Competition in the small business lending market has gotten so fierce in recent months that some community banks have even begun to feel the pinch on loans backed by Small Business Administration guarantees.
For instance, a banker recently confided that his bank's credit policy requires the same amount of preparation on an SBA Low-Doc loan - which has a one-page application - as it does on loans to middle-market companies. This, despite the bank having an exposure on no more than $10,000.
He is not alone. As Bank of America, Wells Fargo & Co., the Money Store, AT&T Small Business Lending Corp., and others cut the cost of underwriting loans to small companies, small banks will be forced to streamline their underwriting processes.
To help lenders in these situations, organizations including the trade group Robert Morris Associates have sponsored a series of conferences like the one held in Chicago in March espousing the virtues of setting up automated underwriting centers for small business lending. While meetings like this have been a staple over the past year, many banks are just getting started in thinking about ways to improve their systems.
At the Chicago meeting, Chuck Ponicki, senior credit officer at First Chicago Corp.'s Mount Prospect, Ill.-based small business loan processing center, gave a testimonial on his bank's year-old investment in a centralized loan processing center. He said the new center will allow the bank to handle more than 200 expected new applications per month from more than 90 branches in the Chicago area.
For banks like First Chicago that already have their systems in place, the next step is harder to see. To give insight on how to keep up the momentum, BancA Andersen Consulting held a commercial lending conference in Irving, Tex., also in March.
For many, the next step requires more investment in technology. As one banker at the conference said, everyone in the industry is looking for a way to have computers alert them to impending problems with clients. Such a system would allow quick action on problem loans without requiring thorough reviews on a periodic basis.
Distinctive Solutions Corp. of San Luis Obispo, Calif., has developed a system for factoring companies that includes such an early-warning system. It works by giving the user automatic access to news and credit data bases. The information gleaned from these sources is then downloaded into the lender's own system where it is matched and merged against existing customer files. If a problem is found with the client, the computer alerts the user.