What is an end-to-end Commercial Lending Software?

Before we explain why commercial lending software is needed, we must first detail what it is capable of:

• Automation through digitization: at its core, such a platform digitizes various manual and paper-heavy parts of the commercial lending process (from loan origination to document verification, etc), and thereby can automate it as well.

• Advanced Credit decisioning: by aggregating data from various sources, it can arrive at a far more precise estimate of a borrower’s financial health and likelihood of default.

• Regulatory compliance: by integrating regulatory frameworks into its very tech stack, it can ensure that the lender fulfills their regulatory obligations and thereby mitigate risk from regulatory missteps.

• Collateral Management: Such platforms mediate a strong relationship between the lender and the borrower by tracking collateral and other aspects of the loan agreement or covenant, making sure that both parties are meeting their obligations

• Analytics: Commercial lending requires constant monitoring and timely assessments of the lender’s loan portfolio, regulatory compliance, and more. Such platforms have built-in tools that give the lender full oversight of their exposure, assets, liabilities, and compliance status.

There are many more aspects to a lending platform such as Finanta, but these are the core features that must be adopted or integrated today if a lender wishes to stay ahead of market trends.

Commercial Lending Software – Satisfying the Customer

Perhaps the most obvious – and immediate – benefit of an end-to-end commercial lending software is that it answers the needs of today’s borrowers. Today’s borrowers do not wish to be confronted with manual documentation and traditional red tape but want digital experiences streamlined by a human expert. Some successful lenders have adopted a novel approach where the borrower’s relationship manager can explain every aspect of the loan terms over a shared screen, leaving the customer in no doubt about their obligations.

Others harness such platforms’ automation to provide straight-through-processing for low-risk applicants so that they can focus better on higher-risk but promising applicants, creating a win-win scenario where neither applicant benefits at the expense of the other – automation creates the extra time that loan officers devote to special applicants.

Also Check: Commercial Lending Trends

Borrowers value personalization and all three examples cited above are examples of that. Each borrower gets a personalized experience from their relationship manager, specific criteria apply to low-risk and high-risk borrowers, and in essence, commercial lending software can potentially give each borrower a personalized experience because of its ability to precisely understand not only the borrower’s requirements but also their credit-worthiness and life-time value to the lender.

In fact, a KPMG report states that borrowers today want more touch points across the loan process even if they are willing to use self-service facilities. They will settle for self-service when uploading statements, making payments, and assessing lending rates, and some are even willing to complete loan applications online by themselves. However, the onus is then on the lender to authenticate and secure the data flowing in from all these self-service processes, and also provide for touch points during escalations and any instances where a customer is unable – or unwilling – to make do with self-service setups. Since data security and authentication are also a regulatory requirement, both the borrower and the lender benefit from a platform that can combine self-service, human guidance, and data authentication all at the same time – basically, that is the way it ensures personalization for each and every type of borrower.

But how is a lender to integrate such a comprehensive solution into their tech stack? There are best practices for that too – like focussing on a minimum viable product before expanding on your solution’s feature set, and one bank adopted this approach to great effect. Finding that most of their credit decisioning involved small and medium enterprises seeking additional credit based on existing loan terms, they built an end-to-end digital journey in less than six months using data they already had on such customers (the platform hence did not have any dynamic data aggregation capacities). As a result, they were able to rapidly extend credit to these applicants – before, it had cost much time and money to process each one. This lender can now upgrade to a third-party provider of commercial lending software, precisely because they have cut their teeth on building a pared-down version of such a product.

Commercial Lending Software – Empowering the Lender

We have devoted an entire article pointing out that today’s commercial lender is hardly in a privileged position, beset by regulatory pressures and other constraints. A platform such as ours can address many of the lender’s most pressing problems.

Most lenders still struggle with funding delays because of outmoded, manual processes that all but mandate a digital transformation of the credit journey. Those who have achieved this digital transformation reap significant gains in revenue and operational efficiency at much lower costs. By partnering with a provider such as Finanta, that is experienced in effecting such a digital transformation, they simply bypass all the problems that will confront them when going it alone, and this is why a McKinsey report actually recommends engaging with fintechs when setting out on your lending platform’s digital transformation.

