Independent Banker - September 2017 - 62

Lender Life
Eff ective federal funds rate, 1955-2017
20.0
17.5
15.0
12.5
10.0
7.5
5.0
2.5
0.0
1955
1960
1965 1970
1975 1980
1985
1990
1995
2000
2005
2010
2015
Source: Board of Governors of the U.S. Federal Reserve System
established borrowers typically want
second mortgages at fi xed rates to tap
into the equity of their homes without
the interest-rate risk of fl oating-rate
home equity loans.
Locking in a known, historically
low-interest-rate expense may also
be advantageous to customers who
might be cashing in an IRA or other
investment to pay for a child's wedding
or a similarly large personal
expense. The investments could well
earn more than the customer's interest
expense on the mortgage.
Business lending
considerations
Like ARMs, small-business loans
also move up with Fed action on
short-term interest rates. As rates
increase, some small-business owners
may reconsider community banks
over online lenders. Online lenders
have typically offered quicker
decision making but charge several
hundred basis points more for
that convenience.
The advent of the smartphone has
led small-business owners to expect
to handle all of their needs quickly
online, says Terry Renoux, group
president, commercial lending solutions
for Profi tStars, an operating
division of Jack Henry & Associates.
They expect similar convenience
from their community banks in the
form of online applications and quick
loan approval. Safety and soundness
considerations may dictate that
community banks ramp up due diligence
before awarding a loan. They
also may lead community banks to
offer credit to business owners they
know who are good credit risks but
who would be rejected by automated
scoring. At the very least, a bank's
loan approval technology should be
able to immediately notify an applicant
how long before he or she could
expect an approval.
Mike Horrocks, vice president
with Baker Hill, says the current
interest-rate environment is favorable
3
The number of interestrate
increases on tap
for 2018
to community banks-if they can
keep up with the expediency of
online lenders. " Community banks
need to balance their culture with
the convenience of fi ntech, " he says.
He recommends they use technology
to enable the quick decision making
and funding common to alternative
lenders alongside the deposit services
and local decision making that community
banks are known for.
" The biggest need at most community
banks is to improve the
62 ICBA IndependentBanker September 2017
application process and to expand the
available channels, " Horrocks says.
" Banks need to look at their existing
processes and streamline the loan
renewal process. " The easier community
banks make the loan renewal
process, the less reason they will give
renewing small-business borrowers
to look elsewhere.
John Robertson, Baker Hill senior
business process consultant, adds,
" Technology is a tool; it shouldn't
drive the bank. It can help the bank
more effectively price its products. "
McDuffee agrees, pointing out that
just because community banks add
technology tools to quicken the smallbusiness
lending process, it doesn't
mean that they should change their
risk tolerance for the small-business
loans that they approve.
Reber recommends that community
banks considering beefi ng up
their small-business lending activities
do so through SBA loans. The fees
pay for the guarantees on the loans,
and there is a lucrative secondary
market with investors who will pay
premiums of 10 percent and more on
the securities.
The rising interest-rate environment
can provide enterprising
community banks with some business
expansion opportunities if they take
the initiative to reach out to those
creditworthy borrowers who may be
seeking lower rates.
Phil Britt is a writer in Illinois.
Percent
Independent Banker - September 2017

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