Do you use modern technology to manage your construction and renovation loans? Your regional competition likely does. Construction lending can be a profitable part of your portfolio. But, without the help of digital construction lending administration software, these loans are high risk. Outdated technology, like spreadsheets, is more prone to errors from manual data entry. And, communication channels like phone or email aren’t secure – increasing the chance of a data breach. Plus, construction and renovation loans are complicated to administer. You have to stay on top of draw requests, inspections, and a mountain of other paperwork.
Without modern technology to help with this complexity, you have to devote your team’s time to manual loan oversight. These increased operating costs cut into any profits you could see from your construction loan portfolio. It doesn’t have to be that way. Modern lending technology can help you reduce risk, cut operating costs, and inspire customer loyalty—all without the frustration that comes with traditional construction lending. Lenders looking to stay ahead of the curve are switching from antiquated methods to Built CLA software to keep all of their important information and communication secure and in one place.
Stay Ahead of the Curve—Stay Secure
While the mortgage industry and other banking sectors have become more digitized, construction and renovation lending has lagged behind. Much of the same technology used 20 years ago is still in use today. Here’s a look at some of the outdated construction and renovation lending technology–and how it increases risk and decreases profitability.
Manual Management—More Mistakes
For some lenders, spreadsheets are the go-to tool to track loan progress, budgets, and more. However, the manual nature of spreadsheets makes them prone to error. Any time your team has to enter data by hand, there’s a chance for a mistyped number, dropped decimal point, or even duplicate entry. While these may be small errors, they could cause an accounting discrepancy that costs you significant sums of money.
Spreadsheets often take a lot of time to maintain because they require manual data entry. Since they weren’t designed to manage construction loans, your team has to spend hours putting all the necessary data into spreadsheets, instead of creating a better customer experience or helping you be more profitable. Additionally, spreadsheets have little visibility for people other than the creator. Without collaborative features or automatic sharing, spreadsheets live on one person’s computer. It can be difficult for multiple people to manage a spreadsheet–or even just view it. This makes oversight difficult and increases the risk of human error and compliance problems. Spreadsheets also don’t include built-in analysis or reporting features. If you need analysis, a team member has to spend days or weeks pouring over dozens of spreadsheets. These reports only give you a picture of the past–not a forward-looking model based on real-time data.This makes it difficult to make data-driven decisions for your portfolio, which hurts your chances of future profitability.
Slow Communication, Slow Fund Flow
Another outdated technology in construction lending is communication methods. You likely communicate with a mix of phone calls, emails, or even mail. Instead of analyzing data or creating a great customer experience, your team is stuck calling and emailing all day. These communication methods make it difficult for everyone to know the status of any construction loan. Only the person responding to each call or email knows exactly what’s going on. Anyone else who wants to know the status of the loan has to get it secondhand. This lack of visibility could cause your team to disburse a draw before an inspection is performed because they don’t know the loan status. Having less visibility into your loans increases your risk for overfunding, accounting discrepancies, and more. With these communication methods, you also risk being unprepared for an audit. And, there’s always the risk you won’t find what you need–causing issues if you’re audited. The adoption of a digital tool to streamline these communications helps ensure that your workflows are seamless—providing the best possible experience for you and your customers.
Go Digital for Customer Retention
Along with spreadsheets and dated communication methods, the customer experience is another area where outdated lending technology persists.
Unlike personal banking where customer apps are common, customers often have to call or email their lender to get the status of their construction loan. And, they might have to wait days or weeks to hear anything back about it. In an era of instant everything, like online shopping or food delivery, customers expect to have access to all pertinent information when and how they want. Your customers will have a negative experience if you don’t have a fast and digital way to get their construction loan information when they want it. This can prevent them from converting to a permanent loan with you, which can cost you business, hurting your bottom line. It can also cause customers to caution people they know against using you for any banking needs. Outdated technology like spreadsheets, phone and email communication, and a non-digital experience can dramatically increase your construction lending risk and cut into your profits on these loans. Implementing Built CLA software can help you spend less time on data entry and more time on creating an optimal experience for every customer in your construction portfolio.
In the face of a pandemic, the residential and renovation lending sector has still seen a steady increase due to the immediate demand for housing. The U.S. faces a housing shortage, in part, because builders significantly decreased construction and land purchases following the halt of economic activity in March 2020. Now, more people are unable to find an existing home and want to build a new home. As people increasingly flee urban areas, this trend shows no signs of stopping.
Residential and renovation lending can become a less risky area of your portfolio—with the right tools to improve workflows. While many lenders think construction lending is too time-consuming and tedious to modernize, recent years have seen the best lenders increasing digitization for their lending processes. As lenders have adjusted to working remotely in 2020, in 2021, there’s an opportunity to continue to digitize and simplify those processes with the adoption of a tool. Built CLA software helps you improve visibility and risk management, increase transparency and communication, simplify the loan process, and improve efficiency. Using this technology, construction lending can be one of the most profitable areas of your portfolio.
Looking for construction and renovation loan management technology? Use Built's Construction Lending Administration software. Built helps you mitigate risk, maximize productivity, and create a great customer experience. Built accelerates the movement of money into projects by eliminating siloed systems and manual processes.