Tips to Surviving an Economic Downturn for Commercial Lenders

Tips to Surviving an Economic Downturn for Commercial Lenders

Between rising inflation, instability in the market, rising interest rates, supply chain issues and the global pandemic, it’s been a rough few years. With so much going on and so little time to process it, things can feel almost as if the sky is falling for small business owners and now lenders. However, market fluctuations and the potential of an economic downturn don’t have to spell the end for a lender. There is a way to survive and even thrive during these tumultuous times.

The first thing to consider is the alternative lending market. Whenever recessions seem to be on the horizon, banks and other traditional lenders begin tightening their purse strings in preparation for what’s to come. They put the brakes on approving many loans and start denying riskier clients. Thus creating a climate where small business owners are unable to get the capital they need via traditional means. This is where alternative lending options come in. Alternative lending options such as online lending, receivables financing, factoring, purchase order finance, hard money lending, merchant cash advance (MCA), credit based small business factoring and many others fill the niche left behind when traditional lenders begin turning off the spigot of loan approval. During a recession climate, these already profitable options boom in popularity as the reluctance of traditional lenders drives new clients to explore new alternatives in order to find financing. What this means for lenders is that the key to success in a recession climate is often found in the alternative lending market. By offering more alternative lending options, a lender can find their footing even in times when other lenders have been shaken to their core.

Increase Diversification

A wise financier shouldn’t put all of their eggs in one basket. When instability and extreme fluctuation are the only constants, diversifying your lending portfolio is always a sound move. Having more variety in the services you offer and the types of clients you work with allows you greater protections against loss and the fallout of necessary risks gone awry. If one industry is hit harder by the economic downturn than others or an important deal doesn’t work out as expected, then the added versatility gives you something to fall back on. 

Increase Underwriting Efficiency

Besides exploring the alternative lending market and expanding your services, cutting down on your operating costs wherever you can is important to ensuring that you prosper even in leaner times to come. Replace as many manual processes with automation as you can. If something can be done better, faster and cheaper with technology than the way it’s currently done, then investing in such innovations is key. Many of the underwriting processes commonly done through manual means already have cutting edge technological tools designed precisely to provide a way to decrease the amount of labor and time typically required to approve small businesses. Thus allowing you to improve your efficiency, more readily support an expanded customer base, and identify the fat that can be cut out of your budget. A cloud based loan underwriting system that can help your team automate many manual tasks is often a wise move. Loan decisioning software doesn’t replace a human underwriter, but can assist with lifting the heavy load of reviewing every funding request, increase speed and reduce costs.

Improve the Client Experience

Another area to focus on is the experience of the small business owner. When banks are tightening their criteria while small business owners still need cash, making it a digital process to apply for financing sets lenders apart from their competitors. Offering a borrower’s portal where businesses can safely submit their documentation from any device becomes more important than ever. Adding speed and convenience to the borrower experience allows lenders to take on more clients faster and prepares them to thrive even in an economic downturn. A loan origination system that comes ready to implement can be a game changer and can reduce the cost of building technology from scratch. 

 

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