How Technology is Transforming Document Collection for Commercial Loans

Explore the advancements in technology that are revolutionizing document collection for the credit approval process, including AI and machine learning, and how these innovations are making the process faster, more accurate, and more efficient.

For commercial financing, getting credit applications approved feels like navigating a maze — slow, repetitive, and frustrating. Credit teams get stuck between the borrower and the underwriter, trying to collect the right documentation while keeping clients happy. Borrowers get frustrated by spending time submitting information only to be asked for “one more” document over and over again.

Underwriting’s complexity used to be a necessity. Rigorous due diligence is the only way to ensure borrowers can repay their loans. Today, fintech solutions are changing the confusing and cumbersome document collection process into efficient and real-time information capture. Tools like artificial intelligence and user-centric workflows are streamlining how credit application documents are assessed and gaps reconciled with borrowers.

Why traditional document collection doesn’t work

The commercial underwriting process takes various inputs, including documentation and credit information from other systems, to determine the risk of offering a loan to a borrower. Lenders look at the borrower’s business information, bank and tax statements, cash flow, the project to be financed, and other criteria to make their creditworthiness decision.

Unsurprisingly, the most difficult part of this process is collecting all the necessary information from the borrower. Tax statements must cover the correct time period, title documents must apply to the location where the project will be installed, and unusual cash flow trends must be explained. Too often, a borrower submits invalid or insufficient information, causing a credit analyst to go back to them requesting documentation again.

The most common reasons for follow-up are:

1. Incorrect legal name: Borrowers tend to submit their business’ public or popular name, not the actual legal name. For example, “ACME” is not the same as “ACME Global Inc.” or “2422692 CANADA LIMITED.”
2. Proving property ownership: Borrowers must prove they own, or have a right, to install the project on the desired property.
3. Unfavorable financials: Borrowers must explain why they’re experiencing a decline in cash flow, taking on additional debt, and other financial trends that may impact creditworthiness.

For commercial lenders, this drawn-out process leads to three critical issues.

1. Lost time spent chasing documents

Even with checklists and clear requests, sales reps and credit analysts are on the front lines spending valuable time following up on incomplete and missing documentation. They’re sending emails, waiting for updates, following up, and assessing whether new submissions satisfy underwriting’s needs.

This effort means less time for sales reps to prospect, build relationships, and close deals. It takes credit analysts away from other projects and delays the start of the underwriting process. With an average hourly rate of $28.41 for a credit analyst in the United States ($24.17 in Canada), a week’s worth of documentation follow-up emails and phone calls adds over US $1,100 to overhead costs (CA $967).

2. Lost deals

Borrowers want to get their project financed and installed as soon as possible to reap its benefits. With documentation back and forth, they are forced to find and submit information repeatedly until the lender is satisfied – a process that often takes days or weeks to complete. These delays cause frustration and can lead the borrower to end the deal and move on.

A quick Google search illustrates how often borrowers get frustrated about documentation requests:

• “Is it normal for underwriters to ask for more documents?”
• “Why does underwriting ‘nickle and dime’ when asking for documents?”
• “Underwriting process. Why are these people so incompetent?”

3. Recruitment and retention problems

Credit analysts, sales reps, and intake specialists are being asked to follow up with borrowers more than ever – tasks that aren’t especially fulfilling or enjoyable. Analysts are hired for their analytics skills, and sales reps are hired for their ability to manage relationships and close deals. Chasing paperwork is likely at the bottom of their lists of career goals, making retention and recruitment a serious challenge.

Most people want to work with advanced digital experiences that assist them in their day-to-day activities. According to CIODive, “Failing to meet the technology needs of younger employee generations would lead to attrition.” Coming into an office where documentation collection is managed through emails and spreadsheets may not be the best way to attract and retain talent.

The shift to technology-assisted documentation collection

The key to reducing the manual churn around document collection is letting fintech solutions take over the low-effort tasks so professionals can focus on higher-skilled work. AI and machine learning can be used to ingest documents and identify gaps in real-time. Automation can replace the cumbersome back-and-forth emails with borrowers to collect what’s missing. Together, these workflows can significantly reduce the time sales reps and credit analysts spend trying to get the right documents and eliminate the processing delays between borrowers and lenders.

The result is less effort and frustration on all sides while fostering a better credit application experience.

Here’s a closer look at the improved process:

1. The borrower submits documents, and a combination of technologies, including AI and machine learning, identifies basic errors, omissions, and any notable financial trends in real time.
2. Further validation compares the submitted information against publicly available business databases. For example, the submitted business name can be checked against the Secretary of State Corporation & Business Entity database (U.S.) or the provincial corporation databases (Canada).
3. Basic underwriting checks are performed and compared against a minimum threshold. This could include evaluating a decrease or increase in revenue, checking for net loss, and asking if the borrower will offer a personal guarantee.
4. Automated follow-ups are sent to the borrower, requesting updated information and explanations for notable financial trends.
5. The process repeats automatically until the lender’s documentation requirements are satisfied.
6. The credit analyst reviews findings and hands off completed documentation sets to underwriting.

These solutions do not replace human workers; rather, they do the tedious and time-consuming work to help lenders make more informed decisions.

Smarter document collection is better for everyone

Fintech solutions are changing how commercial lenders collect and assess information for underwriting. Frequently stuck between document requirements and insufficient submissions, these tools eliminate the back and forth with borrowers and improve the overall credit application experience.

The impact of modernizing document collection cannot be overstated. Enabling a faster process with less manual effort gives borrowers more reason to stick around and lenders more capacity to attract new clients.

To learn more about improving the document collection process, see how Arlo works.