The Private Investor - Fall Winter 2019

The lenders’ challenge is that while they’re hired to be relationship managers, their day to day involves an 80: 20 rule, that’s 80 percent data entry leaving them little time for strategy and relationship building. In the meantime, new fintech lenders are eating their lunch.

While lenders are moving towards digitization to combat this, the pace is slow. They are focused on making hurdles easier to overcome but are not focusing on creating a common language to easily communicate with the borrowers.

BANKING LANGUAGE 101 Lenders are
undergoing a digital revolution, but this means
different things for banks and businesses. At
Finovate NY lender from a bank known for its
innovation expressed a market challenge they
had: “We’re often asked why our processes are
so traditional if we’re a bank for tech compa-
nies?” To further the point, last week, a head
of lending strategy at a large consulting firm
asked a few lenders what they’re doing to
improve the process of getting loans. This
disconnect stems from the fact that the bank-
speak for digitization is currently different from
the business-speak. Process is the translation
ash management and payments have received massive digital makeovers since 2011.
Infact, banks that invested in digital transformation have 2% higher Returns on Equity 1
than their competitors who chose not to digitize.

This begs the question, why has lending been left behind? To answer the question, it’s necessary to get into the nuts and bolts of lending. The lending process today involves a borrower, a lender, and copious amounts of manually gathered information. This data determines whether a borrower will receive funding or not. Today, traditional lending decisions for SMBs and businesses take anywhere between three to five weeks with an average time to cash period of three months2.

between business and banking.

BUSINESS LANGUAGE 101 Businesses collect information that supports their growth. This information does not necessarily have anything to do with the metrics lenders use to evaluate them. For example, they keep track of their sales opportunities but aren’t prone to calculate Debt Service Coverage unless an outside party is asking for it. Infact, they may never be aware of what metrics are required to get a successful lending decision. Instead, they get a list of required information (including personal statements, financial statements, credit checks, etc.) and hope for the best.

TRANSLATING BANKING TO BUSINESS With the advent of cloud computing, more data is available on private companies. Businesses have always utilized Back Office Systems and with cloud computing, they have upgraded to Back Office Software Systems (BOSS) enabled by the cloud. Cloud computing has been gaining prominence in business with SMBs doubling their BOSS spend since 2016 .