Credit unions create revenue from many different sources such as non-lending product and service sales, fees, and investments. However, lending is by far the primary source of income for any financial institution. All financial executives know this. But for many credit unions, the loan sales process is riddled with delivery gaps, poor service, and flat-out neglect leading to unnecessarily low funding ratios and missed revenue opportunities.
This is a rather bold claim but is nevertheless true for many credit unions. If your credit union funds fewer than 50% of its approvable, member-submitted applications, its loan sales process should be re-evaluated and improved.
Credit unions that struggle to fund their approvable loan applications generally have sales process issues in all their lending teams. But the bulk of the issues reside in their lending center departments or functions. What is a lending center? A lending center is a sales team trained to manage all online and phone applications for new accounts and loans. Your credit union may call your lending center by a different name, and it may or may not have a dedicated team. Regardless of titles and structure, the function is essential to the success of the credit union’s lending business.
The majority of loan applications are now submitted online or over the phone. However, the funding rate for applications started through the branch is significantly higher than that of loans funded through the lending center. This disparity illuminates the need for improvement in the lending center sales process.
For any of the credit union’s lending channels, a quality funding ratio should be between 70%-75%. A funding ratio is the percentage of approvable loans that fund. Anything lower than this, the credit union is allowing loan opportunities with their members and potential members to go unfunded. In most situations, those loans are going to the dealer and/or a competitor. It is imperative that credit unions not allow this loss to happen and address gaps in their lending and service processes.
Where Most Lending Centers are Currently Performing
SalesCU works with many credit unions that maintain a funding ratio between 30%-50% and miss several million dollars in potential loans that ultimately go to the competition. This potential loan loss not only represents missed revenue, but it also represents members that go unserved by their credit union. By any standard, anything less that 100% commitment to serving a member is underperformance.
How much revenue loss does is represented by these missed opportunities? I recently worked with a credit union that averaged 2,000 approvable online and phone loan applications per month. The credit union was closing only around 30% of these loan lead opportunities. After reviewing their reporting, we determined that there was an opportunity to fund an additional 800 loans per month, or approximately $24 million in new loan volume. They needed to adjust some specific areas of their sales process to capture these missed loans.
There were two areas in this credit union’s lending sales process that needed to be fixed. First, most loans were lost because the team was simply not doing a good job making initial contact with the member. A first contact attempt took over two hours on average, and the team made fewer than two additional attempts afterward to reach each applicant. Second, the team was slow to closing, averaging two business days from approval to funding.
These discoveries are not surprising because it is the primary struggle for underperforming credit unions. So, what improvements can be made by a credit union to capture more of the loan opportunity being submitted and increase loan funding ratios? Here are three changes SalesCU recommends you implement.
A study by InsideSales.com showed that 35%-50% of sales go to the team that responds first. Credit unions with low funding ratios always have a response-time challenge. For a response-time challenge, we recommend focused time.
Focused time is the process of dedicating chunks of time during the day for specific activities and functions. To institute focused time, the lending center team can be divided into two or more groups that take turns focusing on either starting new loan applications and selling or processing and closing loan applications.
Each team will take equal turns performing each function. For example, on Monday morning Team 1 may be assigned to take new applications and add new loans to their queue, while Team 2 focuses on processing and closing applications they already have in their loan queue. In the afternoon, the teams would switch functions and Team 1 would process and close while Team 2 takes all new, incoming applications.
The schedule should be completely equitable. Each team will switch responsibilities during the week, and the following week the schedule will be mirrored. If one team works on taking new apps in the morning on Monday, the next Monday they will work on new apps in the afternoon.
By instituting focus time, the salespeople are able to focus on one function at a time. Instead of trying to juggle new applications, gather paperwork, send files to underwrite, and send a loan to closing, they can use the time to specialize. Focus time makes them more efficient, which means they can handle a larger workload. Their availability to respond to applications will be higher, they will make more first call contacts, and they will likely be the first team to respond.
Effective Performance Expectations
All sales teams need performance standards and expectations to strive for and meet. The most effective performance standards are not results based, but systems based.
