Automating the Commercial Credit Function: Is It Really Possible?

By: Joel Graves and Mike Murphy

Financial institutions seek a higher level of process automation as they try to achieve increased efficiency and scalability.  Many institutions have successfully moved toward technologically-driven loan origination systems and even automated credit-decision engines for their consumer loan products. This begs the question: Can the commercial credit function be automated in a similar fashion?

The short and simple answer is no.  The intricacies and nuances of commercial credit policies and underwriting standards from institution to institution make finding an out-of-the-box technology solution to replace commercial credit officers, analysts, and underwriters impossible.  Automation, however, can still play a significant role in improving efficiency of your commercial credit function.

Maximize the investments you’ve already made in your commercial credit function.
When developing a business case for a potential process improvement or technology investment to support commercial credit, many institutions focus just on the forward-looking spend or total cost of ownership.  In doing so, they overlook previous investments of time and resources in locating, hiring, and training commercial credit resources.  Consider this: You’ve spent countless hours developing these analysts and underwriters into your credit experts, the masters of the intricacies of your underwriting guidelines, to help your institution make sound lending decisions.  To maximize your investments, your credit department should spend less time gathering, entering, and organizing data and more time analyzing data in order to make those sound decisions.

A large technology spend is often the answer, but it’s not always the right answer.
It’s easy to conclude that the simplest answer for improving commercial credit and underwriting efficiency is to implement a state-of-the-art loan origination system (LOS).  In fact, many institutions move directly into the vendor selection process under the assumption that a LOS technology implementation is the only reasonable option. 

Institutions, however, are often better served by building a business case for any initiative they intend to pursue, weighing all viable options against one another and assessing the best fit for their organization.  While a LOS implementation may be the right choice for some, the cost of implementation and ownership may be prohibitive for others. 

There are other ways to achieve greater efficiency in your commercial credit process that may be more cost effective.  Consider the following options:

  • Utilizing forms and templates to establish consistency in receiving information, thus reducing rework and time spent following up on requests.
  • Establishing governance and associated policies and procedures for storing and organizing documents and data on a shared drive (or other content management solution), enabling credit resources to find information quickly.
  • Implementing metadata standards within your content management solution (if you have one) or establishing consistent naming conventions of documents and file folders (if you don’t) for storing credit related documents, thereby boosting search capabilities.
  • Utilizing a workflow tool to provide greater transparency of the status of a credit throughout its lifecycle.  Manually prepared checklists can serve as a reasonable substitute for an automated tool when an investment in a workflow solution is not viable.

The advantage of many LOS solutions is that they combine most, or all, of the above capabilities into a single, unified platform.  For those institutions that can justify the cost of implementing and maintaining an LOS, the next step is to select the vendor that provides the best fit solution for your organization.

Ask not what your LOS solution can do for you…
…ask what your LOS solution should do for you.  Should you determine that technology is the best course of action for your commercial credit function, your focus should turn to developing a distinct set of both functional and technical requirements for the LOS solution. Those requirements should be based not just on how you do business, but how you want to do business. 

When assessing potential LOS solutions, it is easy to ask “How will this technology replace our current manual processes?” But the more difficult and perhaps more important question to answer is, “How will this technology get us closer to where we want to go?” And as the saying goes, if you don’t know where you’re going, or want to go, any road will get you there. 

The following examples are common desired outcomes of an LOS implementation:

  • Decrease the duration of the loan origination and renewal processes
  • Increase controls to ensure compliance in the origination process
  • Increase the level of integration with core and other existing systems/applications
  • Provide management with a complete and accurate view of the loan origination and renewal pipeline

While this is far from a comprehensive list of potential objectives, the act of establishing the desired LOS outcomes will help drive your requirements. And as you define the requirements, it is wise to ensure that they align with your foundational objectives.

In demonstrations, many LOS vendors will “wow” you with a great “look and feel,” special add-ons, custom modules, and other bells and whistles, but don’t miss the forest for the trees.  If you have done a good job of developing and prioritizing requirements, you can use those as the appropriate lens to view any LOS solution. Referring back to the requirements consistently throughout the vendor selection process can help prevent potential overspend on unnecessary functionality that will go unused or underutilized, as well as potential misspend on a solution that “looks” nice but in the end does not meet your needs.

What have you done for SMEs lately?
While it may not be possible to achieve the same level of automation in your commercial credit function that you have in its consumer counterpart, there are still many ways to use technology to improve efficiency and scalability of your loan origination process—from smaller initiatives to reap incremental gains to a full LOS solution. Whatever your choice, you should make the decision with the goal of utilizing the expertise that resides in your commercial credit department to its fullest extent, allowing your analysts and underwriters to focus their time on making sound lending decisions.

For more information around Automating the Commerical Credit Functions, please contact Neil Hartman.

West Monroe Insights
Non-Revenue Water (NRW): Challenges & Solutions
View More