Shorten Loan Cycle Times, Increase Volume and Make Borrowers Happy03 November, 2015
The evaluation and approval process in commercial lending involves comprehensive information gathering and financial analysis in order to make a sound judgment regarding the borrower’s financial stability and ability to repay the loan.
However, as anyone who has ever conducted due diligence knows, this process of “getting to know” the business, although simple in concept, is quite rigorous in practice.
Banks are highly regulated and operate on very thin margins so there is little room for write-offs and bad loans. When conducting due diligence on a borrower, banks must thoroughly investigate the entire business, not too dissimilar from an M&A process.
This process requires that borrowers share voluminous sensitive business files with the bank, which are then often evaluated by numerous bank team members. Providing this information is typically done via email, but using email for this process has numerous pitfalls:
- Email is unsecure and files can be compromised
- Files may not be forwarded to appropriate team members in a timely fashion resulting in delays in evaluating the loan request
- Emails can be forwarded to inappropriate team members (even someone outside the bank)
- Emails can be lost or accidentally deleted
- Inboxes can get very crowded and information can become disorganized and difficult to locate
All of these issues can result in gross inefficiencies and significant delays in the loan decision process. Why should banks care?
- Because slow loan approval turnaround can cause pain for borrowers by delaying their business decisions and resulting in a bad reputation for the bank and a reduction in future business and revenues
- Because quicker turnaround times allow the bank to process more loans resulting in increased revenues
- Because borrowers are usually ok with a “no” as long it is a quick “no.” A long, drawn-out “no” leaves the borrower with the impression that the bank does not understand their business
- Because sharing borrower’s files via unsecured emails vastly increases the risk of sensitive information being compromised, resulting in damaged reputation, or even a lawsuit
A better solution is to employ a secure, online central repository, or virtual data room, to house, organize and share documents during the loan approval process. When documents are stored in a virtual data room not only are they completely secure, but they can be organized for easy review by appropriate team members, greatly accelerating the loan approval process. A state-of-the-art virtual data room is also easily customizable in terms of who gets to see what and can even “virtually shred” documents, even after they’ve been downloaded.
A good virtual data room:
- Secures and controls confidential documents
- Provides immediate document access to appropriate team members on a 24/7 basis from anywhere with an internet connection
- Organizes content for efficient review thus streamlining the review process
- Provides detailed tracking and audit information for regulatory compliance
The fact is that banks that use a virtual data room for the commercial loan approval process have a significant competitive advantage over those that don’t. Using a virtual data room for loan approval greatly accelerates the process, which not only makes borrowers happy, but allows for much higher volume, while at the same time ensuring that the process is as thorough and comprehensive as possible.
ShareVault is increasingly being used by commercial banks for managing the due diligence document review process in a variety of different transaction scenarios and has gained a significant customer base among leading commercial banks.
To find out more about how ShareVault can short loan approval timelines and increase loan volume, click here.