As a credit union, there are a wide range of opportunities that can be leveraged in terms of more effectively operating your lending process. Having said that, not all methods work equally well for each organization. Only by making an effort to fully understand your audience will you be able to come up with the techniques that fit best given the circumstances.
With that in mind, it's important to note that a decentralized lending strategy can absolutely offer a clear, efficient plan for lending - one that mitigates risk and eliminates problems associated with many alternative methods. With other lending practices, there is always room for error. The costs associated with many of these processes are also typically derived from not only inefficiency but a general lack of training as well.
Centralized lending, on the other hand, helps to eliminate a lot of these problems while maximizing the skills of your employees as well. What follows are six core reasons why a centralized lending process is often the best route for credit unions in the modern era.
1. Increased Efficiency
By far, the most important reason to adopt a centralized lending process involves how it can significantly increase both efficiency and productivity in terms of your general lending department. According to one recent study, there were more than 129 million credit union members in the United States as of December 2021. When that number is divided by the total volume of federally insured credit unions (4,942), it becomes clear that each organization will be dealing with a massive volume of members every year. Therefore, any opportunity for efficiency improvements is a welcome one.
A centralized lending process affords the chance for employees to excel in their core areas, allowing them to become something far more effective as a collective than any one of them could be on their own. This is especially true in terms of the knowledge that each one brings to the table.
It's unreasonable to expect one employee (or one machine, for that matter) to finish the entire process of constructing a product on their own. Instead, it's important to see the situation for what it really is: A situation where each employee or machine has their own specialty, and they all bring something unique to the table to create the best experience possible on behalf of members.
2. Maximize Employee Skill Sets
Along the same lines, another one of the reasons why a centralized lending process is so critical is because it allows employees to master (and thus take responsibility) for their own portion of the lending process. It also relieves many of them from one of the steps that they fear the most - selling.
The fact of the matter is that few people are cut out for (and properly trained for) an effective sales process. Instead, they excel in other areas - which is why it is crucial to let them shine. Credit unions should put themselves in a position to train their most effective staff members and place them where they can be successful for the benefit of the entire organization.
3. Decrease Training Expenses
A centralized lending process also helps to dramatically decrease training expenses because you're not training each employee for all parts of the process. Instead, you're allowing them to focus on their primary skill set where they can add the most value moving forward.
Most employees don't need to be highly trained on all steps of the lending process since they won't be performing them all. This decreases the number of training hours necessary to get people ready to function at peak efficiency, which in turn drives down training expenses as well. Those funds can then be funneled back into other areas of the business where they can do the most good.
4. Increase Lending Profits
A centralized lending process can also be an ideal way to increase lending profits for a credit union. By saving as much time as possible while also increasing efficiency, you're looking at a clear opportunity to increase profits across the board. With growth across the industry holding steady at 5% year-over-year, this could represent a substantial increase in profits for most credit unions.
This in turn increases the overall value of a CU's lending process as the operation is not only more cost-effective, but it also leaves less room for the dreaded "human error" factor as everyone is focusing on their peak skill set. In an era when many organizations of all types are searching for any opportunity to cut expenses without inviting potential problems along the way, centralized lending is a perfect chance to do precisely that without compromising quality as well.
5. Diminish Employee Errors
Speaking of "human error," centralized lending is also a perfect chance to diminish employee errors as much as possible. As the old saying goes, "to err is human" - but that doesn't mean you can't look for ways to mitigate human error.
When CU staff are legitimate experts in their particular area, their jobs become easier and more effective. This lowers the risk of making mistakes at pivotal parts of the process. When it comes to lending, in particular, errors can be incredibly costly. High loan losses can be hugely detrimental to a credit union's bottom line and can cause the types of disruptions that hurt the member experience, not help it.
6. Streamline the Process
Finally, one of the most important benefits of a centralized lending process involves being able to streamline processes.
When you have a single senior manager as the lead of the lending department, you avoid a "too many cooks in the kitchen" situation. This individual who is also an expert in their field has more control over the process in general. Those senior managers can easily oversee day-to-day operations more efficiently, all while keeping close relationships with employees and members at the same time.
Don't forget that the average credit union member has used these services for approximately 16.2 years according to one recent study. The only way to cement that type of longevity is to focus on relationships above almost all else.
Centralized lending allows these managers to focus on employee roles and, more importantly, outcomes. When paired with a clearly defined set of steps in the lending process, this almost always leads to A) repeatable and B) dependable lending solutions - exactly the way it should be.
Centralized Lending is a Process Worth Having
In the end, while there are many lending processes that are available to credit unions, all will not work equally well in every situation. That's ultimately a big part of the reason why centralized lending is so important - it offers unmatched capabilities and a plethora of benefits that are easily adaptable for organizations both large and small.
The process of assigning a new loan officer should be as simple as it is effective. The process of notifying someone that they have been assigned to a new application should be built into your Loan Origination System. Likewise, security and permission parameters should help appease auditors who may question why a centralized lending process is in use and who may want to verify why a single employee isn't approving and funding loans. Overall, the technology you use should enhance your process - not hold it back. This is what a centralized lending process is all about.