Expanding Your Lending Toolbox with Government Loan Programs
Creating strategic alliances is a common practice for many businesses – and today, community banks are increasingly discovering the value of aligning their organizations with lending specialists in order to compete in the hyper-competitive lending market. These strategic alliances enable banks to offer lending products outside of their traditional “lending toolbox” and capture greater market share.
By their very nature, community banks must run lean and efficiently in order to sustain profitability -- while also keeping a keen eye on credit risk assessment and mitigation. But building a lending operation – whether it’s a C&I, CRE or any specialty lending platform is costly – reaching hundreds of thousands of dollars per year when you consider the costs to employ and train business development officers, credit underwriters and loan administrators.
Teaming Up with a Government Loan Specialist
Forming a strategic alliance with an expert in government loan programs is an example of how community banks can rapidly create new business opportunities in a lending specialty where loan demand is evident, but cost control is a priority. Outsourcing to a government lending specialist – commonly referred to as a Lender Service Provider, provides a low-cost and low-risk solution for community banks because they can immediately offer these lending products to their clients and prospects with little to no increased overhead, while simultaneously generating a new income stream.
The benefits for community banks that offer government loan programs via a strategic alliance with a Lender Service Provider are significant and include:
- Careful Management of Fixed Costs – Controlling costs is critical when entering an unproven market, and partnering with a government loan specialist allows banks to tie a variable cost structure to a variable revenue stream.
- Eliminating the “Learning Curve” – Government lending is highly specialized, requiring intimate knowledge of established guidelines, procedures and policies. Outsourcing to a Lender Service Provider immediately solves the learning curve dilemma.
- Ensuring Loan Compliance and Accountability – By outsourcing to a government loan expert, banks can take comfort that the loan is in compliance with all Small Business Administration (SBA) and U.S. Department of Agriculture (USDA) guidelines and regulations. This
also avoids wasting valuable time on transactions that do not meet program eligibility requirements.
Evaluating a Lender Service Provider
Developing a strategic alliance with an experienced and qualified Lender Service Provider is essential to ensure a bank’s government loan program is highly effective, consistent, profitable, and compliant. To follow are a few tips on what to look for in a government lending partner:
- Knowledge and Expertise – The Lender Service Provider must possess significant government lending knowledge and expertise in order to be considered as a trusted and effective liaison between the bank and the government agency.
- Flexibility and Adaptability – The Lender Service Provider must be capable of understanding a bank’s business model, regional brand and go-to-market strategy – and possess the flexibility required to design a program that effectively fits into the bank’s unique business model.
- Full Range of Services – The Lender Service Provider must provide a full range of services and support, including eligibility assessment, loan structuring, credit analysis and underwriting, loan closing, loan servicing, and ongoing compliance to ensure success.
- Responsiveness – The Lender Service Provider must consistently provide strong support, as well as prompt and timely follow up. The ability to be highly responsive to senior management, the lending and support/administrative staff, and the borrowers is imperative.
Offering government guaranteed loan programs to your customers and prospects can quickly differentiate your bank from your competitors and expand your bank’s market share. However, government loan programs are technical and specific, requiring a high level of knowledge and expertise to ensure successful implementation. Outsourcing to industry experts will enable your bank to reap the benefits of these government guaranteed loan programs without incurring the investment of time and money required to add a profitable lending product to your “lending toolbox.”
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