In the book Atomic Habits, James Clear teaches that goals focused on results only give direction on the types of outcomes that are desired. But they give no guidance on how to create those outcomes. He suggested that in order to get a desired outcome, the focus should be on building and applying effective systems.
For example, a lending center team may have a goal of funding 75% of the approvable loans submitted. Another possible goal could be closing an average of $10 million each month. But these are results-based performance indicators. It is not uncommon for lending sales teams to consistently miss these targets and use excuses to justify missing them. It’s also not uncommon for leaders to be confused on how to create accountability to these results-based goals.
To improve results and consistency, the lending center leadership should set expectations around applying the system that will produce the results. For example, the team knows that faster response times equate to higher contact ratios. The more members they contact, the more loans they close. The team also knows that the sooner they can move a loan through the sales process to closing, the higher the likelihood it will close and the less time they will spend on each file. To support these behaviors, the credit union may establish expectations that look like these:
- Phone calls must be answered within two rings.
- Member voice messages must be responded to within twenty minutes.
- Applications submitted online must be responded to via a phone call within five minutes, or at minimum via a personalized text message/email within that same timeframe.
- For a member that has not responded, salespeople will attempt contact twice per day for two weeks.
- The average loan closing time should be less than twenty-four hours, but not exceed two business days.
Additionally, systems-based expectations can also be applied to selling expectations too:
- Payment discussions are focused on a payment budget range so all assurance products can be worked into the member’s payment expectation.
- Applicants are asked about loans they have elsewhere and recaptured when possible.
- Before closing, the salesperson asks the member for a referral.
These systems-based performance expectations remind team members and encourage them to apply effective habits and behaviors that deliver results. They also focus coaching and leadership support on the right behaviors that actually impact quantitative results.
High-performing sales teams include a range of strengths and motivations. For example, a lending center team must have great salespeople who love to engage with members and sell. They need individuals with exceptional organizational skills, tracking skills, and creativity skills. They require individuals motivated by closing business, tracking business, and following up and following through with the member and with the loan requirements.
It simply isn’t possible to find a team member with this type of experience-base as well as all these strengths and motivations. It’s also impossible to expect an individual to independently manage the full sales process effectively and efficiently. Salespeople engage and sell. They are generally not interested in busy work and needless follow-up on things like audits and title tracking. However, a processor may not be interested in selling and would love these other functions.
Credit unions that do not have specialists routinely find themselves struggling to locate the “ideal” candidate with all these desired attributes. They then must choose the attribute they feel they need most, often the default is to hire processors.
We recommend a credit union look at each function on the team and structure roles to focus on a narrow job function. This could mean you have salespeople that work directly with the member; processors that help with the supporting paperwork and behind the scenes work; and closers that prepare loan closing documents for the salesperson, record signed agreements, fund the loan, and follow up on audits and title work.
By creating separate roles, the lending center can recruit, hire, and train a specialist rather than a generalist. It allows the credit union to focus coaching and accountability on what matters most. It also enables them to find team members that are doing what they do best the majority of the time.
These three suggestions may seem obvious and intuitive, however, many credit unions are still not applying the principles.
I experienced the value of specialists while managing an outbound call center and lending center several years ago. When I took on this role, my team consisted only of sales generalists. The salesperson was responsible for contacting the member, processing their loan, gathering supporting documents, preparing closing documents and closing the loan, funding the loan, performing all the audits, and title tracking. When I requested processors to help with the busy work and follow-up, I was told, “No. A loan officer should be responsible for making sure the loan is done right;” and “Processing is what their base pay is for.” However, when I showed my projected ROI, I was finally given approval to create specialized positions.
Within three months, sales performance doubled without increasing headcount. Instead of hiring additional employees, I was able to assign team members to positions that matched their strengths and motivations.
Certainly, I am not guaranteeing that making these changes will result in a doubling of lending performance. Also, there are additional aspects of a credit union’s loan sales process that impact funding ratios that we have not covered in this article. However, if a credit union’s funding ratio is consistently below 50%, the issues outlined in this article are most likely the primary culprits. By addressing these issues first, and making the suggested changes, improvement will be rapid and measurable.
Once these improvements are made, the credit union should continue to track and refine their lending sales processes with the goal of reaching a funding ratio of 100%.