Before approving your loan, lenders always investigate you. They check your credit score, income, and overall financial history to ensure you're a low-risk borrower. However, borrowers will never do this; they trust the lenders and proceed with them. Before you borrow money, take the time to research your lender thoroughly. Here's how you can protect yourself to make a smart decision.

The Rise of Private Lenders

In recent years, private lenders have become more popular because traditional banks are tightening their lending rules. Mostly these lenders are individuals or small organizations that offer quicker and more flexible loans compared to traditional banks. These are lifesaver for those who have low credit card limit and need urgent cash.

What makes private lenders appealing is their ability to cut through the red tape that banks require. There are No long applications, strict credit checks, or waiting weeks for approval. Sounds great, right? But here's the flip side: without the same regulations that banks follow, some private lenders take advantage of desperate borrowers with unfair terms and shady practices.

Why Choose Private Financial Institutions

• Private financial institutions are usually less restricted than banks, making it easier to approve loans without any concern about your credit history.
• The process of approvals and financing is much faster, while traditional banks take weeks to months, but sometimes only days.
• Repayment plans can be flexible and personalized to fit different financial situations, making it helpful for borrowers with unique needs.

Potential Risks for Private Financiers

• Interest rates are usually higher than traditional bank loans and can be difficult to repay.
• Some financiers include hidden fees, and the total loan amount may be unexpectedly high.
• Unfair lending practices can trap borrowers in debt because of confusing terms and aggressive collection tactics.

Private lending can be beneficial, but understanding risks can avoid falling into a monetary trap.

How to Verify if a Private Lender Is Legitimate

Before trusting any lender, you should confirm that they are legally authorized and reputable. A professional-looking website or friendly salesperson isn't enough to prove legitimacy. Most of the time, you can see the reviews on their website, which is a big trap because all of these reviews are manually fake.

Ways to Check a Lender’s Legitimacy

• Verify the license: Most states issue proper licenses to private lenders. Contact financial regulators in each state to verify their license status.
• Find out in the NMLS database: The National Multistate Licensing System (NMLS) provides details of registered loans and complaints against them.
• Verify address and contact: A legitimate loanee must have a verifiable office location, a usable phone number, and a professional email address.
• See If They Are Part of Industry Associations: Reputable lenders often belong to organizations like the American Association of Private Lenders (AAPL). Membership in such organizations means that they follow industry best practices.

If a lender refuses to provide proof of licensing or avoids direct questions, consider it a red flag and look elsewhere.

Research Customer Reviews and Complaints

A lender might offer attractive terms, but the experiences of past borrowers can give you a true picture of what it's like to work with them. Checking online reviews and complaints gives you a clearer picture of how a lender operates.

Where to Look for Reviews and Complaints

• Better Business Bureau (BBB): This site evaluates companies based on customer experience and complaints.
• Trustpilot and Google Reviews: These platforms provide a real user experience and highlight the interaction between positive and negative lenders.
• Consumer Financial Protection Bureau (CFPB): This database contains formal complaints against unfair practices against lenders.
• Online Finance Forums: Websites like Reddit and financial forums often have frank discussions about private financiers and their practices.

Red Flags in Reviews and Complaints

• Multiple customers report unexpected fees added to their loan balances.
• Borrowers mention aggressive collection tactics or threats from the lender.
• Complaints about loan terms being changed without clear communication.
• Customers say they were pressured to sign quickly without being given time to review the agreement.

If a lender has a pattern of negative reviews or unresolved complaints, it’s best to look for a more reputable option.

Carefully Review the Loan Agreement Before Signing

The fine print in loan agreements often includes important details that can affect your ability to repay. If you skip this step, it may lead to unexpected financial challenges.

Key Loan Terms to Understand

• Interest Rate: Is it fixed (remains the same) or variable (can increase over time)?
• Repayment Terms: How long do you have to repay the loan, and what happens if you miss a payment?
• Fees and Penalties: Are there origination fees, late fees, or penalties for early repayment?
• Collateral Requirements: Does the lender require assets such as property or a vehicle as security for the loan?
• Default Consequences: What actions will the lender take if you can’t repay the loan on time?

