Quantifying Speed’s Value in Small Business Lending

Our recent post, In Small Business Lending, Slow and Steady Loses the Race, explores the pressing “need for speed” small business borrowers increasingly seek – and find with alternative lenders. Speed matters so much to these borrowers, in fact, they’re willing to accept alternative lenders’ onerous borrowing costs to cross the finish line to capital faster.


 

Small business borrowers have quantified the extra cost they’re willing to incur to access loan capital more rapidly. Can you similarly quantify speed’s value to lenders? Excelsior Growth Fund (EGF), a New York State-certified CDFI and a Mirador partner, recently shared stats to answer this question. Their findings are eye-opening.

 

The EGF SmartLoanTM program launched in August 2015 on the Mirador platform. Analyzing the early results, EGF quantified the dollar value of speed as follows:

 

  • Reduced loan origination costs by 25-50%. A faster online loan application minimized back-and-forth between borrowers and lenders considerably. Pre-sorting by the lender’s credit parameters accelerated loan analysis, too. These cost-savings make for happier loan officers, too, removing tedium while allowing them to focus on higher-value work.
  • Improved efficiencies on declined loans. Previously, loan applications that were a “clear no” accounted for 30-40% of EGF loan officers’ time. Now these non-performing applications are declined immediately, with only a $30 credit check cost incurred.

 

  • Increased profitability. Time- and cost-savings from accelerating loan speed has helped EGF improve bottom-line results in a directly measurable way.

 

EGF SmartLoan borrowers are reaping material benefits from speed improvements as well. The premium they were willing to pay alternative lenders for speed upfront often results in an untenable loan-cost burden long-term. On average, EGF SmartLoan borrowers have saved $6,800/mo in cash flow compared to rates offered by digital marketplaces like OnDeck and Kabbage. It’s not possible to quantify how many of these borrowers would’ve ultimately defaulted on these expensive loans, but certainly more than a few. It turns out speed curtails default costs indirectly as well.

 

For more information, see this case study. We will continue to share the quantifiable results of improved loan speeds in coming posts.

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