Here is an unsettling trend: small businesses and consumers continue to have difficulty securing short-term loans and lines of credit from credit unions. According to the latest Biz2Credit Small Business Lending Index™, loan approval rates at credit unions are at the lowest mark to-date, dropping to 40.7% in March, as small business lending continues on a downward trajectory.
“Credit unions are routinely overlooked in small business loans as they lag behind in technology,” said Biz2Credit CEO Rohit Arora. “Competing lending institutions are taking market share away from credit unions.”
Many of those competitors, including non-bank lenders like LendingTree and OnDeck, have adopted technology that automates the lending process to provide easy application, immediate approval and rapid delivery of small business loans under $100,000 and consumer loans under $35,000. Consumers and small businesses can apply and be approved for loans online and in minutes from any Internet-enabled smart device or computer, effectively responding to consumers’ ever-increasing dependence on smart devices and need for immediate gratification.
“The shadow banking [non-bank] market is huge and is targeting small businesses for loans,” said Michael Moebs, CEO of industry research firm Moebs Services, in a recent Banking Exchange article.1 Moebs said he thinks this competitive edge hurts small regional banks, community banks, and credit unions the most.
However, now thanks to third-party digital lending experts, credit unions are able to compete with these lenders via end-to-end technology that automates the entire loan process. This type of solution streamlines the entire lending process – from application and underwriting to set up, review and renewal.
The technology–which can reduce the cost of processing and manage a loan from approximately $2,4002 to $1003 or less–has resulted in positive loan growth for a small segment of institutions that have embraced it, according to a recent Moebs Services report. The Banking Exchange article reported that these institutions “have seen what nonbank lenders are doing and adopted it—namely moving away from traditional underwriting methods to using decisioning software.”
According to Moebs, these institutions recognize that they do not necessarily need people to underwrite when the right software can do the job. “The underwriting process has changed,” Moebs said. It is possible to do more business with fewer lenders, making the underwriting process (as well as reviews and renewals) extremely efficient, he explained.
With only minimal effort, credit unions can take steps toward improving the troubling downward lending trend by taking advantage of the efficiencies that digital lending technology provides.
3 R.C. Giltner & Associates, LLC