Outsource Your Risk Management to Serve Your Borrowers Better

SBA Offers Historic Relief to Businesses Suffering During COVID-19 Crisis
April 6, 2020
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Outsource Your Risk Management to Serve Your Borrowers Better

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As a lender, you’re probably feeling a bit overwhelmed right now.

The federal government responded to the escalating COVID-19 crisis with a historic $2 trillion relief package – the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Through CARES, many small businesses can access the Paycheck Protection Program (PPP), a new low-interest loan program administered through the U.S. Small Business Administration (SBA).

Due to the rapid rollout of these emergency relief measures, however, banks and credit unions have been swamped with requests from their business borrowers. Many lenders are finding it difficult to navigate the SBA’s new eligibility criteria and lending requirements. During these hectic and confusing times, financial institutions are struggling to maintain their “normal” commercial lending operations.

Some lenders are using this opportunity to review their internal processes and to outsource certain non-core functions, like environmental and collateral risk management. Here’s why this makes sense, especially now:

  • Maintain focus on your borrowers’ needs: Right now, you need to be there for your business borrowers. They are trying to figure out how to keep their employees on payroll, how to maintain minimal operations as a “non-essential” business, and whether they will be able to reopen when the crisis finally passes. Business owners are frustrated and frightened, and they are looking to you for advice and help. As important as it is, risk management is understandably low on your priority list at the moment.
  • Highlight your core competencies: Even in normal times (remember those?) it is best for you and your loan officers to stay focused on what you do best. That means making good loans, growing relationships, and serving the needs of your borrowers. Consider outsourcing everything else, like legal, compliance, and environmental due diligence, to the experts.
  • Access to leading experts: Speaking of experts, the best outsourced risk management firms stay up to date with the latest state, federal, and municipal regulations. Their job is to stay abreast of changes in the field and provide advice and counsel in line with those best practices. They also employ staff with decades of experience working in large-bank risk management departments and serving numerous clients across the size and geographic spectrum.
  • Speed up your time to close: Outsourced risk management firms are comfortable handling high transaction volumes for dozens of clients on a daily basis. They can easily manage an influx of valuation and environmental due diligence requests through their network of specialists. This means you won’t need to deal with bottlenecks that may delay closings, as you would if you were forced to rely on an inexperienced in-house generalist assigned to oversee your institution’s risk management function.
  • Reduce costs: In the long run, outsourcing your risk management function will save you money. Since contractual arrangements typically use a variable cost model, you will only pay for what you need, protecting against periods of lower transaction volume. In addition, in most cases you’ll be able to pass the expense through to your borrower at closing.

As you consider outsourcing your risk management function, it’s important to remember that not all vendors are created equal. Seek out a firm that provides a holistic approach to risk management, versus one that offers a short menu of specific services. With the more comprehensive approach, the vendor serves as your virtual risk management department, providing advice and guidance and procuring products and services from experts in the field on your behalf.

When conducting your vendor due diligence, make sure the firm has a complete understanding of both the risk management and business aspects of making a loan, familiarity with current government regulations, strong relationships with regulatory examiners, and an established network of proven, vetted service providers. Additionally, protect against possible conflicts of interest by ensuring the risk management consulting firm doesn’t also provide Phase I and Phase II Environmental Site Assessments in-house.

As you will likely be swamped with calls from your business borrowers in the coming weeks and months, it’s a great time to consider outsourcing some of your non-borrower facing functions, like your risk management, environmental due diligence, and appraisal processes. This will empower your team to focus on helping your borrowers access the resources they need to stay afloat during this time of crisis. Here at ORMS, we’re ready to help you with everything else.

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