DIGITAL SOLUTIONS TO ABL DILEMMAS: Streamlining the Lending Process Through Technology
For many borrowers, asset-based loans are a lifeline, providing access to working capital that supports their businesses. But no one would deny that the loan process and follow-up monitoring is archaic and cumbersome. Craig Sproule explains how “no code” digital solutions can change the process and create a more efficient, cost-effective ABL lending platform.
BY CRAIG SPROULE
As the world economy transforms by adopting more digital modes of operating and delivery, software innovation is now at the heart of what businesses require to differentiate themselves. The market is fueled by technology-driven customer expectations, expanding competition, and innovations requiring businesses to be more agile. This demand for digital transformation also exists in the asset-based lending (ABL) world. ABL is a heavily data centric process for both lenders and borrowers.
Today, technology drives how we collect, store, manage, use, maintain and share data. ABL offers a great opportunity to obtain needed business capital, however, the manual nature of the ABL process has historically presented challenges, particularly given the constant fluctuation of vital data and need for continuous interaction between lenders, borrowers and third parties. The challenge to effectively monitor, manage and mitigate risk in asset-based loan portfolios is being met by technology-driven solutions that can deliver accuracy, transparency and confidence.
A brief look at the archaic ABL process underscores the need for digital transformation in the industry. In simplest terms, an asset-based loan is a type of business financing, secured by company assets, often operating as revolving lines of credit. This unique structure allows a company to borrow from collateralized assets such as accounts receivable, inventory, equipment or other property to cover expenses or investments. While ABL provides invaluable capital for businesses to operate and grow, the process of origination, monitoring, risk minimization and settlement has historically been a manual, time consuming, data centric juggling act of numbers, values, and spreadsheets, replete with opportunities for human error and missed decimals.
For example, to create a “borrowing base” -- the all-important number the lender is willing to loan based on collateral -- a percentage of value calculation is done using multiple sources of fluctuating data related to sales, collections, inventory, eligible receivables and field exams. Data goes up, data goes down, 24/7, 365. The daily paper trail, enough to take down a small forest, also includes the preparation of industry specific reports between the loan originator, borrower and third-party loan servicers, who monitor the collateral, fluctuations in value, amounts available for draw downs, risk assessment and mitigation. This time consuming and costly painstaking process invites miscalculation and undermines the accuracy of reporting. Lenders must mitigate risk, despite all of the variables in the air.
Technology Meets ABL
As a result, there is great market demand for a better, real-time approach to manage and expand ABL portfolios that can deliver efficiency, visibility and accuracy to the process. Collaboration between ABL industry experts and tech developers is leading the charge to create easier, faster, more cost effective and efficient ways of managing ABL portfolios. By focusing on ABL’s pain points, technology is transforming the ABL process into a modern, yet familiar loan management system, with the ability to quickly identify and manage risk on one side, while meeting client expectations and delivering great customer experiences on the other.
How is it possible to bring digital transformation to ABL?
Automation of software development, and in turn, automation of the ABL process is the solution. Technology replicating human behaviors coupled with machine learning, reduces manual effort, removes redundancy, avoids errors, and creates new efficiency. Archaic manual and static on-premises core banking systems are giving way to cloud-based no-code solutions. Analogous to ABL inefficiencies, in traditional app development, the resultant output did not always meet user requirements the first time, and therefore, there were many iterative loops in the app development lifecycle. A more business agile approach became imperative for both software development and the ABL process.
No-code development environments deliver true digital agility to enterprise, including the ABL industry, by dramatically shortening the application lifecycle and delivering mission-critical applications roughly 10x faster than traditional development methods. Unburdened by the complexity of writing code, developers can define data and draw out the structure of an application based on what the end user is trying to accomplish, automatically creating the solution.
No-Code Digital Solutions
Visual representation of solution requirements makes the data path and the user path clear and unambiguous. In a no-code development environment, activities and patterns are used to mimic human behaviors and desired actions. App activities such as user inputs, automated tasks, integration tasks, calendaring, communicating, and reporting are simply drawn out and linked together using drag and drop natural language to create the desired workflow or experience. The ABL line of business executive’s requirements define the application’s structure and workflow.