If any part of the contract is unclear, ask questions or seek legal advice before signing. A trustworthy lender should have no problem explaining their terms.

Avoiding Loan Scams and Unethical Lenders

Loan fraud is widespread and you can protect yourself from financial losses by noticing warning signs. Some financiers are misleading borrowers, even if they look trustworthy at first glance.

Common Signs of a Loan Scam

• The lender asks for upfront payments before issuing the loan. Legitimate lenders never do this. They prefer to deduct fees from the loan amount after the approval.
• They guarantee approval without reviewing your credit history or financial background.
• You feel pressured to sign quickly without having time to review the contract.
• They contact you unsolicited through phone calls, text messages, or emails offering loans.
• The lender’s website lacks clear contact information, or they refuse to meet in person.

If any of these red flags appear, do not proceed with the loan. Legitimate lenders follow clear legal and ethical lending practices.

How to Research Private Lenders?

As you can see why researching private lenders is so important, let’s break down how to do it effectively. Follow these simple steps to make an informed and confident decision.

1. Start with Online Research

The internet is your best friend when it comes to checking out private lenders. Start by searching the lender’s name along with words like “review,” “complaint,” or “fraud.” If you see multiple people reporting the same issue, that’s a major red flag.

Online forums and social media groups can also give you real, unfiltered insights about the lenders. These platforms can help you spot potential scams before it’s too late.

2. Check with Regulatory Agencies

A reputable lender should be registered with the proper regulatory bodies. Most countries have financial watchdogs that keep track of lenders and their compliance records. In the U.S., for example, you can check with state financial regulators or the Consumer Financial Protection Bureau (CFPB).

If a lender isn’t registered or has a history of violating regulations, that’s a clear sign to walk away.

3. Read the Fine Print

Before signing anything, carefully read the loan agreement and all related documents. Pay close attention to:

• Interest rates
• Repayment schedules
• Hidden fees
• Penalties for late payments or early repayment

If anything seems unclear, don’t hesitate to ask questions. A trustworthy lender will be upfront about their terms and willing to explain them in simple language.

4. Consult a Financial Advisor

If you’re unsure about any part of the loan agreement, consider speaking to a financial advisor or lawyer. They can help you understand the fine print, identify potential risks, and determine if the loan is right for you.

While this might cost a little extra, it’s a small price to pay for peace of mind and financial security.

5. Trust Your Gut

At the end of the day, if something feels off—whether it's the lender's attitude, unclear terms, or just a bad feeling—trust your instincts and walk away. There are plenty of lenders out there, and it's worth finding one that you feel comfortable working within the long run.

Final Thoughts: Protect Yourself Before Borrowing

Borrowing money is a serious commitment, and every lender is not trustable for you. Lenders always research about you before approving a loan, so it’s only fair to do the same before borrowing them. By verifying a lender’s legitimacy, reading customer reviews, carefully reviewing the loan terms, and avoiding red flags, you can protect yourself from unnecessary financial risks. A little research can save you from major financial stress later. Make sure your lender is one you can trust before signing anything.

References

• https://fastercapital.com/topics/what-is-the-importance-of-doing-your-research-when-choosing-a-lender.html
• https://paytm.com/blog/paytm.com/blog/loan/personal-loan/verify-your-lender-before-taking-a-personal-loan/
• https://darkhorsefinancial.com.au/private-lending-and-its-challenges/
• https://www.burkelawyers.com.au/insights/banks-vs-private-lenders-who-should-you-choose/
• https://www.experian.com/blogs/ask-experian/common-personal-loan-terms-you-should-know/
• https://www.myccnb.com/resources/9-ways-to-spot-personal-loan-scams/
• https://www.investopedia.com/terms/l/lender.asp
• https://marketplace.navient.com/blog/is-it-better-to-get-a-loan-through-your-bank/
• https://www.wolterskluwer.com/en/expert-insights/what-banks-look-for-when-reviewing-a-loan-application

The post Turn About Is Fair Play: You Should Research Private Lenders Before Taking Out a Loan appeared first on MoneyThumb.

