While at the conference, they connected with many credit union leaders about commercial lending and digital loan origination. On their return, they were kind enough to sit down with us and share insights from their conversations. Here are some of the highlights of that discussion:
Doxim – First, let’s talk a bit about the current state of commercial lending. How would you say the majority of our CU clients describe the commercial lending process?
Sean – The current process is very manual for many credit unions. 90% of the time at small and medium-sized credit unions there’s no specialized software at all, and the documentation is done through Excel spreadsheets and Word on secure network folders or even printed. Larger organizations have some software, but they don’t often have something that handles the process start to finish – the software is for a specific need, like a financials calculator.
Doxim – How long does it generally take to document, adjudicate, and fund a commercial lending application?
Paul – That depends on the complexity of the loan – some commercial loans can be completed on a similar timeline to retail lending, while others, like large real estate deals, take much longer – weeks or even months to get everything in place and through adjudication to funding.
Doxim – How traceable is this process?
Sean – There’s often no solution to understand the current state of commercial lending applications. A CRM solution might track progress at a high level, but there’s generally no software being leveraged to identify where, specifically, the application is. Managing the process is completely manual and generally quite slow – it’s often a question of opening a Word document or spreadsheet to see if it’s filled out, or finding a colleague in person.
Doxim What percentage of time are lenders using to further build customer relationships vs. focusing on operational tasks?
Sean – The nature of loan origination is that it’s always an exercise in data collection, which is tedious, but if you can collect the data, manage it centrally, and not have to rekey, then you have more time to get to know the business leaders, their needs, their market position, and so forth. That can be a competitive advantage.
Doxim – How will digitizing the commercial LOS process help lenders? What are the top reasons credit unions are seeking a commercial lending solution?
Sean – Reducing the time to fund is the biggest advantage of digital commercial lending. This involves closing the sales cycle and getting the funds to the customer faster. Any time you have a long process, there’s time for them to be looking elsewhere, and you can lose customers. The next advantage is the reduction of manual data entry, which is tedious and tiresome for lenders and back office.
The amount of effort that goes into managing the application process will be drastically reduced – this includes manual touchpoints, manual keying, manual “people time” to check things.
Paul – Commercial lenders also incorporate a blend of art and science when adjudicating. It is hard for organizations to scale this as the “art” or experience factor is not captured or it can even create biases that are passed on to the up-and-coming lender through tribal knowledge.
Doxim – What commercial lending solutions are currently available to credit unions that recognize these challenges?
Sean – There’s a variance in the solutions currently available to the market – from low functionality/ low cost to top tier big bank style, high complexity BPM-type solutions. These often come with large ongoing operational costs and even larger implementation fees.
There are 1-2 lower-priced commercial lending tools available to the market. They aren’t as modern and integrated with retail lending as credit unions would like – they’d prefer to share data across a single lending platform, and that doesn’t happen with these solutions. Many also don’t have the comprehensive roadmap credit unions want to see.
Then there are few that are very functional but very expensive, built out almost from scratch every time. They have lots of cool functionality but are not financially attainable for most CUs.
Doxim – What key features are credit unions looking for in a digital commercial lending solution?
Sean – When I talk to credit unions, they always know what they need to do to complete and fund a commercial loan. They want to see that the LOS can actually do all the steps in the process – that it’s an end to end, fully integrated solution, not just a workflow engine.
Paul – Yes, and credit unions are also seeking simple, single platforms for all stakeholders, live integrations to banking systems to prevent rekeying, and data sharing with retail lending because small business deals often need retail staff to be pulled in. They want a single, centralized system so they don’t have to train staff members to use two loan origination systems.
Doxim – Name one key feature of a good commercial lending solution that people wouldn’t necessarily think of.
Paul – Lenders don’t like change – they are very rules-driven by nature. That’s what makes them good lenders.
By giving them the flexibility to use the calculators and other tools that they prefer, integrated into the new LOS, you can make the change management process easier. Adoption and eliminating resistance to new technology is an essential part of rolling out a new lending solution, and it should be top of mind when considering which LOS to choose.
Doxim – Closer to home, we’ve recently launched commercial lending support in our own LOS, Doxim Loan Origination. What makes our solution different?
Paul – Well, we understood that there’s a pent-up demand for a commercial lending solution today, and the reason for that is that there hasn’t been a choice that is both economical and full featured. You have fast, cheap or good – any two of those, but not all three. We designed Doxim Loan Origination to offer a better blend of the three, because our solution is lightly configurable but doesn’t carry the hefty price tag or slow implementation time of a fully customized solution.
Then, to create our new commercial lending capabilities, we’ve emulated all the value-added features of retail lending, like pulling from the core, approval process, document generation. At present, 90% of credit unions don’t have these for commercial but have had access for 20 years in retail loan origination. Bringing those benefits over is very exciting for our clients.
Doxim -” Commercial lending” is a broad term, with lots of different lending types included within it. How does our Doxim Loan Origination accommodate the differences in the types of commercial lending, urban vs. rural, agricultural vs. real estate, and so forth?
Sean – Flexibility is the key here. The tool needs to handle baseline capabilities for every loan. These foundational items are items such as ownership structure maintenance, company financial tracking, product information, and security details. These topics are common across all loans and they are handled in core application screens.
Then vertical or regional differences have supporting utilities. Some examples might include a farm valuation utility, or a real estate calculator. With our Loan Origination tool, we’ve included the option to have Doxim build these out, or the customer can build them in house, or use existing utilities and we’ll embed them right in the LOS. For example, with a real estate loan, you might need to document a three-phase project, the number of houses per phase, and pricing per house. Our system is built to be dynamic enough to pick the utilities that are right for each application.
Doxim – where is lending headed next, and how does Doxim plan to keep pace with a changing industry?
Sean – Directionally, we have a plan for more integrations to our LOS and plans to support omni-channel experiences across all lending. We recognize the importance of keeping lending an integrated experience. Our customers want to know we’re keeping pace with the changing world of lending, so they can grow their lending businesses in the future.
Paul – and of course we designed our commercial lending capabilities in conjunction with a credit union, and we offer our clients opportunities to help direct our roadmaps through participation in our Customer Advisory Board and user groups. So we’ve always got our ears to the ground on what credit unions need to succeed in the field of lending.