Quick and Smart

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Combining speed and expertise for today’s business lending

By Howard Schneider

Very competitive” is Peter Rice’s description of current small-business lending conditions. Rice is senior vice president for small-business lending at Berkshire Bank, a $7.8 billion-asset community bank headquartered in Pittsfield, Mass.

Berkshire Bank has responded to the heightened commercial lending competition by reducing the average time it takes from the start of a loan’s underwriting through its approval from 2,600 minutes in 2013 to 125 minutes two years later. Rice says part of that loan-process improvement is due to Berkshire Bank’s investment in lending software from Baker Hill, based in Carmel, Ind.

Yet Rice says banks can’t simply purchase software and expect it to “work like magic.” A superior and speedier loan production system comes from “constant evolution,” he explains.

“The best algorithms are all for naught,” he says, if a strong relationship isn’t being forged with each customer.
Berkshire Bank has found that local businesses want both fast loan decisions and “someone who can advise them and connect them to others in the community,” Rice says. Even though the bank’s small-business loans can be approved and funded in as little as eight hours, most commercial borrowers don’t need money that fast.

“Technology is huge,” he observes. “But you must have a culture” that appreciates each borrower’s uniqueness as well.

For Berkshire Bank, like most community banks, that means remaining “relationship-driven, not website-driven,” Rice explains.

Historic advantages

“Community banks have long been a primary source of credit for small businesses,” declared Federal Reserve Board Governor Lael Brainard during a September 2015 speech at a community banking conference. “But changing technology has led to increased competition in this product space from both larger banks and, in recent years, alternative lenders.”

Market-share losses at community banks have been most pronounced on commercial loans of less than $100,000, Brainard added. He noted that “in some cases, partnerships between community banks and online platforms may help expand access to credit for consumers and small businesses, and help banks retain and grow their customer base.”

“Technology-savvy millenials still want that personal touch.”
—Angelo DeBernardo Jr.

Online nonbank lenders using sophisticated loan-processing technology are making strides in fast loans decisions, and potentially raising expectations of small businesses for shorter, easier lending processes. Yet several community bankers interviewed by Independent Banker aren’t overly concerned about commercial-lending pressures from upstart, online nonbank lenders. Because their forte as community bankers is relationship lending, the ingredients of their success require smart service as much as speed, they say.

Although Santa Cruz County Bank, a $513 million-asset community bank in Santa Cruz, Calif., is paying attention to FinTech competitors, “so far the impact of nonbank lenders in the bank’s local has been immaterial,” says Senior Vice President and Chief Lending Officer Angelo DeBernardo Jr. “It’s not part of our business model. We’re interested in building relationships,” he says, adding that even “technology-savvy millennials still want that personal touch.”

Taking the time to meet with commercial clients is essential to understanding their business to serve their individual financing needs best, says Scott McComb, president and CEO of Heartland Bank, a $750 million-asset community bank in Gahanna, Ohio. “You’ve really got to kick the tires” to find the best way to structure financing for clients, he says.

Consultation and tech

Online lending engines may be theoretically efficient in a certain hardwire technical sense, McComb explains, but they aren’t thorough enough to make a good decision with the borrower’s best interest in mind. “You see one company on a piece of paper and another when you go there,” he notes.

Any business loan for more than $30,000 made by Heartland Bank is preceded by an on-site visit. Not only does this produce better loans, McComb says referrals “snowball” when customers view their bank as a business and financial resource.

McComb notes that, in part because of Heartland Bank’s loan-processing and decision-making technology, the bank’s commercial financing packages can be assembled and approved in a day. Meanwhile, at Santa Cruz County Bank, “talented relationship managers who understand credit” are a key to success, DeBernardo says. The bank’s loan officers and back-office staff know each commercial loan is “critically important” to the borrower—no matter what the amount is, he says.

Using a consultative approach results in better-performing loans and long-term client relationships, DeBernardo has found. For instance, a customer who thinks a line of credit is needed for purchasing equipment might be better guided to an amortizing loan that will be paid off before that equipment needs to be replaced.

Being able to tell local business owners that Berkshire Bank specializes in Small Business Administration lending also “makes the first conversation easier” when meeting new prospects, he says.

Technology has improved commercial loan turnaround times and made it easier to increase loan volume, Rice says. Combining automation and a customer-first culture “enables us to punch way above our weight in SBA lending,” he adds.

Commercial lending is a segmented market, so many businesses value building a banking relationship as highly as receiving a fast loan approval. Perhaps that’s why Brainard believes community banks “may continue to have the best business model for fulfilling many small-business credit needs.”


Howard Schneider is a financial writer in California.

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