As a private lender, understanding the history of lending can open up possibilities for the future of your practice. Learning where lenders who came before you failed will enhance your risk management, while paying attention to the client services that have stood the test of time will enable you to innovate among harsh competition.

So, without further ado, let’s dive into the fascinating history of lending…

The First Loans 

Of all the loans still issued today, the type with the longest history is the payday loan. The first recorded evidence of these lending agreements comes from four thousand years ago in Mesopotamia, a region that composed modern-day Iraq, Syria, Turkey, and Iran. Farmers would borrow seeds to increase their yields, then pay back the loan with part of their harvests.

When silver currency began to see wider use, Sumerian temples acting as the first ever banks recognized they needed to define the price of silver, and regulate the amounts of interest that could be charged on silver loans. To do so, the 6th Babylonian King issued the Code of Hammurabi. Not only did this code cap interest at 33% for all lenders, it also stated:

“If any one owe a debt for a loan, and a storm prostrates the grain, or the harvest fail, or the grain does not grow for lack of water; in that year he need not give his creditor any grain, he washes his debt-tablet in water and pays no rent for this year.”

Ancient Loans

From the first payday loans, we move on to the first secured loans. In ancient China, Rome, and Greece, this system of lending was overseen by pawnbrokers. These trusted individuals assessed the value of personal assets, from jewelry and tools to livestock and land, and offered loans based on their perceived value. This process not only reduced risk for the lender but also laid the groundwork for the modern practice of secured lending.

Interestingly, ancient Chinese pawnbrokers took part in “relationship building and strategic philanthropy.” Though these moves were intended to improve the reputation of pawnbrokers and borrowers in society, they also laid the groundwork for lenders to embed themselves in communities, and work in partnerships with their clients.

Similarly, the Roman emperor Augustus used confiscated property to create a lending fund which did not charge borrowers interest so long as they provided collateral valued at double the amount borrowed. As well as mitigating risk for lenders, this empowered borrowers by making credit more accessible without the burden of accumulating debt.

Medieval Loans

During the medieval period, lending faced strict religious restrictions, particularly in Christian Europe where charging interest was condemned as sinful. This forced financial institutions to find creative ways to provide credit while adhering to religious constraints. Instead of charging direct interest, lenders structured loans as investments or partnerships, such as contractum trinius, where profits were shared rather than interest being collected.

Jewish moneylenders played a crucial role in medieval finance, as they were often excluded from other professions but not bound by Christian prohibitions on usury. European rulers relied on Jewish lenders for funding, though this often led to persecution and debt confiscation. Meanwhile, Islamic finance developed alternative lending models that complied with Sharia law, such as Mudarabah (profit-sharing) and Murabaha (cost-plus financing), ensuring ethical lending practices without traditional interest.

Nevertheless, despite restrictions, lending continued to evolve. Though they’d first appeared in India circa 300 B.C., bills of exchange became very common in medieval Italy, allowing traders to access credit without physically transporting money.

Lending in the Renaissance

During the Renaissance, commerce expanded and financial innovation flourished. Italian merchant banks, particularly in Florence, Venice, and Genoa, played a crucial role in funding trade, exploration, and even monarchs. The Medici family was the largest banking family at this time, with seven branches of their bank across Europe. They also developed double-entry bookkeeping, letters of credit, and holding companies.

Religious attitudes toward lending had also evolved. While the Catholic Church still condemned usury, economic necessity led to greater tolerance of interest-bearing loans, particularly for commercial transactions. John Calvin, a Protestant reformer, argued:

“I conclude that we ought not to judge usury according to a few passages of scripture, but in accordance with the principle of equity.”

The proliferation of these views helped lending get back to its pre-medieval highs. However, institutions took precautions to reduce reliance on moneylenders among the poor. The Monti de Pietà (mountains of piety), for example, were specifically created to provide low-interest loans, emphasizing ethical lending and influencing future public credit systems.

