Digital Transformation for Credit Unions in the Commercial Lending Market

Digital Transformation in the Commercial Lending Market: How Credit Unions Can Benefit

There’s a big question looming in commercial lending that requires an answer.

Are credit unions ready for the digital era?

This isn’t an intellectual exercise. Commercial lending— at long last, many would say— is on the brink of a digital revolution. Whether or not credit unions will keep pace with commercial lending demands remains to be seen. While this industry and similar niches across finance and banking have historically dug their heels in against Industry 4.0, it seems clear now that digital momentum is building. It’s not only institutions that are learning to keep up; tech innovators themselves are turning their attention to the space. This is creating more opportunities for credit unions to play a larger role in commercial lending.

Why Now? The Right Time for Digital in Commercial Lending for Credit Unions

Commercial lending experienced growth rates in the double digits in the years following the crisis of 2008. Multifamily lending has proven to be a particularly dynamic area of growth, with forecasts estimating an increase of nearly half a trillion dollars in 2022. It’s a new record for this space by almost 5 percent. Borrowing and lending numbers should be no less impressive in the year to come, with estimates placing commercial real estate lending at over 1 trillion USD. In addition, the home construction industry is now a $1.3 trillion USD industry.

While these numbers are hugely positive, the competitive landscape is shifting quickly. As recently as 2020, large financial institutions and regional banks still dominated the market. In the last few years, however, fintechs and smaller competitors in the digital space have redefined the industry, offering innovative tech, faster delivery, and an enhanced customer experience. Any tech however advanced, though, cannot fulfill its potential without dedicated user adoption.

Perhaps the time is now right for digital transformation in commercial lending because this generation of borrowers expect it. Who knows this better than credit unions that are undergoing a modernization revolution? Credit unions set the standard for knowing and understanding all their members, including commercial borrowers. Through this member-centric model, credit unions know about the importance and uniqueness of the member relationship — focusing on the delivery of service and value. Fortunately, digital solutions are making it easier for credit unions to meet member demands while still adhering to the fundamental principles that guide credit unions.

ROI Data when implementing an Automated Doc Prep System

An automated doc prep system is a key component of digital lending for credit unions and other lending institutions. See what the ROI looks like when utilizing this type of digital automation solution.

Having experienced the elimination of pain points (and, frankly, often total delight) via digital technologies for years now regarding other products and services within the credit union industry, no commercial borrower can be expected to tolerate analog, legacy solutions. These legacy processes only drag out the timeline for everything from application to closing, which only compounds the issue. After all, today’s savvy commercial borrower expects things done well and quickly. Commercial borrowers are ready to jump ship for institutions that can offer innovation. Commercial credit union lenders need to understand this and extend a frictionless member-borrower experience.

Along these same lines, while digital transformation is required to keep pace with competitive products and services, credit unions must evaluate whether the cost of such modernization efforts are supported by remarkable value to their members.  To do that, credit unions need a way to increase loan volumes without increasing (and, in some cases, decreasing) staff and overhead. Digital solutions will allow commercial lenders to maintain their competitive edge through efficient and automated processes without increasing operational costs.

Checklist for Choosing an Automated Doc Prep System

When choosing an automated doc prep system, know what to look out for and what is important to consider. Check out the checklist designed to make the process a little easier.

The Numbers – Boom Time for Credit Unions

A boom is happening for credit unions and commercial lending. This is due in large part to actions taken by the NCUA Board back in 2017. Amendments to the MBL rule swapped out more prescriptive lending requirements with a regulatory approach based on broader principles. This, in turn, gave credit unions greater independence and flexibility when it came to servicing members with commercial loans.

The numbers demonstrated how powerful a decision this was on NCUA’s part. Since 2017, commercial loans at credit unions have increased by 48 percent, according to NCUA. In just the last year from 2020 to the fourth quarter of 2021, those numbers went up an additional 18.4 percent to $111.7 billion on the books.

What is clear is that the opportunities are there for credit unions entering or expanding within the commercial lending space, and these opportunities are sizable. Adding to the value of this moment is the presence of digital solutions that will support credit unions in servicing commercial loans.

Addressing the Complexities in Process

The complexity of commercial lending processes is often cited as one reason to take things slowly when transitioning to a digital solution. Traditionally, credit unions also have shied away from claiming a larger portion of the commercial lending market because they perceive commercial lending to be too risky and to require too much experience and oversight to ensure regulatory compliance. By addressing these ‘complexities’ brick by brick, however, digital service partners are finding unique ways to transform the space and meet strict safety and soundness standards.

Rather than general, holistic solutions, digital innovators in commercial lending are addressing individual processes. Service providers are digitizing and streamlining anything from the intake of documents during the loan approval process to documentation during closing.

