A guide to commercial loan servicing
Over the last few years, we’ve spent increasing amounts of time talking with challenger banks, peer-to-peer platforms and crowdfunders, along with existing specialist bridging, development and more general commercial lenders.
But why would organisations from all corners of the spectrum want to talk to a loan servicer?
The short answer is that lenders are recognising areas where they don’t excel and where the time or cost of enhancing their performance is potentially prohibitive. These include three distinct specialisations;
The robust management of live loans is a key consideration for institutional investors but the reality is that lenders face many challenges post drawdown. These include:
- ensuring quality of service to clients
- investing in a strong technology platform
- having a highly skilled and experienced workforce
- collecting and allocating payments in a timely manner
- having the capability for managing loans in arrears
- ensuring regulatory compliance
Another attractive option is known as white-label servicing. This is where the servicer communicates to the borrower in the name of the lender, so the borrower is unaware that a servicer is managing their loan.
Arrears Management (Special Servicing)
When a loan isn’t performing as expected, it needs to be managed professionally. However, for some smaller lenders, it may be uneconomic to employ someone for this task alone so this burden can be passed on by appointing a specialist servicer who can manage these cases. Specialist servicers will often have large teams of skilled professionals that have years of experience in handling these types of loans.
Lenders can choose to develop their own platform, however, this may be costly.
By using a servicer, the institution will get the benefit of a purpose built platform that has been designed utilising the expertise and experience of the servicer. There is also the possibility that the servicer can provide access to their platform.
A servicer can support lenders by:
- Dealing with loan administration, enabling lenders to concentrate on core business activities
- Managing cases in arrears, usually with more resource and skills than the lender
- Providing a proven, cost-effective technology platform
A lender can make savings on people and technology investment, and be able to focus on growing their business with the comfort that the appointed servicer will support them in these specialist areas.