Success in the commercial lending industry depends on a constant cycle of data-driven evaluations to ensure that your organization originates profitable loans. Tracking key performance indicators (KPIs) specific to commercial loan processing indicates the surest path to informed decision-making.
To limit the influence of risky, gut-based decision-making, lending institutions should stress the value of KPIs for maintaining a data-backed understanding of the overall profitability of their loan origination systems and practices.
While there are dozens of relevant lending KPIs you could track in your organization, the following three constitute a solid foundation to build on initially.
Average Cycle Time
In the commercial lending industry, average cycle time refers to the total number of days that pass between application submissions and loan funding divided by the number of loans funded by an institution during the same time. Therefore, average cycle time can reliably indicate a lender’s overall efficiency.
With the commercial property price index accelerating since the second half of 2021, commercial lenders – four out of five – have adopted a cautious optimism for lending profitability in the near future. For the duration of this trend, commercial lenders should expect average cycle times to hold or even decrease slightly over last year’s averages. Any upticks in cycle times may indicate bottlenecks or poor performance somewhere in your organization’s operations.
As poor cycle times translate to negative experiences for both borrowers and referral partners, lenders should prioritize quick adjustments to any monitored slipping in this important KPI.
A commercial lending institution’s pull-through rate equals the number of loans funded for a given time divided by the total number of applications submitted, multiplied by 100. If an institution receives applications from 100 potential borrowers and funds 70 of them, that institution has a pull-through rate of 70%.
Pull-through rates provide insight into several key components of your day-to-day operations. These include:
- Customer service quality
- Efficient interdepartmental workflows
- Submitted application quality
- Interest rate viability
Lending institutions can use pull-through rates to identify where inefficiencies occur in their processes. Conversely, high pull-through rates tend to indicate that lending teams are ahead of their benchmarks and may be ready to assume larger workloads.
As U.S. banks experienced a marked rise in commercial loan demand in the final quarter of 2021, institutions should monitor pull-through rates closely this year and stay prepared to take advantage of emerging opportunities, specifically with respect to improving efficiencies across the organization.
Case Study: Learn How A Top 10 SBA Lender Used FIleInvite to Process 12 Months of Loans in Just 2 Months
Abandoned Loan Rate
An abandoned loan rate is a loan KPI measured by the number of loan applications approved but not funded divided by the number of total applications approved. Abandoned loan rates provide insight specifically into your organization’s post-application performance.
When abandoned loan rates rise, institutions should investigate why applicants are leaving approved loans on the table. Potential causes for an abnormally high abandonment rate may reflect poor nurturing and engagement on the part of originators or it may indicate that your institution is lending at non-competitive interest rates.
3 Ways to Reduce SBA Loan Processing Time
The federal office of the Small Business Association (SBA) lends to small businesses for most common business purposes such as long-term fixed assets and operating capital. Unlike private commercial lending institutions, the SBA requires two kinds of approval for loan applications – the SBA itself as a backer of the loan and the lending institution it contracts with.
As such, the SBA loan applications process is slow – averaging between two to three months from application to funding – despite having processing times of seven to ten days. Fortunately, there are a few steps commercial lenders can take to reduce their loan processing times.
1. Provide Current Financials
You can streamline your SBA applicants’ loans by ensuring that they provide a minimum of three years’ tax returns and up-to-date financial statements such as sales projections, balance sheets, and income statements. Business owners can further supplement their applications with detailed business plans, including subset plans like marketing as well.
2. Encourage Applicants
SBA loans typically require lower down payments than other traditional business loan types– as little as 10% compared to the standard 20-40%. For clients with capital margins, you can reliably speed up the application process by raising down payments to match standard percentages or by offering collateral.
3. Leverage Technology at Different Stages of Your Loan Application Process
While obviously there is no one-size-fits-all solution for this, a number of software have been built specifically to address the potential inefficiencies within this process. For example, "general commercial loan broker software" tends to be a catch-all category that indicates the software is capable of automating processes, tracking loan applications and monitoring applications for updates. To get even more granular, "commercial loan origination software" tends to be used similarly, indicating that a software centrally manages and automates different stages of teh loan servicing cycle.
While FileInvite is not technically a specific "loan broker" or "loan origination software," it does allow you to automate the most inefficient parts of your commercial loan application process.
Automate Document Collection with FileInvite
Despite increased digitalization in the banking industry at large, most lending institutions still rely on ad hoc methods of document collection involving paper documents, email attachments, and files uploaded to disparate systems. The lag of loan document collection practices behind the curve of digital transformation constitutes one of the costliest bottlenecks in the commercial lending industry.
On average, bankers spend 30-50% of their sales cycle time gathering documentation from clients. With digital workflow automation through FileInvite’s document automation platform, lenders can expect to see their turnaround times drop by 34%. Combining SOC 2 compliant security with an intuitive integration platform, FileInvite can accelerate your teams’ processing cycles while simultaneously enabling them to spend more time on client engagement and customer service.