Fear of Change in Legal Document Generation Systems
Leaders at financial institutions often tell me, “Our current commercial loan document generation system isn’t perfect, but it’s familiar and gets the job done. The idea of switching vendors or onboarding something new feels overwhelming, so why risk the disruption?”
“If It Isn’t Broken, Don’t Change It” Is No Longer Good Enough
This perspective is understandable. Change brings uncertainty, and with so many competing priorities, it’s natural to weigh the known comfort of the status quo against the perceived hassle of improvement. Yet, as lending practices and regulatory expectations evolve, it’s worth considering whether “good enough” today will still protect an institution tomorrow.
Risks Hidden in Plain Sight
By recognizing and addressing now the risks of staying with outdated legacy document preparation, lenders can position themselves for long-term success, even in uncertain and challenging times, by upgrading to more sophisticated digital loan underwriting, origination, and document generation systems.
Failure to modernize processes lead commercial lenders susceptible to:
#1: Reactive Risks
I’ve noticed a common challenge in the industry: many institutions rely on annual legal compliance and commercial loan legal documentation reviews by outside counsel to manage the risks associated with outdated loan documents. While this approach is understandable, it can leave lenders exposed to risks that arise between reviews, such as increased vulnerability to borrower defenses and legal limitations on enforcing remedies. Lending practices and regulations are constantly evolving, so waiting for an annual review can allow potential issues to go unnoticed or unaddressed for months. This process is often reactive and slow to adapt to important legal or regulatory changes.
Ongoing oversight by in-house legal teams is another option, but the high costs of maintaining such programs often make this impractical for many financial institutions.
Effectively managing risk in commercial lending requires frequent and proactive attention to legal, regulatory, and procedural developments. Recognizing this gap is the first step toward adopting a more resilient risk management framework that keeps pace with the dynamic lending environment.
The takeaways:
- Risk doesn’t wait for a yearly review.
- Continuous and proactive compliance can ensure that a lender will have all of the enforcement tools available when a borrower, a project or a loan starts to run into problems.
#2: Irrecoverable Exposure
One of the greatest concerns for any commercial lender is the risk that, when a loan defaults, the legal remedies you’ve built into your loan documents may not be available when needed. As someone who has worked on both sides of these disputes, I’ve seen how even minor compliance issues in loan documents can prevent lenders from exercising critical enforcement provisions such as foreclosing on collateral, pursuing personal guarantees, obtaining a receiver to take control of collateral assets, or collecting a deficiency on an outstanding debt after the collateral is liquidated.
Lenders rely on these tools to avoid losses when loans go bad. But if the underlying commercial loan legal documents aren’t properly prepared or kept up to date with current changes in the underlying laws and/or regulations, those remedies may be out of reach when they’re needed most. This risk underscores the importance of a rigorous, proactive approach to legal document preparation and maintaining a continuous up-to-date compliance program in support of a commercial lending program.
The takeaway:
- Proactively ensuring your legal documents are accurate and up to date, preferably with cost-effective legal documentation and compliance automation technology, is essential to protecting your enforcement options when loans default.
#3: Difficulty In Scaling
Increasing loan volume is a key part of many commercial lenders’ asset growth and/or loan diversification strategy. But I’ve seen how outdated legal document preparation processes can quickly become a bottleneck as demand rises. When systems can’t keep pace with a lender’s desire to scale its loan production, the impact is felt across the entire system: borrowers become frustrated with slower turnaround times and inaccurate documents, and lenders experience aggravation and losses from missed opportunities.
Customers expect efficient, accurate service, and delays can erode both trust and loyalty. Internally, teams can find themselves spending a week on tasks that should take just minutes or hours, straining productivity and sapping morale. And when a busy season hits, legacy systems often struggle to handle the surge, leading to lost business. As you plan for growth, it’s important to consider whether your current processes will support your goals or stand in the way.
The takeaways:
- Outdated systems struggle to keep up with growth plans and times when loan volumes increase.
- Damaged reputation and unhappy borrowers directly impact customer loyalty and retention.
How To Properly Modernize
As you evaluate your options, consider a solution that’s trusted by banks of all sizes and designed to support both your current needs and future growth.
Solutions like GoDocs automate the creation of attorney-quality loan documents in minutes, backed by an ongoing 50-state compliance program that effectively eliminates the risk of costly legal errors. By integrating seamlessly with your existing banking infrastructure and loan origination systems, GoDocs allows for a smooth transition without disrupting daily operations.
With automation, your team can handle increased loan volume, confidently plan for loan production growth, accelerate closing times, and minimize manual workloads, all while maintaining the highest standards of compliance. This approach not only reduces legal fees and turnaround times but also helps protect your institution’s reputation by delivering faster, more accurate service to your customers.
Curious for more insight on why sticking with the old way might be your biggest risk? Download our full guide, Playing It Safe Is the Real Risk, for expert advice on why it’s time to modernize – plus key criteria for choosing the right technology partner.
Head of Business Strategies & Partnerships
