With an increasing number of lenders moving to digital forms, applicants now expect instant gratification when submitting their online applications. For-profit lenders are raising the bar by going digital and CDFIs are under pressure to deliver results just as quickly, but on a nonprofit budget. Applicants who used to wait weeks for a loan decision now expect responses within a day or two, if not within minutes. Increasing response time, however, is not the only requirement. Organizations must maintain their level of professionalism, security and accuracy while ultimately finding the most efficient processes to keep them on track. Strong processes combined with the right systems can help organizations achieve more of their mission. In this post we will share ideas to streamline loan origination efforts, with an eye towards rapid response.

Review Your Process

Start at the beginning. Identify the first point of contact with applicants and review the organization’s application process from that point on. Ask the question, “How easy is it for a qualified applicant to enter our application process?” There are two sides to this question. The first is identifying any barriers that keep applicants from entering the system and applying (login set-up, long forms, confusing questions). The second examines the ability to quickly screen out ineligible candidates so your organization can focus its efforts on target clients. Client portals and online forms can go a long way towards creating a positive user experience and identifying eligible candidates when they meet the following criteria.

• User friendly. Questions must be concise and easy to answer. Next steps and calls-to-action should be clearly visible and straightforward.
• Short. Ideally your CDFI can begin funneling in leads with a one page form and a maximum of five questions to determine eligibility. The application itself should require short answers under 300 characters long.
• Integrated with a primary lending system. If you are questioning the accuracy of the data being passed from the form to your lending system and need to spend time verifying responses, than that form or system needs to be improved or replaced. There should be little to no manual lift once the forms are live. The information should cross fluidly into your system.
• Rigid yet responsive. This may seem contradictory, but the form must be rigid to require accurate and complete responses to properly determine eligibility. Set strict guidelines, clear criteria and validation rules for your system to follow. The form should also be responsive so that questions can change based on previous answers. For example, if your lending policy varies depending on whether the borrower owns or rents a home, then the form should dynamically change questions based on that data point.
• Function as intended. Organizations can experience frustration with their digital applications if they are causing too much work for staff. For example, no one should spend an inordinate amount of time resetting portal logins or passwords. If the portal or form is not functioning as intended and takes a significant amount of effort to fix, it might be a candidate for replacement.

Making the Transition

One trap that CDFIs fall into when transitioning to online forms is to simply replicate their existing paper processes. While this may be a natural instinct, oftentimes paper processes do not translate well into digital ones – just like books do not necessarily translate well into movies. An online application is expected to be much more transactional than their traditional counterparts. With online applications, time is at a premium and any application longer than seven questions is often seen as too much effort.

On this issue I speak from personal experience. About 15 years ago I worked at Accion USA and was given the task of creating our first online loan application. At the time, our application was roughly seven pages long and we replicated every single question on our online version. Back then the concept of an online loan application was relatively new and we were excited to successfully process loans remotely. It significantly expanded our geographic reach and ultimately increased our impact. Through client feedback, however, we soon realized that there were opportunities to streamline our application. So, over time we shortened it to four pages. Now, the application has gone through numerous iterations and the latest prequalification form is roughly one page long.

Loan Origination Best Practices

Each CDFI has a unique mission and processes in place to help them achieve it. Despite their differences there are best practices that can improve the origination process for most of these organizations. Offering a pre-approval amount, for example, helps incentivize borrowers to provide supporting documentation, such as identification, bank statements and tax returns. The ability to provide this pre-approval amount quickly hinges on processes that are streamlined behind the scenes.

• Automatic processes. CDFIs ideally should have the ability to automatically pull credit reports (with their borrowers’ permission) in their core loan origination platform.
• Clear logic. Clear and accurate decision models enable a system to automatically classify an applicant into the correct risk tier, evaluating both ability and willingness to pay back a loan.
• Integrated communication. When a decision is made a well-integrated system can instantaneously deliver a response back to the applicant, whether it is via email or through a portal.

Leveraging technology and implementing best practices improves processes for applicants as well as staff. Some solutions, like document generation tools, are now commonplace in the market. They use merged fields from the lending system and electronic signatures to streamline document generation. Other solutions are relatively new and aim to solve large challenges. For example, CDFIs still struggle with the amount of time it takes to collect supporting documents from applicants. Advances in secure technology enable CDFIs to access a user’s bank statements, if permission has been granted, using financial data aggregators. While many of these solutions are far from perfect, they have gained significant traction in recent years and are continuously improving.

Summary + Conclusion

Expectations are rising, as is the availability of technology to CDFIs. When moving to digital applications, organizations should consider an end to end process review from the perspective of the applicant. CDFIs that use technology to streamline their loan origination process can improve the user experience and increase their impact.