There’s a reason why Amazon is one of the most valuable companies in the world: efficiency. There’s not much to fuss about: your address and payment information are stored for seamless purchases. If you want to buy something, you can usually get it with a few clicks and within a few days (sometimes less). If you’re like me, most of the time when you shop on Amazon, you don’t care who the fulfillment partner is—you just want to buy a product.
While Amazon pioneered the fully online retail experience, brands in diverse industries have followed suit. There’s Uber, Auto Trader and Airbnb, the latter of which allows you to rent a house through a simple online portal.
One industry that still hasn’t embraced a fully online experience? Online lending—even though it’s right there in the name.
Business owners crave convenience
Most online lending doesn’t come close to the Amazon experience. With regard to convenience, consumer lending is way ahead of commercial. These lenders use two factors—credit score and income—to assess creditworthiness and speed up the entire process. Much like everything else, the customer experience is critical in business lending. It’s already been established that there’s plenty of demand to apply for business loans online, but commercial lenders shouldn’t be satisfied with stopping there.
For most small business loan applicants, the process still requires getting on the phone and scanning and sending documents. But the process to get a loan online shouldn’t be confined to just the application—everything needs to happen digitally. Lenders should offer a fully online experience, from the application to the approval to actually closing the loan. That means systems need to be in place to sync applicants’ data and for documents to be easily uploaded.
Innovators need to push the industry forward
For an example of a technology that made transactions simpler and led to huge growth, look at Square. The company in 2010 introduced a simple device that connected to smartphones so that vendors and small businesses could easily accept credit card payments, which until then was simply not possible without the use of a terminal or high fees. Last year, Square processed $85 billion worth of payments, much of which was for small businesses. The company pushed the credit card processing industry to provide faster, more convenient options for customers.
There are just a few commercial lenders who offer a convenient online experience, including Kabbage, Headway and OnDeck. Kabbage requires basic business information as well as access to business accounts, which it uses to “analyze a variety of financial performance indicators like revenue consistency, cash flow and the business owner’s consumer credit.” Kabbage assures business owners that one factor won’t necessarily keep them from qualifying, and it lets applicants know whether they qualify on the spot. Headway’s process works similarly, while OnDeck notifies applicants whether they qualify shortly after their application is submitted. The best part about the experience with these three lenders? The borrower has the ability to transact the entire experience online (not just the application).
While these companies are innovating, not all lenders are prepared to follow suit, but disruption will eventually happen whether they’re prepared for it or not. Of course, there are many complicated steps behind the scenes when lenders consider a small business applicant, and these make it more difficult for the process to be fully digital. In many cases, the lender is underwriting the loan from data that isn’t available online (e.g. equipment, real estate, accounts receivable, etc.). In addition, the lender must validate bank routing numbers, provide legal documents that need to be signed and sync other information pertinent to a loan. Loans can be larger or smaller, terms longer or shorter and APR higher or lower. These dials can be hard for lenders to feel out.
It comes down to a question of resources. Financial institutions have to keep regular operations ongoing while fending off potential cyberattacks. And as such, customer-facing system improvements that make the lending process completely digital may not be top-of-mind for these companies. But it is essential, given how much customers prefer online checkout. Think of the potential boost to business these digital transactions can provide: conversion rates will increase dramatically because loans can be closed during nights and weekends, and they’re not dependent on loan officers being in the office.
Lending needs more tech, but it still needs people
While lenders should adopt a tech-driven approach, it doesn’t mean they should replace loan specialists or experts who can answer questions. The ideal scenario is to allow the customer to transact in the way they want to transact; some may want to complete the entire process online without ever talking to a funding manager, others may want the help from the funding manager, and the rest may prefer to meet in-person.
While the underwriting process should be automated, there should still be regular audits of the system, and individuals who were denied loans should be allowed to appeal. It’s clear we shouldn’t entirely rely on algorithms. A balance needs to be struck between automation and human touch.
“We really appreciated the personal touch that our funding manager, Josh, gathered down-to-earth, human information that would help us to increase our chances for good offers. While I know that algorithms drive some of the loan processes, we feel it really helped to have the combination of actually being able to work with a funding manager focused on our application. For example, after speaking we were able to include additional financial information from some of our busiest months, as our business has seasonal fluctuations.”
People are at the heart of loans, both on the giving and receiving ends, but that doesn’t mean the process can’t be improved with technology. If a small business owner could apply for a loan with the same ease as buying a gift on Amazon, there would surely be more business owners giving it a shot. That means more business for lenders, but more importantly, more money in the hands of the people who need it to float or grow their businesses.
Over the last decade, we’ve made great strides toward re-imagining the small business lending landscape. As we enter a new decade and a new era of innovation, business lenders will have no choice but to step up to the plate to provide faster, more convenient options for customers. It’s time for the industry to fully embrace the online experience—it’s time for online lending to truly live up to its name.