As an example, one leader in automation, GoDocs, focuses on commercial loan document preparation. Built by seasoned commercial real estate attorneys, the solution provides a frictionless process for loan document preparation that is fully automated and requires no editing on the back end – resulting in well-structured and documented loans to meet the specific needs and interests of commercial borrowers, such as business members. By innovating on this single pain point in the commercial lending process, credit unions can address multiple sectors within commercial lending, including construction loans. Most importantly, GoDocs partners with its credit union customers to support a member-centric approach to the commercial loan documentation process that can simultaneously improve risk management and improve the member experience.

Digital Documentation in Construction Loans: A Case Study

In addition to addressing multifamily, 1-4-unit business purpose and commercial and industrial (C&I) loans, GoDocs is the only loan document automation system with a broad construction loan capability, including ground-up, fix & flip, major rehab, modest rehab, and minor rehab projects. Rehab provisions built into the integrated solution include detailed construction monitoring, disbursement controls, and mechanics lien protections.

As is often the case in commercial lending, construction lending operates within a framework of multiple moving parts, many of which can potentially operate at a slow pace. This includes lender identification, financing, loan processing, loan closing, progress reporting, draw disbursements, on-demand payment to contractors, and system integrations.

Schedule a custom demo to learn more about GoDocs’ digital loan doc solution for commercial lending with credit unions.

Yes. Digital technology is imperative for commercial construction lending to keep up with the marketplace. By furthering the digital landscape, this type of technology will streamline  commercial lending logistics so that commercial construction lending can advance alongside the rapidly advancing systems of operations this technology provides.

A Profitable Future

The future of commercial construction lending is looking bright— if digital technology is setting the pace. With ROI on fix & flips at 92.6% currently, solutions that streamline loan packages in this subset of commercial lending can clearly translate into real money for commercial lenders. The elimination of work hours and staff guesswork and frustration on high touch processes and the reduction of attorney fees experienced through solutions like these makes that doubly true. Finally, the fact that these solutions zero in on smaller components of the larger process “nightmare” that is commercial lending makes them easier for any commercial lender to adopt and implement without making complex, holistic changes.

The Digital Era is Here

The time is now for digital transformation in commercial lending. This is the era in which borrowers have far more lender options for their CRE loans because of the exponential rise of private lenders. This is the era of unprecedented commercial loan volumes due to the boom in single family rental property acquisitions by Goliath investors as well as legions of smaller investors. And this is the era where borrowers demand lower costs, faster closings, a better experience, and all the other digital services that modern shoppers (and, yes, borrowers are shoppers) have to come to expect with every service today – they demand a positive digital experience. This means they want digital services without losing any of the flexibility (loan types, financing and payment options, deal complexity, collateral complexity, etc.) required to complete a transaction.

End-to-end Transformation

Transformation won’t be piecemeal. End-to-end digital solutions for commercial lending of all types, including commercial, multifamily, and 1-4 unit business purpose loans, regardless of their complexity, will drive the digital future in the space.

A true end-to-end solution will encompass lender identification, digital financing, and loan closing automation. These solutions, too, will integrate easily with existing workflows and processes, adapting to the demands of banks, credit unions and private lenders and sidestepping painful scenarios in which these institutions must adopt new LOS and banking systems, thereby slowing adoption and delaying ROI. With these solutions in place, loan volumes will scale up easily, no matter the size of the institution.

Credit unions, as an example, will benefit as dynamically as big banking institutions from this digital transformation — e.g., providing a member-centric solution to mobile and digital apps while also providing a powerful employee-centric solution to support mobile work internally. In the never-ending balancing act between risk and reward, credit unions will be able to lean into their modernization efforts and leverage digital technologies to expand or further expand commercial lending and increase their geographical member impact.

Of course, all success in this digital future depends on how adept lenders are at staying pace with transformation. The time is now to begin aligning with future practices. Automation is no longer a luxury but a necessity for credit unions in commercial lending. As lending continues to evolve through digital technologies, credit unions will access more and more opportunities to increase loan volumes and revenue to likewise evolve and enhance their products and services to meet the needs and interests of their members, which encapsulates the full member relationship.

So, are credit unions ready to offer their borrowers a fully automated, high-quality, compliant digital solution, lower costs, very fast turnaround times, an excellent member experience, and all the flexibility required by borrowers while still participating and benefiting from this unprecedented high volume market opportunity that exists today and likely for the next decade?

Fortunately, the technology that credit unions need to continue to deliver service and value has arrived and onboarding couldn’t be easier. Credit unions can use solutions like GoDocs and its customer-centric approach to commercial loan document preparation to empower their employees, enjoy flexible and customizable tools and features, automate documentation tasks, ensure compliance, and much more. This means that credit unions will be able to better support their members while also grabbing their own share of the commercial lending market — all in a safe and sound manner.

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