Digitalize to Diversify in Commercial Lending

When the going gets tough for commercial lenders, the tough get diversifying.

In challenging macroeconomic conditions, there’s no guarantee your traditional customer base will weather the storm. But do you have the innovative digital technology you need to move into new markets?

Some regional banks in the U.S. have already suffered the consequences of keeping most of their lending eggs in one basket. In 2023, for example, overreliance on a then-struggling tech sector played a large part in Silicon Valley Bank’s failure.

Now, troubles in the commercial real estate (CRE) market could badly hit even more small to mid-sized banks.

In North America especially, CRE lending businesses were booming at the end of the last decade. Since the pandemic, however, the rise of hybrid working means declining demand for office space. And while North America is more exposed to this trend than Europe, there’s still less growth all around for banks that lend mainly to CRE projects.

So, the ability to diversify has never been more important. But when lenders have mainly focused on one market sector, they’ve also tended to gear their whole operation and toolset toward it.

Historically, many smaller banks in particular haven’t even invested in dedicated loan origination or loan servicing technology. They’ve simply relied on a combination of core banking technology and manual processes to manage the lending life cycle.

That’s fine in the short term and if you’re only lending to small businesses. But with relatively low margins, a 100% focus on simple SME loans isn’t a sustainable business model either, especially in such a stagnant economy.

The only option is to branch out and diversify your portfolio. And the most viable way to do that is with a flexible and modern solution that can handle the complexity and won’t hold you back.

Many lenders agree that it’s time to upgrade to digital technology, built specifically for the intricacies of commercial lending and scalable to an expanding portfolio. Plus, there’s definitely a shift from building systems in-house to buying specialist commercial lending solutions.

So, not only are more banks embracing innovative technology in a big way, but they’re also going out to the market to find the best of it. Are you ready to follow their lead and diversify your lending business?