It's a unique and exciting time to be a lender. It seems like every conversation I have with anyone involved in lending is all about grow, baby, grow! During and after the recession, lending executives seemed happy to have any growth, as long as they weren't in the red. I recall most folks getting excited about an annual growth of 5–7%—my how far we've come!
With loan growth now in the double digits, even hitting the 20% range at some institutions, the conversations have changed. Now, I hear about what everyone's competitors are doing and how the competition stacks up when comparing their financial institution's recent success. This new focus on growth is good. It helps breed healthy competition! But, it can lead to mistakes if your only goal is to grow fast, at all costs. We've seen these types of mistakes cripple, and even ruin, private and public companies, as well as lending institutions.
Couple this with lending managers who are taking on more risk and getting more competitive with their indirect business, and the new landscape of lending starts to come into focus.
All financial institutions want their loan portfolio to continue growing and providing the income they've been missing out on for quite some time. And, there are a lot of ways to drive that growth. Many lending execs I have had the chance to meet with as of late, have voiced that they are looking for additional loan products or strategies that can bolster their loan growth and complement their existing efforts. If your institution is in the same boat, here are a few ideas:
1. Lease-Like Auto Loan Programs
These are balloon-type auto loans that act like a lease. It's important to note that these are not actual leasing programs but are similar to them since there is a guaranteed residual value, and the borrower makes payments based on a smaller amount borrowed. There are companies that made it through the recession offering these types of programs and are still alive and thriving. Focus your search on companies with longevity—those that have proven they have staying power or else you risk doing business with a "here today, gone tomorrow" type of company.
2. Property & Casualty Insurance Offerings
There are many companies out there that can help you develop and build an insurance agency or book of business written through their own agency—SWBC's Insurance Partners is a great example. Offering property and casualty insurance can be a great source of non-interest income. It also complements your existing lending efforts because insurance is a product that everyone with an automobile, home, or commercial loan must have. When selecting the right property and casualty insurance service provider for your institution, be sure to consider the important factors—flexibility in ownership of the book of insurance, the level of support you get, the number and variety of products offered, and the number and quality of carriers represented.
3. Outsourced Lending
Expanding your loan offerings to all of your potential borrowers can add tremendous and rapid growth to your portfolio. A great way to accomplish this is by outsourcing the process of making these offers. If you can find a partner that will work on a contingency basis, it can also be very cost efficient. Just make sure that the systems used by your institution and your service provider are compatible and the process of closing and funding is well thought out and fully developed.
4. Value-Added Point-of-Sale Loan & Vehicle Protection Products
Aside from Guaranteed Asset Protection (GAP), Major Mechanical Protection (MMP)—also known as vehicle warranties, and payment protection, there are many other loan and vehicle protection products that can be sold at point-of-sale (e.g., paintless dent repair, tire and wheel coverage, roadside assistance, and key fob replacement). Many of these are being sold at dealers and represent a missed opportunity if you haven't looked into them. These products not only add value to your loan, but they also boost borrower loyalty and differentiate you from your competitors. If you'd like to look into offering these products, check out SWBC's AutoPilot® Lending.
5. Home Equity Lending
While home values are bouncing back and lenders are starting to once again market their equity offers, potential borrowers may still find alternatives outside your institution if you don't offer 100% Loan-To-Value loans and lower tier credit loans. To mitigate your risk, there are real estate lending and default management platforms out there that have protection products in place that insure against losses and even incorrect values. The cost of these programs can be shifted from a bottom line expense to a modest rate increase so that the borrower pays for their own risk to your portfolio.
6. Mortgage Partnerships
While you may have a strong mortgage lending department, if your offerings are short of everything that a broker can offer (i.e., FHA, VA, and other types of mortgage loans), finding a strong mortgage partner can help you expand your offering to include these additional loan types. When the refinance market dries up, as it has recently, partnering with local real estate brokers and hosting in-branch open houses can increase your purchase loan opportunities.
If you haven't looked at some of these areas of interest, you should consider which ones may fit into your business model and play to your strengths. No one would advocate that an institution try to be all things to all people, but given the opportunity for growth, and the competition that exists to capture the demand for loans, it's important to keep your mind open to ideas that you may not have considered in the past.