Financing Gridlock

March 16, 2016

The words Population, Congestion, and Volume suggest loan application traffic causing a bottleneck within a department in Small Business lending today.

I migrated to the US from India in the early 90’s. Back then my town was quiet, peaceful and very green. Traffic was less, there was discrimination in classes, and those who had a car where considered more affluent while others used public transportation or a two wheeler. Today, some 25 years later, almost every automobile company has opened a factory in India – increasing the need for engineers. Big corporations opened up offices in India – increasing the need for construction with the best architecture in order to keep up with the standards of the western world. Most of this newness increased the need for skilled labor, resulting in more transportation—transportation where everyone wants their own car.

Point is today’s more developed India has just about the same, if not more, roads but with about 10 times more the vehicles on them. Basically, it’s a mess!! Roads can’t handle the traffic. Those who rode a two wheeler now have a compact car. Those who took public transportation now have an intermediate or standard car (courtesy of industrialists wanting as many Indians being able to afford a car in India, irrespective of their social class).

To add to all this, India made flyovers on the same roads in result of an increasing population and transportation (Solution? They tried). The intention was to distribute the volume of vehicles or congestion through the system they thought would help, almost creating pockets of traffic gridlocks throughout densely populated sections of cities across India.

I think we’ve understood that these flyovers have helped India, so let me not bore those who really don’t care to hear about problems of other countries. What’s more important is understanding what has led to the problem and how that is related to our topic.

The words population, congestion, and volume suggest loan application traffic causing a bottleneck within a department in Small Business lending today. With the exception of some large banks, most regional or community banks do not have the time or capital to develop a process that can handle the traffic, similar to the traffic problem in India. Sorry to say, the problem isn’t going away any time soon because small business loan cycles are such that banks cannot pause the volume to resolve internal matters, they need to stay in business.

While BDOs’ are hired to bring the volume into the lending system, there’s a shortage of qualified SBA loan officers, underwriters, and closers. The increasingly high volume of inquiries keep Lenders from being able to organize the time to hire qualified and skilled people. Sadly, once they are found, they either don’t stay long enough or there are way too many files to work on (vetting, underwriting, preparing for approvals, and finally going through months of closing due diligence).

To say the least, the process creates a frustrating work environment that places extreme pressure within departments, as well as borrowers. You see, Bankers who don’t want to jeopardize their jobs can’t really complain, so they avoid having to explain the internal reasons for delays to borrowers. Even the senior management’s hands are tied in this case, which obviously can’t be resolved overnight. Kudos, they do work very long hours in trying to get things done — while the revolving doors are constantly in use and junior employees are constantly changing.

Just like the flyovers (more like highways) above the local roads which were meant to ease traffic nightmares, banks also need a more efficient process within the small business financing system. Efficiency that can help avoid such long delays in loan processing will result in more appreciative borrowers, as opposed to the ones who hate the experience of their current painful process.

I can guarantee that my Banker friends know what I mean when I say that Borrowers with bad experiences spread the wrong message throughout the community regarding financing. Yes, most of the time the borrowers are lacking facts and/or knowledge about the benefits of the loan products—they just don’t know, and don’t care to know about the internal problems. Maybe they don’t need to know because it really shouldn’t be their headache anyway. But behold, it isn’t always the loan product that causes the delays, it is mostly the poor infrastructure and unskilled staff that lack the ability to juggle between their overload.

So is it time for a change?
Time for someone to help improve the system?
Is there a way to bring out the right information to the business community?
Can we try to improve expectations first, and then the processes within the systems?

Such are the not-so-great features of our small business financing world, that I like to refer to as “Financing Gridlocks.” We are out to help both the sides – the Lenders and the Borrowers.