According to Robin Wantland, a regional executive with Bank One in Dallas and the former chairman of the American Bankers Association's Small Business Division, information technology is changing this scenario by helping banks drive down costs in three critical areas: loan acquisition, risk management and loan servicing.
Wantland says in the old days, banks were run by big mainframe computers, and data had to be hard-coded to do any kind of analysis. But with today's client server technology, it's a different story altogether. "With data stored on a server," Wantland says, "it's available to product managers, risk managers, marketing managers, customer service managers and loan officers--and it's helping them do their jobs at costs that make small-business loans feasible."
At the center of this empowering technology is the area of credit analysis. Instead of relying on traditional analysis, which is costly and time-consuming, banks are now starting to rely on the kind of credit scoring systems that credit card companies have used for years.
Fair, Isaac and Co. Inc. of San Rafael, California, a data analysis software firm, has a commercial credit scoring system that's helping to dramatically reduce bank loan approval times and costs--and thus put money into small businesses' pockets faster. Latimer Asch, the firm's vice president of commercial products, estimates banks that don't use this kind of system require 12.5 hours of human "touch time" to reach a credit decision and that the cost to reach this decision ranges between $500 and $1,800. He maintains that with his company's Small Business Scoring Service, the time required by the bank to reach a credit decision (assuming the decision is totally automated) is 15 minutes and costs just $100.
In addition to easier and less expensive credit analysis, Wantland says banks can monitor the loans with fewer resources, too. So rather than the expensive relationship-oriented model that banks once used to make sure their loans were in good shape, loan officers can now retire to the background and check a business's loan status by computer. In fact, Wantland says that if companies keep their credit records clean, the borrower will never even have to hear from the lender.
Out in the trenches, this means more loans are going to more small businesses in a more efficient fashion. In early 1996, when Bonnie Schwartz revived her dream to build her own focus group facility, it was a whole different story when she applied for a loan. Barnett Bank of Tampa, which had a branch near Schwartz's office and used a scoring model for credit analysis, approved her $495,000 loan application in just four days.
Schwartz was pleased that Barnett's credit scoring model looked at her loan proposition objectively. "What I liked about this new approach was that it didn't matter if you were a man or woman--[the bank] looked at your history," she says.
Wantland says midsized and larger companies are relying less and less on bank loans, prompting even greater interest in the small-business market. But while many banks profess an interest in small-business lending, Wantland offers these tips on how to recognize the ones that are truly interested in making loans to businesses like yours.
- Consider larger banks. Wantland says small banks play a vital role in fulfilling highly customized needs for small businesses. But for small businesses that need a quick loan without the bells and whistles, it's the larger banks, with $10 billion or more in assets, that are capable of delivering the goods.
- Critically evaluate product lines. Wantland, who investigates competitors' offerings all the time, says you should ask bankers what products they have geared specifically for small businesses. "If they have just one deposit or checking product, just one option on credit, or they give you a price list that is 5 years old, that's a sign the institution is probably not too serious about the small-business market--no matter what their ads say," warns Wantland.
- Find out how long it takes to get a loan approved and how it gets approved. If the answer is two hours, you're probably looking at a bank that's serious about small business. If the answer is two weeks, you might want to keep looking.
- Remember that ease varies inversely with size. For many loans above $150,000, automated credit scoring notwithstanding, most banks want to take a closer look at your company, and that can slow down the process. If you want a really fast loan, keep your request under $100,000.