The Industrial Revolution

During the 18th and 19th centuries, rapid industrialization created an unprecedented demand for capital. Traditional lenders, who had primarily served merchants and aristocrats, began financing industrialists and entrepreneurs. Perhaps the most famous projects completed thanks to lending during this time were the Union Pacific and Central Pacific Railroads. In fact, the Pacific Railway Acts (1862 and 1864) allowed these companies to borrow money from the US government, secured against land grants and future revenues.

Commercial banks also became central to industrial financing. The Credit Mobilier, a French bank founded in 1852, specialized in offering long-term business loans to fund machinery and raw materials. Across the ocean in the UK, the Banking Co-partnership Act of 1826 saw the emergence of joint-stock banks. This allowed businesses to raise large sums by selling shares to investors, reducing their reliance on wealthy patrons.

Modern Lending

The 20th century saw lending evolve into a global industry, with major shifts driven by economic crises and government intervention. The Great Depression, beginning in 1929, exposed vulnerabilities in banking systems, prompting governments to step in and stabilize financial markets. In 1933, the Federal Deposit Insurance Corporation (FDIC) was created in the US to insure bank deposits and restore public trust in lending institutions.

Following World War II, lending expanded rapidly to support reconstruction and economic growth. Both the International Monetary Fund (IMF) and the World Bank were set up to provide loans to war-torn nations and developing economies.

The latter half of the century saw the birth of consumer credit as we know it today. The introduction of credit cards such as Diners Club in 1950, founded by Frank McNamara after he forgot his wallet during a trip to a diner, made borrowing possible for everyday purchases.

Finally, credit scoring systems such as FICO were introduced in 1989, standardizing risk assessment and allowing lenders to make data-driven decisions.

What Can Private Lenders Learn from the History of Lending?

The history of lending is a fascinating topic, but it’s also a roadmap for any private lenders looking to refine their approach. Let’s take a look at some of the lessons we can learn from lenders of the past…

Risk Management is Everything

From Mesopotamian loans to Augustus’s over-collateralized lending model, history shows that strong risk assessment is the foundation of successful lending. Ancient secured loans in China, Greece, and Rome remind us that collateral-backed lending remains one of the most effective ways to protect against defaults.

For modern private lenders, this means:

• Ensuring loan-to-value (LTV) ratios are in line with market conditions
• Carefully vetting borrower history and creditworthiness
• Diversifying risk to avoid overexposure in a volatile market

Lending is About Relationships, Not Just Transactions

Lenders who build trust with their clients tend to see higher repayment rates and long-term success. The Chinese pawnbrokers of the ancient world engaged in strategic philanthropy to foster goodwill, while Renaissance institutions like the Monte de Pietà focused on ethical lending practices to support communities.

Private lenders today can benefit from:

• Personalized client services that build trust and loyalty
• Offering flexible repayment structures when feasible
• Supporting borrowers in ways that strengthen long-term relationships

Regulations Will Always Evolve

History proves that lending has always been shaped by laws, religious doctrine, and government intervention. In medieval Europe, lenders had to navigate religious restrictions on usury, while the 20th century introduced government-backed mortgage programs and stricter financial regulations.

For private lenders, this means:

• Keeping up with changing regulations to avoid compliance risks
• Understanding new lending laws before they impact your business
• Adapting loan structures in response to market and regulatory changes

Innovation is the Key to Survival

The lenders who thrived across history were the ones who adapted. The Medici family’s double-entry bookkeeping changed banking forever, and Renaissance bankers revolutionized trade with letters of credit. Today, fintech and alternative lending models are shaking up the industry in similar ways.

To stay ahead, private lenders should consider:

• Embracing new technologies like AI-based risk assessment and blockchain security
• Exploring alternative credit models for underserved borrowers
• Leveraging data analytics to refine lending strategies

In Conclusion…

Lending has played a crucial role in shaping economies, societies, and industries for over 4,000 years. Though innovations have brought certain banking families to the forefront of history, the core principles that underpin successful lending have always remained the same. The importance of risk management, maintaining strong relationships with clients, and staying ahead of new regulations remain as important now as they did in ancient civilizations.

