Your Top 3 Loan Growth Challenges – Solved

The ongoing roller coaster ride has bank and credit union executives wondering how to meet revenue generation, portfolio growth, and credit quality goals in the years ahead. There are three hurdles to overcome to improve your loan growth strategies for your bank.

#1 - Putting deposits to work
As consumers received much-needed funding through federal relief programs during the pandemic, people stashed away a lot of cash. Banks and credit unions don’t want that money just sitting around, especially now that interest rates are rising.

And while spending trends have increased steadily, approximately one in every five consumers has not yet recovered economically from the fallout according to a recent report by PMNTS.com. Ongoing inflation spikes are also weighing on the minds of most consumers and small businesses. Interventions such as short-term credit and working capital could help them negotiate temporary financial obstacles, equating to new customers for financial institutions.

By seeking out new product offerings, lenders can help meet the evolving needs of both consumers and businesses in their local communities, and be positioned to thrive going forward.

Automation from advancements in lending technology can help reduce origination expenses, freeing loan officers to spend more time helping borrowers and generating inbound referrals. Operational efficiencies gained from moving away from manual, paper-based processes can save between 30% – 70% on key back-office workflows.

To win the race for funding, banks and credit unions need to offer attractive, efficient ways to get a loan. Many financial institutions are losing more loans than they generate because prospective borrowers abandon the lengthy, cumbersome application process before completing it.

Cornerstone Advisors reports that in a recent survey of 184 financial institutions, “more than half of the organizations lost more than 75% of the potential loan business.” They lose two accounts (or loans) for every account (or loan) opened.¹ Borrowers will instead go to a fintech that offers an easy process. As more digital banking alternatives become available, the potential for a consumer to move to a competitor will only increase.

Banking CEOs recognize the problem. A 2021 survey of financial institution executives asked the question; “What is the greatest headwind impeding your lending success in 2021?” The second most popular answer was, “Meeting demand for Amazon-like experiences.”²

Simplified online loan applications are not only faster and more attractive, but they increase volume by allowing borrowers to apply when it’s most convenient.

#3 - Managing risk
Credit risk issues have surfaced in the wake of the pandemic. For example, what will happen to commercial real estate when so many workers are now based at home? As office space leases expire, there will be adjustments in the marketplace. Banks and credit unions currently carry nearly $2 trillion in commercial real estate loans. Losses could be large for financial institutions with high concentrations of CRE loans.

One response is to incorporate loan participations into long-term loan growth strategies. This presents the opportunity to supplement organic growth to help meet goals for revenue generation and credit quality.

General economic stresses placed on small- to medium-sized businesses in 2020 and 2021 is also challenging credit risk. For many industries, lenders must now underwrite new requests and renewals in an environment of weaker balance sheets. Community-minded institutions with the technology to manage these risks will have an advantage over others, allowing a more diverse portfolio and revenue stream.

As PPP and other stimulus programs run their course, small business owners will once again seek financing to fund new loan growth. This presents an opportunity for banks and credit unions to step in, helping to fund the recovery and expansion. It also presents an opportunity for lenders to diversify their portfolios, which was tough for many during the pandemic.

When considering which industries are likely to drive loan demand, a careful eye should be given to those that carry accounts receivable and inventory. While these businesses have the potential to expand, it’s likely they will need a source of short-term working capital to make that opportunity a reality. Institutions with the appetite and relevant technology to manage an uptick in business will be well positioned to strengthen customer relationships and drive revenue.

Moving ahead with a sense of purpose
Through all these loan growth challenges, bank and credit union executives must ensure that their organizations honor the mandate to serve their communities and to enhance the borrowers’ journey. Community financial institutions have a proud track record of weathering troubles while continuing to serve. The current environment is another opportunity to show their dedication.