Digital Lending Cost vs Revenue for Community FIs

Loan losses explain two-thirds of the variation in ROA among FIs, so sound underwriting and risk management is critical to banking success.  But what happens when underwriting, delivery and management costs exceed the revenue earned on loans?  As the chart below shows, for many banks the cost to make loans less than $50,000 exceeds the revenue earned.  New digital lending technology, however, delivered under your brand, with your underwriting and your control can make and manage loans at a fraction of the cost of manual and paper processes.

As a result of historical costs, community banks have exited the market segment of loans under $50,000 largely in the last 20 years.  “Get a credit card if you want a $20,000 loan,” is a regular lament today.  Community FIs may make these smaller loans to serve customers, but even expedited processes have ongoing service costs.  The last thing you want to do is tie up your highly productive commercial lenders with renewing $30,000 lines of credit.  Yet, 39% of all business loans are under $50,000 and 51% are under $100,000.  FIs have checking relationships with core customers wanting and using loans in this size, but are borrowing elsewhere.  Your best revenue growth opportunity is providing loans digitally and profitably to the large market of customers where you already have a relationship.

You too can deliver loans with this technology to profitably service customers, and offer the benefits of "see your loan in seconds and set up in minutes."  For more information, click her to join us for our next webinar.