Sources and Resources

• https://www.provenir.com/the-history-of-lending/
• https://www.become.co/blog/a-brief-history-of-loans-business-lending-through-the-ages/
• https://www.koho.ca/learn/history-of-lending/
• https://en.wikipedia.org/wiki/History_of_banking
• https://ibusinessfunding.com/resources/history-of-lending

The post An In-Depth Look at the Fascinating History of Lending appeared first on MoneyThumb.

San Diego, Calif. (December 12, 2024) – MoneyThumb, a leader in automated document evaluation and fraud detection solutions, announced today that the company is exiting 2024 with record annual growth.  MoneyThumb processed over $2B transactions, more than doubled its workforce, and achieved 60 percent year-over-year in conversions per day. The company's strong performance reflects its laser focus on streamlining workflows for financial professionals. Lenders rely on MoneyThumb’s software to manage risk while delivering more capital, faster, to small businesses nationwide.  

 “Our strong momentum is a result of our team's seamless execution and our ability to instantly convert bank statements and detect fraud in seconds,” said Ryan Campbell, chief executive officer, MoneyThumb. “MoneyThumb continues to play a critical role in the small business lending industry by eliminating the burden of manual processes, empowering lenders to focus on what truly matters—helping entrepreneurs succeed and grow."  

Automation in lending has become mission critical for staying competitive. Lenders who embrace automation position themselves to better serve their customers and expand their lending capabilities. MoneyThumb is transforming the lending industry by leading the shift from manual document processes to full automation. Its advanced technology streamlines data extraction and analysis, enabling lenders to make faster, more accurate decisions.   

The company also helps detect fraud with its Thumbprint^® product, an AI file tampering detection tool that identifies fraudulent activity in seconds, giving lenders a powerful defense against risk and loan losses. Up to seven percent of revenue, billions of dollars and thousands of hours are lost every year due to fraudulent applications in the lending industry. 

MoneyThumb announced in August 2024 that it was acquired by Iron Creek, marking another milestone for the company, which plans to expand to additional industry verticals in 2025. The company also opened its new headquartered office in San Diego.  

For more information on MoneyThumb, please visit www.moneythumb.com.

About MoneyThumb  

MoneyThumb is an advanced automation software solution that streamlines the lending underwriting process by converting bank statements instantly into actionable data. By exponentially increasing efficiency, accuracy and the detection of fraud – MoneyThumb empowers lenders and accountants to make faster, more informed and accurate decisions. MoneyThumb is headquartered in Encinitas, California, and serves customers globally. For more information visit www.moneythumb.com.

Media Contact: 

Tracy Rubin
JCUTLER media group
tracy@jcmg.com      

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Before you begin to apply for a loan, whatever the reason, there are steps you can take to help ensure that your chosen lender will approve your loan application. It is critical for you to prepare well, having a solid financial profile and all the necessary documentation so that you can avoid any possible loan application denial. Below are the steps you can take to help ensure that your loan application has a better chance of being approved, whether you are applying for a traditional loan or a loan from a private lender, and also things to be aware of before you apply for any type of loan.

Consider Your Credit Score

Having a high credit score enables you to get easier terms from a traditional lender. There are various online service providers that have made it easy for you to check your credit score. They not only provide you with a free credit score but also offers valuable tools to improve your credit score and save on your monthly payments. If you haven't been able to keep your score in good shape, you have little chance of getting a traditional loan, whereas a private lender puts less emphasis on a good credit score if you have the right documentation, proof of your ability to repay the loan, and collateral for a mortgage loan.

Pay Attention to the Terms and Conditions of the Loan

You must make sure that you pay attention to the terms and conditions of the loan that your lender is offering. This is the time when you must remain strict about what you want. It is important for you to consider the impact of the loan on your daily life. Pay close attention to the lending rates and the repayment terms.

