Including member business lending in your credit union's offerings comes with added responsibility. Credit unions must adhere to regulations and undergo a higher level of scrutiny from examiners when deciding to provide lending services to its business members. This requires adopting a system for compliance, inspection and internal audits–which also brings with it significant work for lending officers and credit union managers to create and continuously follow.
Business lending allows credit unions to offer a higher level of service to members and supports the overall credit union mission of enabling financial support to build stronger communities. When taking on the added risk and scrutiny of business lending, credit union lending software can help institutions meet members' needs and examiners’ expectations without overwhelming employees with arduous administrative tasks.
5 Ways Credit Union Lending Software Keeps Business Lending On Track
Credit union lending software includes a comprehensive set of tools for optimizing business lending operations and providing added value and better customer service to your members. Here are some ways software can benefit your credit union:
The National Credit Union Administration (NCUA) requires that credit unions that provide business lending services conduct regular file audits, pulling loan files and ensuring they contain all the information and documentation required. To do this efficiently, credit unions typically create a checklist to compare the file against, as well as a system to track which loan files were reviewed and when the reviews were last conducted.
While items like on-time payment or required deposit balances can easily be checked in the credit union’s core system, others, such as a certificate of good standing, must be obtained from an outside source–in this case the Secretary of State’s office. The sheer number of possible items to be tracked, and the variation in required items from one deal to the next, add a layer of complexity to the auditing process that can be difficult to track in a single spreadsheet.
Software offers ready-made checklists and a system for storing all required information in one place, a much simpler option than creating the process, checklist and audit spreadsheets from scratch. Software also makes compiling data from file audits much easier. When examiners ask for the percentage of portfolio reviewed or how many of those audited files were missing documentation, you can instantly pull a report from the lending software.
Not only does this save your credit union time and stress, it shows examiners you have a solid grasp of the state of your portfolio.
2. Portfolio Concentration
Another important part of compliance is monitoring concentration risk. The NCUA will review a credit union’s portfolio concentrations as part of its overall assessment of the health of the institution. Risk can be assessed and monitored by looking at different types of concentrations, including:
- By borrower - The NCUA will review how the overall portfolio is spread across the total number of member borrowers. For example, if a credit union has a $10 million loan portfolio, but $2 million of that is held by one borrower or relationship, that borrower represents a high level of risk for the credit union.
- By business type - Credit unions serve their communities, which sometimes have a heavy focus in one or two industries depending on the region, such as hospitality or farming. This increases risk, since poor economic performance in one of the industries and inability to repay loans could deeply impact the liquidity of the credit union. The NCUA will want to see the concentration of industries–typically using NAICS codes–within the portfolio to make sure the credit union is not too heavily leveraged in one area.
- By type of collateral - Similarly to industry type, loans are often clustered around a specific type of collateral, such as residential housing or office buildings. During the COVID-19 pandemic, stay-at-home orders and the eventual adoption of work from home options resulted in many companies shifting to fully-remote models, which in some areas decreased the value of office space and other commercial properties. Credit unions who were too concentrated in these areas would have seen significant negative impacts on their portfolio.
3. Maturing Loan Notices
For some of your business members, they have loan maturities coming up that they will want to renew. Although the onus is technically on your member to keep track of this, alerting them when these loans are approaching maturity is a valuable step in maintaining good member service. But without an automated system to create coming due alerts, it must be done manually, a tedious and error-prone proposition. Unless you are carefully monitoring these loans, a member could receive a past due notice asking for the entire balance of the loan, and perhaps a sizable late fee as well, which can be upsetting and frustrating for your business members.
Credit union lending software takes the worry out of tracking maturing loans, creating proactive alerts when loans are coming due for maturity, and even generating standardized notices to the member automatically. This provides an opportunity to engage proactively with the member, ensure they have a chance to provide the necessary documentation for renewal, and offers a personal touch members appreciate.
4. Total Credit Exposure
When considering a new loan to an existing member or conducting an annual review of member relationships, credit unions will typically look at the member’s total credit exposure (TCE). Doing this manually in a spreadsheet requires a lot of copying and pasting–and time. Incorporating spreading capabilities–connected to the credit union’s core system–into your lending software allows loan officers to generate credit memos during new credit requests and reviews that automatically calculate the member’s TCE.
It’s not only faster than manually reviewing TCE, it also helps loan officers feel confident they have the full picture of the member’s credit exposure.
5. Managing Your Authority Matrix
Each loan officer and manager has their credit authority limit. Typically, credit unions create a credit authority matrix to help guide oversight of these limits. When done manually in a spreadsheet, it’s incumbent upon the credit union to ensure that all copies and templates are kept updated and accurate.
Lending software automates updates to the lending authority matrix, pushing changes out to all relevant forms and templates, and taking it off the plates of employees, helping prevent going over allowed limits.
How FISCAL Meets Credit Unions’ Business Lending Needs
Now that we’ve covered the benefits credit union lending software offers, here are a few features FISCAL offers to help credit unions save time and get more out of their software investment.
- Track file audits using the checklists feature in FISCAL TRACKING. Include internal items, as well as external requests for documents, such as financial statements or a certificate of good standing.
- Add comments to line items for easier tracking and better audit transparency. Attach documents, if desired, to create a paper trail.
- Set reminders for a one-time or recurring review of files or accounts. FISCAL TRACKING pulls dates from items and automatically creates reminders to help you collect items when they are next due.
- Be prepared for your next NCUA audit with proactive reports features that show you the items required in the next 30, 60 or 90 days.
- Get a clear picture of portfolio concentration fast with the reporting tool, which can filter by borrower, business type (NAICS) and more.
- FISCAL solutions can be set up to receive nightly imports of customer data from your core system.
- FISCAL TRACKING automates sorting and filtering with the click of the button, saving loan officers hours of time.
- FISCAL Forward lets you quickly review a member’s TCE to prevent going over your lending limits.
Getting a Closer Look At Lending Software
To get a full understanding of the advantages loan processing software can deliver, it helps to see it in action. For a free demo of FISCAL’s software solutions, contact us today.