Traditional vs Non-Traditional Lenders – Who is Winning and Why?

In today’s commercial lending landscape online lenders continue to gain ground over traditional banks.  SMBs are hungry for capital and would often rather pay a high rate for a quick turnaround than a better interest rate and have to wait.  It’s all about time.

A traditional business loan application starts by filling out a form.  The form may be online, something SMBs love, but that’s just the beginning of the process.  It is what comes after that is the time sink.

In order for a bank to make a credit decision, you need information in the form of financial documents. This is usually done by gathering, scanning or copying and printing financial data for the bank.  This information then has to be organized, keyed in by hand, made into reports, and then finally analyzed.   What happens when an SMB forgets something, included the wrong year, or needs to provide additional documentation?  More time is wasted while they locate, copy, and deliver the information.

This process takes time.  It may provide a better picture for the bank of the actual risk than what is calculated by an online lender using very few data points; however, to the SMB time is money and they’d rather pay more to get an answer more quickly.

“As the digital revolution continues to enhance how we go about our daily lives, more appealing, convenient, and cheaper options are making traditional banking seem like an old relic from the past…” Alex Shvarts, Money, Inc. 

So what is the answer?

According to “Closing the Gap in Small Business Lending,” a report by PayNet and Raddon one way that financial institutions can recapture this market (and keep current customers from switching) is using technology to automate data collection and analysis. “Our joint research finds that a key factor preventing community institutions from closing this gap is the loan process itself.”

In their recent report, “The State of Digital Lending,” the American Bankers Association said, “Banks will not be able to grow and meet their customers’ expectations if they continue to rely on traditional, manual processes and channels that could be automated. It’s time to redefine loan processes to be able to match the experience offered by non-bank lenders.”

Redefining business loans means creating faster and easier experiences for SMBs and banks, streamlining the entire process from end to end through the use of online technology.

Validis is a part of the solution.  Our clients are experiencing an average increase of 80% or more in efficiency for loan origination, processing, and credit decisioning. Using DataShare SMBs quickly and securely upload their financials directly from the most popular accounting packages.  The data is then standardized into beautiful, dynamically generated, interactive reports (visible through our online data portal or integrated with current systems using our API) for quick and confident credit decisions.

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