Many of us who left our workplace on that March 2020 day failed to realize that we may not return to it, and that, if we did, work would never be the same again. The Coronavirus pandemic is pushing the once stronger-than-ever United States economy into recession with more than 33 million Americans now unemployed.(¡) A majority of the global population is being forced to adapt to the already tired phrase, “the new normal,” the reality of social distancing and a remote workforce.
It's easy for Facebook or Google to say their companies will remain a remote workforce into 2021, and possibly beyond. Innate cloud businesses are not “service providers” in the classic sense. How do other sectors of the economy address the decision now and over the long term? Cause and effect. Adapt or deal with imminent failure looming everywhere.
CIOs are responding, recognizing the technology we employ is often the best strategy, both offensive and defensive, to overcome challenges we face. According to a recent Morgan Stanley flash survey, half of CIOs cut information technology (IT) budgets by an average of 2.6 percent in the face of COVID-19, but reallocated that spend to technologies supporting remote workers.(¡¡) Despite the tighter restraints on budgets, the influx of remote work has required a shift in dollars toward communication and collaboration software, security and remote workforce initiatives at the expense of others, with cloud adoption and automation remaining solidly intact.
How will you survive, grow and scale your asset-based lending (ABL) business in the midst and aftermath of a global pandemic? We recently asked a longtime ABL industry veteran the same question, and the response might surprise you: “It is business as usual for us, we don’t need to do anything, we have a system.”
Asset-Based Lending & Technology
Originally introduced to solve the rigorous manual tasks and potential human error associated with asset-based lending, ABLtech really took 20 years to become an instant success. The majority of ABL systems even today are old and antiquated. Some have a web front-end, but the system cannot be accessed remotely. These static solutions cannot support a post COVID-19 workforce. There are, however, newer modern technology platforms and ABL systems that recognize the value and necessity of the cloud, real-time data integration and automation of ABL business processes.
Moving to the Cloud & the Joy of Lender-Borrower Portals
Be virtual and be efficient because wherever you are, you need to operate effectively and be responsive. Having a secure, cloud-based portal application facilitates and broadens the interaction between lenders and borrowers; and, a robust portal app enables easy communication regarding the initiation and on-going status of a loan, with complete transparency. The move to the cloud has been big over the years, but now cloud-native applications are a business-critical solution for operational continuity and efficiency. Don’t just work from home, work from anywhere, anytime.
Your ABL system should serve as a mobile office enabling your business to do everything necessary to effectively manage its ABL portfolio. Cloud-based platforms can provide secure access from anywhere by implementing security protocols for the protection of personally identifiable information (PII). This enables lenders to remotely set up new loans and accounts, upload files to document storage, spread and review financials, conduct credit reviews, make credit decisions and advances, reconcile accounts, calculate interest and export G/L, close, and balance daily. All of the customer information, inventory and financial statements are at the lender’s disposal to provide a snap shot of where the business is prior to a of release funds. Knowing a good advance before you make it helps your clients remove uncertainty and increase control over their finances.
Similarly, from the comfort of their homes, cabins or beach houses, borrowers can enjoy secure portal access and transmission of sensitive information. Portals can enable borrowers to provide secure user-based access to share business-critical data to ABL team members based on role, such as originator, processor or analyst. The borrower can look at loan status for the day, ineligibles and amounts in reserve, all broken down by the type of loan. The borrower does not need to call or email your team, but is instead able to upload, store, and retrieve documents, and request disbursements of available funds by electronically entering the proposed disbursement date, bank account and method of transfer. ABL apps can also include an advance calculator tool to assist borrowers in making quick on the spot determinations regarding the amount of funds to request.
Parties to a transaction that cannot share files in real-time waste time inefficiently chasing email trails and telephone calls. Cloud-based access enables lender and borrower to see updates in real-time, and map all values into the system to automate calculations. Borrower and lender portals provide a single source of truth, and by the way, auditors love transparency. A noticeable business effect of utilizing a cloud-based system is silence. Telephones stop ringing. If there is any type of a disparity as to a posting, there is no reason to call, the borrower and lender can log into the systems’ portal to communicate, exchange information, resolve disparity and move on, leading to increased customer satisfaction and retention.
Secure Real-Time Data & Dynamic Borrowing Base
Everyone needs better quality data. Real-time data is what is driving the decisions to re-open the United States economy. ABL systems change the way you manage credit risk as the result of the availability of real-time data. With a centralized, cloud-based storage and retrieval system, as well as systems that can integrate with existing legacy applications and data sources, managing a loan is very easy and efficient, because you are in the know.
ABL applications can break a loan down by type, collateral, rates and threshold. An accounts receivable loan, for example, constantly changes to reflect sales and invoices paid. Your ABL system should be able to consume this data, continually adjust and provide very detailed reporting so that you can micro-manage the loan, particularly if the data indicates there is a higher risk threshold. Virtual systems enable the parties to see ineligibles, make automatic adjustments to ineligibles daily, total daily collections, agings, and perform automated recalculations based on events that have occurred. Having this type of quality data keeps clients sticky. If something happens, you can respond with the snap of your fingers.
Given the demand for quality data, the Crowd Machine ABL system, for example, was designed to automatically calculate a real-time dynamic borrowing base using complex algorithms that automatically capture previous activity while calculating availability based on live data. Collections, sales, agings and ineligibles are auto processed with accurate up-to-date information to expedite advance approvals. No more reliance on 10 people on the 10-key (calculators). Lenders can also use these apps to create their own risk ratings. Additionally, contemporaneous data enables ABL systems to quickly and easily generate a variety of both standard and custom reports, for accurate up-to-date reporting and compliance.
Balancing credit risk is completely different with the right system. You gain efficiency and confidence in decision making. Without the right system, ABL lenders cannot do these things, do these things well or do these things efficiently.
Opportunities for Growth
Embrace technology that will enable your ABL business to survive and prosper. There are huge prospective opportunities, particularly as the PPP runs out. While the first quarter of 2020 may have been a period to re-stabilize, the ABL community could be kicking out deals in droves as business will have great needs over the next 6-12 months, with potential opportunity not seen in history. Now is the time to be pro-active and employ technology that reduces unnecessary resources, enables your remote workforce to thrive through efficiency, increases capacity per person, provides increased transparency to make good lending decisions, and informs and empowers clients. Make growth and certainty the new normal.
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[i] U.S Conference Board
[ii] 1Q20 CIO Survey: IT Budget Slipping - Assessing the Covid-19 Impacts, Morgan Stanley Research, April 2, 2020