Following the Great Recession that hit the United States in 2007, the private money lending industry has significantly evolved. Prior to 2008, private mortgage lending was dominated by a handful of very large companies —  Landmark Capital & Investment Company, Mortgages Limited, and IMH Capital, to name a few. Along with these major players, a few smaller ones poured in and managed to compete on a small scale.

Back in those days, private money lenders could easily charge higher fees since there was very low supply and a comparatively high demand for capital. Fast forward to present day, it’s no surprise everyone wants a piece of the market. As the industry continues to evolve, private lenders, both big and small, must become more agile and continuously adapt to overcome increased competition.

So, what do private lenders really need right now? Strategies on the best ways to scale your business so you’re set up to support growth in your organization. And guess what? All it really requires is a little bit of planning coupled with the right technology, processes, and partners. Before we can identify how to scale your lending business, let’s first look at some of the common problems faced by private lenders today.

Challenges faced by Private Lenders today

“If you are in banking and lending, surprise outcomes are likely to be negative for you.”

– Nassim Nicholas Taleb

Lagging behind the competition

Consider the enormous size of real estate lending today. The Fed’s recent report shows mortgage debt topping $9 trillion. When accounting for lending to businesses, it tops $15 trillion. And, over 10 million commercial properties and homes sell each year in the US.

As more capital enters the space converging to lower yields, competition is forcing private lenders to take an aggressive approach and write loans at higher loan-to-value rates, making deals a lot riskier.

That can’t be good.

Using outdated processes

The amount of data that exists on borrowers can easily startle anyone. While traditional institutions have completely automated their back-end operations and workflows, most private lenders are still too primitive when it comes to accommodating tech and software advancements, resorting to manual accounting or using excel sheets leading to multiple errors that might be very difficult to correct. What does all this mean for private lenders? Accounting, legal and compliance nightmares.

Paper-based loan processing makes the task of maintaining records a monotonous one. This further makes keeping track of a loan’s status and the process of retrieving critical information time-consuming.

Keeping track of a loan’s status could be pretty complicated when it’s recorded manually. Since the process is vulnerable to manual errors, there is no way to substantiate a borrower’s claim of a payment if the lenders forget to make a note of the transactions. Feel like losing some sleep? Doing things manually is the best way to get there.

Going through lengthy procedures before the deal is done

Regardless of the size of the private lending organization, a blazing fast loan origination process is a competitive advantage.

Most lenders’ current processes and systems include tardy manual steps. Given borrowers usually turn to private lenders when they have limited time at hand and don’t wish to go through the lengthy and tiring processes most traditional banks have in place, quicker lender processes yield quicker turnaround times for borrowers yields more business for you and most importantly, happier (and repeat) borrowers.

Let’s now take a look at a few ways you can scale your lending business with the right practices.

The RIGHT ways of undoing everything that’s Wrong!

Software development = Overall development

SaaS solutions have played a vital role in helping private lenders expedite and organize their operations like never before. And even then, lenders aren’t paying much attention to developing custom software to suit their needs.

Your developer can help you design and create tailored tech solutions based on the latest innovations. Here are a few examples:

• Allow making payments for borrowers and creating dashboards for investors directly from mobile devices using e-wallets through apps; a must-have in today’s market
• Help borrowers make wise, data-driven asset management decisions with the help of Robo advisers
• Better handle authentication in large-scale transactions and streamline processes through blockchain technology
• Input data of general and limited partners
• View and edit relevant data about partners and investment decisions
• Create detailed reports about investments
• Tally management fees and compute carried interests
• Increase productivity by helping administrative personnel in creating scalable strategies and actions

Custom software development can also leverage the latest data analytics to survey borrower data and create personalized solutions your clients expect, leading to increased loyalty. It can help with your company’s cybersecurity risk management and mitigation, fraud detection and prevention, and regulatory compliance.

Work smarter ft. artificial intelligence

Many traditional lenders are leveraging artificial intelligence (AI) to sift unconventional data to foretell creditworthiness of borrowers. Doing so is especially important for markets where a growing middle class uses smartphones but dearths traditional credit.

With AI, you can easily analyze borrowers’ digital footprint for creditworthiness by having them download an application. With the app feeding data to a credit scoring platform, variables such as browsing, social media, geolocation, etc. are used to get a complete picture of the borrower. One organization called Lenddo has done this across Asia and Africa.

Technology companies can now pull data from online behavior and other sources to examine people’s location, search, and payment details to calculate creditworthiness in what’s called a “social credit” system.

Some lenders who had laid the groundwork in North America are experimenting with search history data. Many car buyers, especially young people who haven’t taken out much credit before, don’t qualify for auto loans. Auto lenders are now getting comfortable extending loans despite “thin” credit scores when the borrowers’ search characteristics are favorable.

Mainstream intervention? Nope.

A technology led non-invasive approach is the key to taking client follow-ups without coming across as nagging. Private lenders can provide a controlled, neutral environment for customers to ‘discuss’ their circumstances by leveraging the Chatbot technology and analyze resolution opportunities baked into the bot itself.

Given the limited radius of issues within which clients usually tend to lie, programming the chatbots for adequacy is quite possible. Gradually, the interactions carried out by these bots will serve as a template for training to make the process more effective – leading to lower costs and higher resolution rates.

The next big thing: Smartphones!

Earlier, a mere 2% of mortgage applications were filled on mobile devices. However, since the past 2-3 years, that number has leaped to 20%. This notable increase has occurred due to the increasingly busy lifestyles of individuals, and smartphones replacing  laptops and desktops in the private browsing space.

The integration of smartphone solutions with the technology mix will entirely transform the way in which lenders and borrowers interact.

Current solutions in the market range from POS origination, processing to compliance documentation. All these solutions are highly customizable with respect to your client’s experience too. Industry experts believe the growing interest in a mobile-optimized experience will lead to greater demand for online lending services.

A few closing words

In order to stay ahead of the game in today’s competitive climate, private lenders must consider implementing digital solutions like custom software and artificial intelligence or chatbots. Quick implementation, lower costs, and near-universal availability are some of the key benefits of these solutions. Adding them to your arsenal will not only help you eliminate tedious manual practices, but it will also allow you to modify processes swiftly as markets continually change. It’s super important that private lenders begin evaluating and incorporating innovative technology into their offerings. Just as the ever-growing pace of tech advancements has enhanced countless facets of our daily life, technology too is remodeling loan origination, enabling speedier funding decisions for your borrowers while simultaneously lowering processing costs, as well as improving profitability and efficiency in the lending realm.