can nod their head and chuckle in agreement that many of their commercial loan customers fit a similar profile.
That said, do you wonder what the Profit would say if he paid a visit to a community bank? We may never know, but here are a few thoughts specific to the commercial lending side of the shop.
The talent pool of high quality commercial lenders continues to shrink as more and more of the most experienced retire. The void of robust lender training programs over the last two decades has failed to produce sufficient replacements. As a result, banks compete fiercely for the best of the best.
The next generation of lenders need both experience and training in all aspects of the job. These areas include credit analysis, business development, and relationship management. Banks need to identify and retain the top young talent. Then, in most cases, outsourced providers of training are the most effective and efficient to deploy.
It is no secret that the fintech movement is a disruptor of processes in the commercial lending space. More and more lenders are partnering with technology providers that seek to offer solutions to improve lending processes from end to end. The Holy Grail here is a system that offers the customer a faster, more convenient experience for applications, financial information submission, funding, payments, renewals, etc. Adding industry-specific financial performance benchmarking capabilities and performance monitoring will also contribute to a much better customer experience.
At the same time, these solutions provide bankers with more efficient loan application acquisition, pipeline management, workflow, and risk management processes. This translates into greater profitability, mitigated credit loss and improved regulatory compliance.
In most institutions, commercial real estate is king. However, market risk, competitive margin pressure, and regulatory recommendations make diversifying into and growing the commercial and industrial (C&I) loan portfolio a solid strategy. Borrowers need product variety to help finance equipment and working capital. C&I lending plays a critical role in building a balanced local economy driven by thriving businesses.
Another benefit to C&I product diversification is the entry into additional industry verticals. Many attractive industries have equipment and working capital borrowing needs that exceed their real estate needs. Staffing, transportation, and many healthcare providers are a few examples. As an added benefit to these types of products, fee income and interest rate yields are usually more attractive than those generated by CRE products.
Access to a network of non-traditional loan options that match borrowers with appropriate alternatives when loans do not meet typical institution guidelines is also important to add to the mix. An efficient process for identifying the need and placing the credit with the alternative protects the bank from unnecessary credit risk and promotes goodwill with the borrower.
ProfitStars® Commercial Lending Center Suite™ gives financial institutions the flexibility to customize lending processes to meet the needs of a wider variety of commercial borrowers and compete like never before. Reach out today to learn more about how we might be able to help in all three areas: people, process, and product.