Improve the Loan Approval Process by Implementing the Credit Decision Strategy
It’s true – having a credit decision strategy effectively improves the loan approval process.
But before we delve into why this is so, we need to define the decision strategy. A credit decision strategy is a sequential process that is followed by successful lenders both on the client-facing side and the credit approval risk side, to ensure they capture all of the information necessary to assess the opportunity and the risk in lending to a particular borrower.
A best practice, when using the decision strategy, is to have a collaborative and timely conversation between credit and sales as early in the process as possible. This is the framework that the founders of Omega Performance have used for nearly 40 years, and it’s still true today.
Ideally, the process will continue if critical hurdles are cleared until the most appropriate loan structure is determined, approved, accepted by the client and booked. The final step is the continuous monitoring of the relationship, which is done to identify further cross-sell opportunities and monitor any changes in the risk profile.
So, how does having a credit decision strategy improve the loan approval process? To put it simply, it allows the bank to use their time efficiently. Let me explain.
The loan process at each financial institution is somewhat unique. I’ve had the opportunity to work with many banks, and the similarities are abundant. Most banks need to do a “sniff test,” as Omega Performance calls the “opportunity assessment.” If bankers sense a significant red flag regarding the deal or the borrower, the deal creation should stop or at least slow down and collaborate with others. It’s that simple. Bankers should not waste any more time but move on to another approach to the loan structure or another client opportunity in the pipeline. The relationship management business has a very small margin, and the greatest hidden expense for lending institutions is the time and resources their sales and credit personal spend on a deal that is never going to fly. It’s tough to do, but it’s the most important sequence of the decision strategy, and mastering this improves the entire process and benefits the bank’s bottom line.
Check out the Omega Performance Decision Strategy here.