How the Internet Has Changed Community Bank Commercial Lending
McGovern, John J., The RMA Journal
It's fair to say that the vast majority of us have grown quite comfortable with e-mail and performing some basic Internet searches. As far as our credit decisioning processes, however, many community bankers have yet to take advantage of the full power of the Internet. This article updates bankers on the progress of our due-diligence and business-building partner in cyberspace.
A core competence in commercial lending has always been obtaining and disseminating information that leads to better lending decisions. While much in community banking has changed over the past decades, information gathering and sharing remained pretty much the same until the past few years. Now, more and more lenders in community banks use the Internet, enhancing both their due-diligence activities and their ability to respond more quickly to customer needs.
In Two Decades, Light Years of Change
The Internet (a.k.a. "the Web") needs no introduction to anyone other than Rip Van Winkle. Although techies in government and university labs were using the Web in rudimentary form in the 1980s, the first popularly used connections to the Information Superhighway came into use in the early 1990s. According to the Pew Internet & American Life Project, fewer than one in seven Americans were online in 1995. By the end of 2001, more than half were using the Internet. The growing use of broadband, replacing dial-up, has had an accelerating impact on Internet use. Pew now shows that about 72% of American adults use the Internet. Of that group, the highest percentage, 91%, use it to send e-mail, but 90% use a search engine to find information, and 51% use the Web to do some type of job-related research.
While our use of the Internet to improve and accelerate our underwriting and decision making is increasing, it's safe to say that we are far from taking full advantage of this important tool, and some of us have yet to make it a regular part of our due-diligence activities. This should come as no big surprise because, historically, we bankers are known for being set in our ways. The value of judiciously applying this evolving technology so far outweighs any tug to keep doing things the way we did 15 years ago that we owe it to ourselves, our employers, and our customers to become better versed in the use of Internet research.
Yes, you're right: The Internet and the information that one finds there is far from infallible. While most everything that is online is presented as fact, we know the information requires some filtering. We need to continue to apply the same degree of scrutiny and discernment to information found on the Internet that any good banker would use in his or her daily work.
How Bankers Are Using the Web
While the primary focus of this article is on underwriting and risk minimization, Internet use by community banks can also help us locate prospects, test their fit to the bank's target markets, and assist in pre-call preparation as well as in-depth meeting preparation.
Online editions of business periodicals now offer a number of valuable lists, such as commercial real estate sales, new leases signed, contracts awarded, location changes, branch openings, and significant hiring by a company. There also are industry lists, such as the top 50 commercial real estate brokers, CPA firms, staffing firms, title companies, building contractors, law firms, engineering firms, and private schools.
A flashback to the 1980s would show bankers driving through a commercial or industrial area to identify potential prospects. We'd write down names of businesses we didn't know and then we'd go to the library, SIC code lists, and the telephone book in an often frustrating search to gather enough information to know whether these were likely prospects. Now, a Web search on a business name will quickly reveal whether a business in our area is a branch office of a company headquartered outside the market and, hence, not a likely candidate. …