Additionally, in no-code environments, expert intuitive rules, both simple and complex, are utilized so that the logic that needs to be implemented can be assembled. To be clear, the logic is assembled — not coded. The technology understands dependencies between rules, and automatically manages the order of execution, reducing the chance of introducing errors into the application logic. Traditionally, knowledge of programming languages was required to iterate the rules, however, no-code platforms use natural language. This facilitates the general understanding of what is supposed to be happening within the system. Rules are applied, specifically directing which behaviors and actions should be taken against a given set of data or experience, creating meaningful, repeatable outcomes. In other words, a complete application is created — built to exact specifications without compromising features or functionality. These application “patterns” are also reusable components that can be used by a bank’s IT department to decompose existing static legacy banking systems by converting them into nimble microservices, thereby making legacy financial data useful again. While integrating into underpinning systems, no code applications can rapidly scale and be customized to fit each financial institution’s requirements, including creating a cloud migration strategy.
Cloud-Based Solutions Offer Flexibility
Archaic manual ABL processes and static banking systems are being replaced with digitally agile, flexible no-code solutions, allowing financial institutions to embrace digital transformation. The cloud-based systems can integrate into the core banking systems. They are also flexible, fully customizable and can scale to meet evolving customer and market demands for technology-driven solutions.
Cloud-based systems, for example, have role-based portals facilitating constant communication between lenders, borrowers and third parties. Customers can upload collateral data, make draw down requests, receive approvals and provide electronic signatures, all online. Lender portals provide access to borrower information and built-in distributed workflows to automatically process advances, assignments and payments, with less staff. Cloud-based loan document management provides constant access for all loan participants to centrally stored and searchable data, reducing time spent looking for critical information. Customized dashboards visually deliver vital loan information, providing real-time visibility including “loan alerts” when collateral monitoring and risk issues are raised. Cloud-based data sharing enables greater access and communication throughout the loan process to all parties. Loan originators easily share data to participating institutions and compliance, enabling a high level of oversight. Risk assessment and mitigation oversight of collateral occurs throughout the process. The 24/7 access to live information creates a greater level of transparency and trust, and lends itself to faster funding decisions.
XpediAR, for example, is a comprehensive field exam and loan management portfolio system, created with zero-code technology, which has sophisticated features and functionality. With respect to the all-important borrowing base, XpediAR uses a number of complex algorithms to calculate the borrowing base against an asset base, on a daily basis. The system automatically captures previous activity and calculates the availability based on recent live data. The collections, sales, agings, and ineligibles are auto processed so that loan officers can have accurate up-to-date information expediting advance approvals. No more reliance on the 10 key. XpediAR performs mission critical tasks, and is able to handle hundreds of thousands of transactions daily, 24/7, with the majority of them occurring at peak load times. Traditional coding methods would take roughly 1,800 days to create such an app, however, XpediAR was built in 202 days using a no-code platform.
New Solutions Transform Reporting
Solutions such as XpediAR, dramatically facilitate ABL reporting. With extensive ad hoc and field reporting, XpediAR can automatically generate sixty industry specific reports, right out of the box, with the ability to be customized to meet a financial institution’s operational needs. The automated reports provide visible online data. This type of systematic reporting provides real time identification of deteriorating collateral and makes it easier for the borrower to meet lender reporting requirements.
Cloud-based systems also strengthen fraud detection, providing reports on fraud items often found in aging, such as credit memos not reported, collection variances with the lender and change of invoice amount. The system automatically recognizes these variances, rather than relying on human detection, and issues “loan alerts.” Financial spreading can also be put into a customizable template with data being used by reports, such as financial comparisons. These systems enable a loan officer to quickly see any deterioration in the borrower’s activity. These are just a few of the functions that cloud-based applications have assumed on behalf of the lender & borrower.
Mission critical ABL tasks have been automated to allow the loan to move in real-time synchronicity with the collateral. From loan origination, data collection, complex calculations, field exams, to daily monitoring and reporting, the manual paper trail has been replaced by web-based processes, algorithm calculations, workflows and outcomes. Tasks that used to take weeks or months can now be done in minutes with the click of a mouse.
Automation of the participation process, allows more than one institution to share the credit with confidence. Technology eases the time and cost of borrower reporting and collateral monitoring, keeps up with changing market conditions, strengthens competitive edge, and increases customer satisfaction. All of which lead to booking more loans with greater turn around. Cloud-based solutions enable lenders to have real-time ability to manage loan portfolios with accuracy, efficiency, transparency and confidence. Simply stated, no-code cloud-based ABL solutions provide the best practices of asset-based lending and will change the way lenders do business. •