Navigating the New Landscape of Small Business Lending: Choosing the Right Technology

February 4, 2025
The small business lending landscape is undergoing a significant transformation with the implementation of the Small Business Lending (SBL) Rule under Section 1071 of the Dodd-Frank Act. This article will delve into some key considerations for lenders as they navigate the complexities of the new rule and evaluate technology solutions available to ensure compliance and […]

The small business lending landscape is undergoing a significant transformation with the implementation of the Small Business Lending (SBL) Rule under Section 1071 of the Dodd-Frank Act. This article will delve into some key considerations for lenders as they navigate the complexities of the new rule and evaluate technology solutions available to ensure compliance and efficiency in their small business lending operations. 

The SBL Rule mandates increased data collection and reporting for lenders, aiming to provide greater transparency and identify potential discrimination in lending practices. As financial institutions prepare for these changes, the selection of an appropriate loan origination system (LOS) and analytics provider has become more critical than ever.

It's crucial to understand several key aspects of LOS, especially in light of the SBL Rule:

Functionality and Automation

  • End-to-end process management: An effective LOS should support the entire loan lifecycle, from application intake and processing to underwriting, closing, and funding.
  • Automation of key tasks: The LOS should streamline operations by automating certain tasks such as data entry, credit checks, document generation, and compliance reviews to help improve efficiency and minimize errors.  
  • Workflow customization: A robust system should also offer flexibility to tailor workflows to your specific lending products and processes.  

Compliance and Data Management

  • Data collection and reporting: An LOS must be capable of collecting and storing the detailed data required by the SBL Rule (e.g., demographic data, loan terms, creditworthiness indicators).
  • Data security and privacy: Strong security protocols should be in place to safeguard  sensitive borrower data and ensure compliance with privacy regulations.
  • Data extraction: The LOS should also enable your institution to extract data seamlessly. It is important to understand the available methods  for extracting data, including the use of any application programming interfaces which can help to further streamline data management and reporting. 

Integration and Scalability

  • Integration with other systems: The LOS should integrate seamlessly with other core banking platforms, credit bureaus, and third-party service providers.
  • Scalability: The system should be able to support both your current and future loan volume effectively as business needs expand.

User Experience and Vendor Support

  • Intuitive interface: The system should provide a user-friendly experience for both borrowers and lenders.
  • Vendor support and training: Reliable vendor support and comprehensive training are essential to ensure successful implementation and continued efficient use.  

Analytics and Decision Support

  • Credit scoring and risk assessment: The LOS should facilitate efficient credit scoring and risk assessment to support informed lending decisions.  
  • Reporting and analytics: Advanced reporting and analytics capabilities can provide your institution with valuable insights into lending trends, portfolio performance, and potential risks.  

By carefully considering these factors, lenders can select an LOS that not only ensures compliance with the SBL Rule but also streamlines internal operations, improves efficiency, and supports sound lending practices. With the compliance dates looming for Tier 1 data collection, now is the time to ensure your LOS supports the lending process effectively and efficiently. 

While an LOS can help meet SBL Rule compliance requirements, it is essential to identify where additional analytics solutions may be needed to enhance data collection and streamline the submission process. Analytics solutions provide a crucial layer of analysis and compliance oversight, especially in the context of the SBL Rule. Here's a breakdown of their key contributions:  

Data Validation and Compliance Reporting

  • Data integrity checks: Quality analytics software supports users in performing required data quality checks or data validations to ensure the accuracy and completeness of the data collected with regulatory requirements.
  • Compliance reporting: Analytic software helps lender generate the necessary reports for understanding their collected data and identify potential issues in their data collection process. 
  • Audit trails and documentation: Analytics software should assist users in maintaining comprehensive audit trails to support compliance examinations and audits.

Geocoding and Mapping

  • Automated geocoding tools: Geocoding tools within analytics software provide the latitude, longitude, state, county, metropolitan area, and other demographic information for the address of records. 
  • Manual geocoding resources: Depending on the system, there should be resources for manually geocoding records that did not geocode with automated tools. Some system tools directly connect users to maps that contain tracts and geographic features like rivers, lakes, and roads to assist in the geocoding process. 
  • Geocoding summary reports: Additional reporting within the system should provide details about the source of geocoding results; a vital resource for audit and exam recordkeeping.

Reporting institutions must understand how their LOS will support the requirements of the rule and where analytic software is needed to refine data for submission. By leveraging analytic systems, lenders can enhance their compliance efforts, mitigate fair lending risks, and gain valuable insights into their lending operations. This is particularly important in the context of the SBL Rule, which requires detailed data collection and reporting. 

Changes in the administration raise questions about the future of the SBL Rule and this article in the ABA Banking Journal provides some clarity about what to expect in 2025. As author Carl Pry mentions, “all covered lenders have much work to do to be ready to begin collecting the required data, and this time must be used wisely.”

RiskExec is a leading SaaS-based fair lending analytics and reporting platform that helps banks, mortgage lenders, credit unions, and non-traditional lenders more easily comply with demanding regulatory requirements, including HMDA, CRA, and SBL/1071. RiskExec’s browser-based software automatically incorporates new regulatory, geographic, and peer institution data in real-time to help lenders stay up to date on evolving requirements. Financial institutions rely on RiskExec’s modules to geocode; proactively identify areas of disparate impact, redlining, and/or steering; take corrective action as needed; and assemble HMDA and CRA files and run government edit checks prior to submission. To learn more about how RiskExec helps compliance experts shift their focus from finding problems to proactively building opportunities for clients and institutions, visit riskexec.com, or follow RiskExec on LinkedIn.

Sarah Brons - SVP of CRA

About the Author
Sarah Brons is an expert in community reinvestment and community development and leads Community Reinvestment Act and SBL product development for RiskExec. She has more than 20 years of experience in financial services and regulatory compliance. 

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