SPONSORED CONTENT PRESENTED BY WOLTERS KLUWER
By Suzanne Konstance
As the commercial lending industry, along with the world, collectively comes out of the COVID-19 pandemic, we’re reminded that commercial lending is a brutal business.
The process of issuing a loan is still too often a lengthy, manual process. Margins for most lenders are razor-thin, making risk the primary factor, rather than pricing or value. Lenders are forced to find ways to squeeze cost out of every part of the loan process. Even considering the effects of the pandemic, it can still be argued that there is too much capital in the economy. Thousands of banks, including the 70 or so “mega” lenders, savings & loans, credit unions, fintechs and online startups are all competing for whatever piece of the pie they can grab.
This environment means that a borrower’s risk factors are less important than winning the business and freezing out competition. Price wars are never good business, and that’s especially true of an industry like ours.
Then consider the work required to fully vet a borrower. It’s a process that requires near perfection across the organization: credit judgment, deal structuring and supporting operational processes. Post-close, other costs to service the loan arise. All these factors were true before COVID-19 upended financial norms. But now, even more risk is present as businesses struggle with labor shortages, supply chain issues and unpredictable demand.
Because of the sheer number of pre-loan tasks that need to be performed, a lack of digitization and bloated processes can impact the efficiency of a commercial lending team right from the start. Organizations often use multiple systems, processes and vendors to work on a loan—often more than 10 systems from the beginning to the end of a loan cycle. This translates into multiple handoffs, disconnected systems and siloed information.
That kind of “Rube Goldberg-esque” lending operation is no longer viable, if it ever was. Commercial lenders can, and must, remove all the obstacles that stand in the way of growth.
Lien perfection as a change-driver
The importance of perfecting liens is something that will remain constant, regardless of external variables in the commercial lending space, and it very well might be the perfect place to illustrate how automation can help lenders succeed.
Filing of a UCC is seen by many—incorrectly—as just a transaction post deal close. Significant risk lies in the management of the lien for reasons that include:
- Disconnected systems where anyone with the ability to access secretary of state web portals can create, change, or release a lien. Consider that each year 16 percent [1] of debtors have a change event that can materially impact lien status.
- A lack of transparency and visibility into lien portfolios across lending organizations. Lenders filing UCCs without the help of a service provider tend to see up to a 22 percent [2] rejection rate.
- Difficult to understand systems and processes that lead to unperfected liens — which can represent as much as 30 percent [3] of a portfolio without lenders knowing.
Automating large parts of the lien lifecycle is possible with the right toolset. Lien management platforms, like Wolters Kluwer’s iLien, can automate monitoring of a lien portfolio and trigger reports on its health to be sent to stakeholders periodically, or even on-demand. Losing track of a UCC filing because it was filed by a third-party agent can be a thing of the past: Lenders can bring all their liens, no matter where or when they were filed, into one synchronized interface for complete visibility and ongoing management.
Automation and digitization with a platform like iLien can completely transform the lien perfection process alone. As much as 70 percent of the steps can be removed from a lender’s lien workflow while still providing perfected lending.
Reallocating resources
The real value of automation might actually be the freeing of human capital—allowing employees to add more value to the organization by focusing where they are most needed. Automated tasks help to reduce errors while ensuring that a commercial lending team can more easily scale to support the enterprise and meet margin requirements.
Other important parts of automation platforms are artificial intelligence (AI) and application programming interfaces (API). AI enables lenders to use data to learn patterns, diagnose problems, better predict behavior and even prescribe future behavior. APIs replace repetitive data entry with auto-population of forms, provide borrowers with a faster, quality experience, and encouraging repeat business.
Automation need not replace human capital. Instead, it should empower it.
Rather than just managing the paperwork of a loan, an account manager can leverage AI and automation for account maintenance, while shifting into the role of borrower advocate, providing advice about how to handle things like interest rate fluctuations and currency exposure.
Or they might be the catalyst for an entirely new set of value-added services from the lender, such as educating borrowers about phishing scams and the latest security breaches. These concepts go above and beyond the basic commercial lending transaction and create an attractive landing spot for more commercial borrowing.
Conclusion
The volatility in the global financial space has created a situation that requires continued automation and digitization by commercial lenders. Mature, innovative digital touchpoints are replacing manual methodologies, and commercial lenders can leverage new capabilities to lend quickly, flexibly, and responsibly.
Whether you’re juggling tasks, spread thin or just need guidance, Wolters Kluwer Lien Solutions is here to help with industry-leading products and services that help create efficient, high quality lien management under any circumstances. Our comprehensive solutions, automated processes, and outsourcing services help you to maintain your liens to mitigate your lending risk, while at the same time better deploying your team to compete and win in a brutal business.
Call us to discuss your unique situation and let us show you how lenders can use lien management to mitigate risk. Call us today at 800-833-5778 or visit liensolutions.com.
Suzanne Konstance serves as vice president and leader of the Lien Solutions segment at Wolters Kluwer Compliance Solutions. She and her team focus on understanding and solving client problems to provide innovative, effective secured lending solutions. She has led teams to create new best in class products and services that greatly improve lien and title management. Konstance is the executive sponsor and a founder of a divisional Women’s Initiative Network to promote female career development at Wolters Kluwer, and has been recognized with the 2021 Businesswomen of the Year Award from CEO Today magazine; 2021 FinTech Senior Leader of the Year by Wealth & Finance International magazine; a Women in Finance Award in 2020 by Finance Monthly; and Female Entrepreneur of the Year, Business Products, Women in Business 2020 Stevie Awards.
Notes
[1] Wolters Kluwer analysis of public records data
[2] Wolters Kluwer analysis of public records data
[3] Wolters Kluwer analysis of public records data
[4] Based on Wolters Kluwer experience with customers
