A commercial real estate loan application requires the collection, submission, and analysis of a large amount of data. Unfortunately, this process is still paper-based and therefore highly manual and time-consuming. As detailed in our recent white paper, Hotel Financing in the Digital Age, commercial real estate lending is desperate for a digital update, for tools that will automate this paper-driven process and bring the industry into the digital age.
Today’s inefficient process
Most lenders require a paper intake form for each CRE loan application. Once that form has been submitted, lenders often follow up with multiple requests for additional information via phone, email, text, or even traditional U.S. mail. Then, during Underwriting, the data must be validated with extensive documentation, such as tax returns and income statements. These, too, are typically paper-based. Even when these documents are digital, they tend to be scattered in email threads and attachments, in Dropbox folders, and on flash drives, as the industry lacks a centralized document repository.
Lenders also have to collect data on each loan guarantor and their affiliate businesses. The lender must organize, file, and evaluate all of this information in the context of the entire project. Trying to comprehend ten or more years’ worth of data and put it into a larger context can lead to frustration and emotional decision-making.
Even after the loan has been approved, all of this data must be updated regularly, since the composition of an owner’s portfolio and the property-level data change over time. If the borrower/owner has the need for another loan request, processing that request requires another data refresh—again from mostly paper-based documentation.
The solution is digitization
The CRE lending industry could greatly alleviate these inefficiencies by automating the loan application process. An effective digital tool for CRE lending would allow lenders to steer away from static, paper-based loan application forms—which cannot efficiently capture all of the relevant data needed for a specific loan type or purpose—and move toward dynamic loan applications that accommodate different types of loans. The data required to underwrite a loan can vary based on asset class, loan type and loan purpose so the application would adjust its questions based on the borrower’s responses, much like TurboTax does for taxpayers. Lenders would save a lot of time and energy by receiving the relevant information in a consistent format from the start, and they could offer borrowers a better customer experience by providing them with an application customized to their loan type and loan purpose.
This digital tool would not only digitize the initial application process, but also serve as a repository for data collection, analysis, and storage of relevant borrower information. With such a solution, once a lender has been selected, the portal would release the lender’s customized checklist to the borrower. In turn, the borrower would release data/documents stored on the platform to the lender to fulfill the items requested on the checklist. The borrower would also be able to assign each line item of the checklist to an internal or external user to assist with completion of the same. Moreover, the tool would store all relevant documents for future use, so lenders would not have to spend as much time gathering and updating the borrower’s data for each new loan request.
Ultimately, a digitized loan application process will lead to fairer and faster decision-making, because decisions would be based on more standardized, consistent information. That’s a win-win for both lenders and borrowers, who can get back to the business of investing and reaping returns from a growing business.