The back and forth issues, such as the inability to find skilled workers and the availability of quick funding, lament small business owners in the current market. The structural nature of the unemployment in the labor market is one that takes time and initiative to address. However, the lending issue is being readily thrust forward by what is known as “digital transformation.”
It essentially allows banks to meet the online and immediate lending needs of their clients. This ability for banks to evolve will ultimately dictate their success or failure. The efficient market will drive small companies to the lowest cost of capital available, and to lenders with the quickest availability. The current marketplace for money of that nature is expensive. The trade-off now is high interest rates versus quick availability. Digital transformation aims to change that.
It is hard to believe a streamlined digital process is still only used by a minority of lenders. A 2018 American Banking survey suggests banks are willing to change. Less than half of large banks (assets over $1 billion) and 38% of small banks (assets under $1 billion) currently use a digital channel for loan origination. At the core of the issue for small business lending is the cost and the speed. The 2017 New York Federal Reserve’s Small Business Credit Survey found borrowers spent an average of 33 hours applying for a loan. Almost an entire work week. The paperwork process is arcane at best. Requiring borrowers to collect loan paperwork during bankers’ hours. Gathering underwriting data is often an endless drip of requests. Verifying documentation can slow everything further.
Digital transformation of lending will cut back but not eliminate the need for human interaction. Like Artificial Intelligence, digital transformation will accomplish the laborious work tasks, leaving the human aspect alive and well to provide more targeted customer service. According to a 2017 Accenture study, many banking customers prefer simple transactions, like transferring money, checking balances or paying bills to be self-service. Digitization enables that. With more complex banking decisions, like getting a small business loan or refinancing a mortgage, many customers want human bankers to be available. When banks digitize processes like small business lending or applying for a home-equity loan, not only can they create efficiencies that benefit operations, they can also dramatically improve customers’ experiences.
The migration to digital transformation in lending is moving forward. Experts say that those who don’t get on board will not be around for long. It only makes sense that this enormous market of potential lending capital become more automated. This is another classic example of a win-win situation. Banks who transform increase efficiencies and profits, and small businesses gain much quicker and cheaper access to money. For the banks it can be somewhat daunting stepping into this world of automation, so many are taking it a step at a time. Banks can embrace all the value digitization can bring while also keeping the scope of change manageable. Banks might digitize one product first or digitize within limited markets initially. All of this will be a game changer, and will lead to continued growth and optimism for small business owners.