Data across the board shows continued growth for commercial and industrial loans since the last months of 2021. A recent Federal Reserve survey shows that during the fourth quarter, a net 21.7% of bank loan officers reported higher demand for commercial and industrial loans, up from a net 7.6% who said the same three months prior. That’s a good sign for businesses. But banks that are still using old paper-based loan origination processes, or even a collection of systems from a variety of vendors, need to be prepared for a lot of processing time, gathering documentation and checking boxes. That’s also a lot of time not focusing on growth and preparing for the increase in demand. That’s why scaling up through digital loan automation is critical in 2022.

What is digital loan origination?

Digital loan origination, in its simplest form, leverages the power of digital processes and resources, often cloud-based, and built and managed by companies that sit outside the bank. The bank is not responsible for building and maintaining the technical architecture required to operate the loan origination technology, nor are they responsible for building and maintaining the software running on that infrastructure to process the lending activity. In cloud-based loan origination, the bank is working with a provider who knits both of these functions together as one service. The bank then typically subscribes to that service for the processing of its lending activity.

The process of searching, selecting, completing and receiving a loan from a bank should be equally intuitive as purchasing a pair of shoes from Amazon, and be the right size for the customer as well. With the right cloud-based loan origination partner, it can be.

Following are five reasons to digitize loan origination:

1. Avoid brand degradation

Bank customers have come to expect a digital-first experience in their daily lives, to the point where they are beginning to require it in order to transact. Customers are seeking the experience that up-and-coming digital fintech platforms are offering and leaving the traditional banking sector in droves. If a bank is not considering how the digital presence reflects on the commitment to the customer, it will be a painful and expensive experience to watch brand reputation and market presence dwindle.

2. Take back market share

Branchless, digital-first online lenders are taking massive market share away that once belonged solely to community banks. New technology-forward lenders are taking part in an unbundling of the customer banking relationship as they focus on a beautifully designed front end while they outsource the back end to other banks. The bank of the future has to focus on the digital experience first and learn to turn the fintech ecosystem in its favor, not fear being replaced by it.

3. Process transparency

Digitization brings a dimension of transparency to the process, previously hidden in departmental silos and spreadsheets, not available outside of a digital processing environment. The level of transparency gained in moving to a full digital environment will result in better quality loans, happier and more engaged customers, reduction in email traffic back and forth among internal teams, and clearly provide the next steps needed to get closer to the funding table both internally and externally.

4. Digitization is a strategy for banks

Banking and lending are crowded markets. A high-quality digital partner can help banks deliver a high-quality customer experience that will create separation in the market, and true differentiation in the eyes of small business owners. As the demand for loan products continues, alongside a shortage of bank employees to process the increased volume, digital platforms play a critical role in helping both banks and their customers work more efficiently with each other. Systems of today know and can surface lending relationships, business relationships, and cross-sell opportunities, to name a few benefits, in new and novel ways that used to require massive human intervention and constant monitoring.

5. Collaboration provides customer service

Bank employees are as important to the ecosystem as the technology implemented. Most employees seek meaning in their work, but continually executing non-value-added tasks — like key entry, renaming digital copies of documents needed for a loan file and other administrative tasks — will eventually lead to dissatisfaction and employee turnover. Equipping teams with solutions and capabilities that free them up to become superheroes, especially in the eyes of their customers, is good for both the employees and the bank.

Very few banks are using digital platforms that connect sales, credit, and fulfillment teams on one platform to execute the lending process. However, once these teams come together, the small business owners on the other side benefit. The technology is not a substitute for human interaction — rather, it’s an enhancement.

Taking the first step

The first thing a bank can do to scale up its loan origination digitization effort is to begin to map out the current process it uses to execute a loan. It’s important to clearly define roles and responsibilities for executing the process, being sure to include the business owner in the flow diagram. Once completed, look at the process and identify areas of the process where it’s highly likely a system, vendor or partner could potentially streamline — or even eliminate — certain steps. Define and articulate the potential cost savings of digitization and work with a few trusted potential digitization vendors to validate and test the assumptions.

The biggest mistake a bank can make when scaling up its loan origination digitization efforts is following the crowd. Far too often, we see banks adopting inferior solutions because other banks were using it rather than finding a partner that is the best fit for their bank and bank customers. The loan origination digitization effort will never be complete. It will always be changing, morphing and advancing, and banks must have digitization partners that can move at the speed of business.

Nick Elders is co-founder and chief executive officer at Minneapolis-based Ignify Technologies. Ignify is responsible for the design, development and support of SPARK, a cloud-based loan origination platform designed to simplify the process of delivering secure and efficient lending products to small business owners.