Our article on getting a commercial loan makes clear just how complex such a process can be for the lender, involving relationship managers, loan officers, specialized agencies such as the Small Business Administration, complex underwriting procedures, and even a disbursement process that depends on exactly what type of loan you have applied for. For both the borrower and the lender, this complexity is a barrier to success. Lenders can cut through this complexity easily by adopting a digital, end-to-end solution.

Also check: Commercial Lending Challenges in the USA

But funding the right applicant at the right time presupposes that you have a sophisticated credit decisioning model in place. A solution that automates manual steps to speed up time-to-cash is merely simplifying a process, it is not upgrading it.

The lender needs to fund applicants quickly, but they also need to identify deserving applicants. The platform needs to prioritize the right borrower and also allow the lender to track loan performance over time. That is what a solution such as Finanta offers with its analytics – a 360-degree view of the loan and the borrower not only during the loan process, but also over time. A solution such as Finanta helps lenders maximize the benefits of relationship banking, in which both the lender and borrower engage with each other repeatedly over the course of time, impelling the borrower to share proprietary information and convincing the lender into providing better loan terms. But this is just one aspect of data-driven credit decisioning – proprietary information can often be hard data, but relationship banking also involves ‘soft’ information garnered through a mutual relationship based on trust. A truly capable commercial lending software can integrate both hard data (from a variety of sources, external and internal, including transactional data), and the mutual, trust-based understanding between a borrower and lender.

And last, but by no means least, such a platform ensures that the lender is compliant and wards against any risk from the regulatory sphere. Commercial lending regulations lack a centralized federal rubric and change from state to state. A commercial lending software’s most critical benefit might well be its ability to help the lender make sense of this regulatory complexity, just as it simplifies the convoluted commercial loan process.

In fact, regulatory compliance is not only complex but also dynamic. Regulators are keeping a close eye on lenders with commercial real estate loan exposure – the risk of default is high as such property is generating less revenue due to hybrid work conditions – few are making use of the various businesses that are tied to serving office-goers.

Green lending – especially sustainability-linked lending – is on the rise, and requires that companies that get loans for sustainable businesses actually fulfill their ESG (environment, social, and governance) responsibilities. Funding a player who ends up failing ESG audits by running a brown business will hurt the lender’s portfolio, reputation and compliance status.

There is really no silver bullet to the present-day regulatory challenges in commercial lending, though some players have adopted technology dubbed as Regtech to address their exposure to compliance risk – this is why the global regtech market is projected to grow at an annual rate of nearly 24% over the next nine years. Rather than buying specialized regtech, it is better to integrate such technology into the lender’s tech stack or opt for a platform that has built-in regtech solutions in place. This is probably the only way to address regulations unique to each state, keep track of regulatory tightening in the CRE and green lending spaces, or any type of commercial loan that turns up on the radar of regulators.

Conclusion: The Future of Commercial Lending Software

Commercial lending’s future is arguably tied to the evolution – and adoption – of commercial lending software, and its capacity to address the challenges of both the lender and the borrower.

In fact, commercial loan software is expected to reach $23 bn in value in the next six years as more and more lenders turn to such software to respond to the growing complexity of commercial lending. But demand must be met by the right supply – simply put, adopting the right platform is far more important than acknowledging you need one.

Whether the lender confronts this problem by attempting an in-house solution, or by partnering with a fintech, or by directly engaging with an industry-leading commercial lending software such as Finanta may well determine how successful they are in the digital transformation of their commercial lending apparatus.

By going to the experts, rather than building in-house expertise, the lender saves time in the short run and garners more revenue in the medium to long term. By adopting such technology whole-cloth, rather than piecemeal, they also gain operational efficiency quickly, and across the board, rather than in one fumbling step after another. Part of the problem here is understanding the nature of the problem – that one must use technology to overtake market trends rather than let technology overtake you.

An end-to-end commercial lending software such as Finanta, which is purpose-built to fit the needs of the borrower, lender, and even the regulatory environment, is the right choice not only to harness years of expertise but also to insure against any sort of challenges that the technological future throws at you.