Commercial real estate
The credit unions’ lending prospects remain strong. Loan balances have grown in or near double digits for the past four years, and CUNA reported that credit unions are more than doubling the pace of all other lenders. This milestone can be attributed in part to a surge in auto loans, which comprise more than a third of the credit unions’ loan portfolios, while mortgage loans continue to predominate in the first place. Although credit unions have successfully facilitated auto and home finance, too many institutions are still missing a significant opportunity by reluctance to take commercial loans.
While credit unions want to add the next trillion to their portfolios, savvy institutions ponder how best to generate income from the largely untapped commercial credit market. There are good reasons credit unions have traditionally avoided this segment – commercial loans are notoriously tedious, manual and paper-based. However, this no longer has to be the case. If credit unions adopt the right mindset and technology, they can turn commercial lending into a competitive advantage.
Members are a credit union’s best renewable resource. The commercial credit process cannot only be viewed as a linear end-to-end offer with a beginning and an end; such an outlook offers little future potential or opportunity for sustainable growth. Corporate lending is more about building an ongoing, renewable relationship than a single transaction that is forgotten after closing. If this mindset is not adjusted, it risks building lasting relationships with businesses and the ability of a credit union to best serve community leaders who are likely already part of their membership. A relationship-based lending approach opens the door to credit unions to expand their portfolios and increase profits for both larger retailers and small businesses.
Once the appropriate mindset is established, it is time to tackle the technological challenge. There is a perception that credit unions do not have the modern technology and processes to efficiently and profitably service these often complicated loans. There is no point in soliciting a potential business member if the credit union does not have the tools to meet the expectations of modern business customers. It is one thing to turn down a relationship based on credit criteria, but quite another thing to lose business because there are no systems in place to manage processes and expectations.
One of the main causes of this technology disruption is disparate systems that leave data in silos and are therefore impossible or, at best, difficult to access. Credit unions have a wealth of information about business members, but when that data is disorganized and dispersed, the institution cannot get a comprehensive picture of the member. Instead, the data needs to be stored on a centralized platform that is integrated with other critical systems, including the lending system, core business data, and other technologies used for loan underwriting and documentation. This will give credit union workers more visibility and insight into borrower relationships for their lifetime value, and enable them to make better, more accurate lending decisions. If a credit union does not have a complete picture of the borrower, the credit life cycle is at risk.
However, such a sophisticated data integration strategy means little without a quick, easy, and convenient borrower experience. Consumers today expect all interactions to be instant and digitally optimized, so credit unions must be able to deliver a modern credit experience to be competitive. This includes the offer of an online application as well as automated decision-making and renewal options that give feedback within minutes and also offer the possibility of simply digitally uploading relevant documents and information. Forward-thinking credit unions are deploying a smart, centralized platform made available to lenders on mobile devices to automate and digitize the commercial loan lifecycle to better meet the speed, simplicity, and convenience that borrowers have come to expect. Such workflow changes can also lower costs and increase profit margins, while lenders have more time to engage the member on a personal level.
Commercial lending is often the last paper-based process left in an institution, which is why credit unions have historically discouraged credit unions from expanding into the sector. To successfully serve this profitable and largely untapped market, an updated approach is required. A digital credit lifecycle management system that facilitates relationship-based lending can provide an enhanced experience for both the borrower and the lender with powerful risk management tools, process automation, and business services that help monitor and manage trading portfolios. As credit unions continue their competitive lending dynamic, those who provide commercial loans with the necessary resources and strategic considerations will be well positioned to expand their portfolios and better serve business members.
Pat True is a Senior Risk Analyst at ProfitStars. He can be reached at [email protected]