Financial institutions can make financial analysis, risk rating, pricing, and other steps for processing small business loans less painful. Automating the key steps that often occur in the back office leads to faster decisions, stronger customer or member relationships, and more profitable lending to small businesses.
Back-end processes for small business loan approval in some financial institutions operate in an automation desert—and it shows. They’re energy-draining, slow-moving, and inefficient.
Without the “water” of automation, applications trudge along the financial analysis, risk assessment, pricing, and other processing steps like a traveler slogging through dunes.
Financial institutions processing a business loan with minimal automation deal with:
Those challenges are not just expensive; they can be risky.
However, when automation permeates back-office lending processes, the small business loan segment becomes fertile ground. Automation fosters efficiency, accuracy, and the support that community businesses need.
During a recent Abrigo webinar, more than a quarter (28%) of respondents answering a poll question said their institution handles all loan types the same – without automation.
When a financial institution uses the same manual review and underwriting process for a $50,000 business loan as for a $5 million deal, the cost of smaller-dollar loans is nearly as high as larger ones. As a result, loan officers and credit analysts may deprioritize small loans from businesses, and institutions may hesitate to expand small business lending.
But these businesses—often the backbone of their communities—depend on access to capital.
Analysts and underwriters using manual systems get bogged down by redundant tasks, such as copying and pasting applicant details into credit memos. They often must consult paper files as well as information housed in separate digital systems. Each step of back-end loan processing—financial spreading, risk assessment, document gathering—requires significant effort just to make incremental progress.
The results?
The most recent FDIC Small Business Lending Survey found that slightly more than half of large banks (those with at least $10 billion in assets) can approve a small and simple loan in one business day or less, compared with only 29% of small banks (those with less than $10 billion).
The speed advantage may be due to large banks’ greater use of automated lending technology, the FDIC said, although large banks’ increased reliance on hard credit-scoring information may also play a role.
Among large banks, 42% currently use financial technology in small business lending, compared to 30% of small banks, according to the FDIC. That’s consistent with the poll in Abrigo’s webinar, where roughly 4 in 10 said their institution uses automation for small business lending.
Furthermore, the FDIC that among institutions that use technology in small business lending, “more than half of large banks use it in at least five of the ten possible steps, compared with less than a quarter of small banks.”
Automation maximizes the return on staff time and institutional resources, ensuring that financial institutions can serve small businesses efficiently while being good stewards of their lending operations.
Below are four ways automation can improve the critical back-end steps in small business loan processing
Many of the back-end activities to approve small business loans kick off once an application has been submitted. But even that aspect of the process can be stymied when institutions rely on emails, physical paperwork, and tedious follow-ups. Automation offers a secure digital portal for borrowers to upload documents and can flag missing items and send reminders so that applications have all the necessary information and documents for processing and review to begin.
1. Financial analysis
Manual data entry related to financial statements and tax forms is like filling a jar with tweezers—painstakingly slow. Small business lending software that automates financial spreading and analysis eliminates that hassle by:
2. Risk rating
Manually assigning a risk rating to each application can involve subjectivity, and documenting decisions can be time-consuming. Automated risk rating improves consistency, defensibility, and speed by:
In a system designed specifically for small business lending, like Abrigo Small Business Lending, financial institutions can take automation even further. It can automatically access credit scores and run loan details and borrower information against the financial institution’s risk management policies. Small business owners’ loan requests that comply with policy can be automatically sent to apply rate sheets. Applications that don’t meet policy can be sent for manual review, then once that is complete, the loan can be put back on the automation path.
3. Applying rate sheets
Pricing shouldn’t be a guessing game. Automated loan pricing tools bring data-driven precision by:
With this level of insight, financial institutions strike the right balance between risk, profitability, and customer satisfaction.
4. Credit memos and decisioning
No more cutting and pasting borrower details into Word documents. Small business loan automation compiles credit memos in seconds by:
Abrigo Small Business Lending automatically creates a standard report based on borrower information, ratings, and pricing information then declines or approves the loan in accordance with the institution’s policies. Everything flows seamlessly, and staff can engage manually as needed without having to then do everything else manually.
Automating small business loan approvals isn’t just about speed—it’s about strategic advantage. Here’s why it’s worth the investment:
Small business loan processing and approvals can either accelerate growth or create bottlenecks. Financial institutions that embrace automation for the back-end tasks can better compete with larger rivals and online-only lenders while still maintaining the relationship focus of a local lender.
When technology takes over the highly manual tasks of sifting through extensive financial documents, verifying compliance, assessing risk, and generating loan documents, then analysts and lenders can use their skills and time in other ways to connect with business owners and deliver fast, reliable service that is more consistent and scalable.
This blog was written with the assistance of ChatGPT, an AI large language model, and was reviewed and revised by Abrigo's subject-matter expert.
Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.
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