Reinventing the Commercial Loan Application

Lenders have access to a wealth of information on borrowers; they simply need a way to better organize and streamline the application process, as well as tools to help move the loan request through to underwriting and approval. Manual, antiquated lending processes often result in a negative experience for both the borrower and the lender, whereby potentially good loans are declined based on insufficient information provided by the borrower or for an asset class that is unfamiliar to the lender.

Specifically, this happens in hospitality finance. However, lending within the hotel niche is changing in ways the rest of the commercial world can follow. Lenders everywhere are plagued with application limitations, data collection challenges and transaction complexity. Digitizing lenders’ traditional workflows can solve for some of their most significant pain points, including:

• Standardized applications. Any one borrower is likely to prepare several applications simultaneously, expecting to present the loan request to a number of lenders. The data across these applications is mostly the same, but there’s a margin for error that significantly increases because of having multiple application formats. It’s not unusual for borrowers to enter a case of application fatigue, leaving the lender, in many cases, with errors or blanks that should have been avoided.

Of course, the process of correcting information extends the application cycle, which naturally uproots some strain in the lender-borrower relationship. Why can we not look to other industries that have solved for a similar challenge? The Common Application, or Common App as it’s known, is an undergraduate college admission platform in the United States that automates and centralizes applications to different universities. Even the residential mortgage industry provides similar cues with the Fannie Mae and Freddie Mac Uniform Residential Loan Application.

Standardized forms help expedite the entire loan cycle. Taking it a step further, also making the applications dynamic – or intuitive – allow for the questions to change based on borrower responses and loan type as an applicant works through the form.

• Manual data collection and storage. The current CRE loan application and underwriting process leads to long cycle times because it’s driven by a checklist of items to be collected and received by mail, email or hand delivered. Rather than receiving all information upfront, weeks or months of back-and-forth between lender and borrower ensue. These circles of communication delay loan origination and underwriting, not to mention breed the likelihood for miscommunication and tension as a loan file changes hands.

Over time, such a manual process causes problems in returning to the loan relationship to make regular updates. Hotel owners, as an example, seek financing for a number of reasons at various stages of a single property, whether that be development, renovation or refinancing. Other verticals require the same, maybe for leasing equipment or even to fund payroll. Most lenders obtain information for the borrower’s entire portfolio with each loan request, and portfolios change. Borrowers make a big effort to provide each lender with current, complete data, even though under the current process it provides little or no purpose to future applications.

Moving similar checklists to an automated portal and centralizing documents electronically, in one place, can not only save time, but also eliminate repetitive outreach.

• Multi-owner complexity. It’s not easy to effectively communicate multi-owner structures. Manually disentangling the borrower’s business structure tends to be a difficult process. Hotel development projects often have multiple owners associated with each project, and each of these owners may have one or more affiliate businesses. Lenders must view each affiliate’s individual information and keep up with the complex, inter-company relationships.

Similarly, the organizational structure can make it complicated to determine GCF, or global cash flow, which provides a comprehensive picture of the borrower’s cash flow as well as any affiliates. While GCF is typically a key criteria used in loan approval, no standard calculation for this metric exists today.

There is a pressing need for a standardized, automated means to document and view multi-owner structures to reach appropriate GCF analysis. Consistency in these evaluations would not only remove variations in how lenders evaluate applicants, but also improve the speed at which they reach a decision on the deal.

As the digital age advances and we watch more industries embrace what this means, it’s time commercial real estate lending did the same. Manual loan processes take time, and time means money. But at the same time, the biggest takeaway by borrowers is often a negative experience. If lenders are honest, most probably feel the same strain – for differing reasons.

Borrowers want fast decisions and can be discouraged by impersonal processes and delays. Lenders also often face their own challenges, typically based on an applicant’s lack of preparedness or an inability to provide either up to date or an adequate amount of data.

The adoption of a digital, intuitive application process has the potential to revitalize the commercial loan industry. Lenders that can streamline their process while also eliminating common operational pain points will help create loan experiences that can be mutually beneficial for them and the borrower. And doesn’t that make everyone happy?