Check the History and Reputation of the Lender

Check that the lender is reputable before filling out the application for a loan. You can ask them questions to know how they conduct their business. Ask them to tell you their interest rates and when to expect to be paid by the loan. It's important to find out about their repayment policies and how long you have to repay the loan. You should investigate the lender before you decide to apply to them for a loan, assuring that they are legit and have a good reputation.

Gather The Proper Documentation

If you are seeking a business loan rather than a personal loan, you will need all the necessary documents that prove you have a business and the ability for that business to repay the loan. If you are seeking a personal loan you still must have proof of income and your ability to repay the loan. Most loans are disbursed to borrowers who have a known source of income and include in their application all the proper documentation. In the case of a traditional loan, borrowers must meet the minimum credit score, repayment ability, and loan approval criteria before a lender approves any loan application. This is to minimize the risk to the lender. However, a lender would not be satisfied with a document showing minimal income figures without evidence that the borrower has the ability to repay the loan.

A request for a mortgage loan always has a property to offer as collateral, which makes it easier to get a loan, whereas a personal or business loan can depend solely on credit history, your income, and your ability to repay the loan without collateral.

The difference between traditional lenders and private lenders is that most private lenders are more lenient on income, credit score, and documentation requirements, especially when it comes to mortgage loans. No matter what type of loan you are requesting, you will always need all the proper documentation to have a better chance of being approved for the loan. This includes documentation of your income, credit history, and payment history and any documentation that has to do with your business if you are applying for a business loan, such as your LLC, and the history of your business finances and dealings with customers.

Traditional or Private Lender?

You must know what you are getting into before you approach a lender. Ask yourself a few questions, such as how you will be paying back the loan? Do you want an installment loan or a line of credit? Will you have any special conditions? If you are sure that you have all the right documents to back up your loan application, the next step is to find the right lender that suits you, and whether you want to approach a traditional lender or a private lender.

You must use your head to consider the benefits a loan will bring. The difference between a traditional lender and a private lender is that a private lender will lend to borrowers who have very little credit history or who have a less than stellar credit record. They will also offer borrowers a fixed interest rate of interest. It will reduce the cost of borrowing, and it will give you time to pay back the loan with ease. They also have fewer regulations and red tape to deal with. This means that there are fewer hassles.

You must have an honest discussion with your lender to discuss your financial needs and risk profile. This will help you to get a loan that suits your current and future financial situation. It is always a good idea to talk to several different lenders before you select one. Make sure that you thoroughly understand the terms and conditions offered by each lender so that you can make an informed choice. Just remember that if your credit score is less than stellar, you have a better chance with a private lender, especially when it comes to a mortgage loan. Private lenders have a good understanding of how finances work in the real estate sector. Just make sure you have provided all the required documents to the private lender for your loan approval.

References

https://strategiccfo.com/articles/banking-financing/finding-the-right-lender/

https://mortgage.info/tips-find-the-right-lender-for-you/

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Thumbprint is the first and only digital lending platform with everything you need to evaluate, underwrite and originate loans all from one place. In under 5 seconds, Thumbprint™ will evaluate and score the authenticity of submitted PDF documents.

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According to studies accumulated in this article from Lending Times, alternative lending has now gone mainstream. Below we are sharing some of that collected data from various research studies:

Today, an estimated 45 to 60 million consumers lack the credit history needed to generate reliable credit scores under the current system, and millions more don’t have access to affordable credit because of low scores, according to FinRegLab, a nonprofit research organization.

But now, alternative lending is on the cusp of widespread adoption by lenders. In fact, some lenders are already considering alternative data, such as records of consumer payments from telecoms and utilities, in their decision to extend credit. And there’s solid evidence that alternative lending works. Research from McKinsey found that new alternative data models reduced credit losses in lower-income segments by 20 to 50% while doubling application approval rates.

Perhaps the best news is that lenders are embracing alternative lending after learning that they can bring disadvantaged consumers into their customer bases without increasing the risk of loan defaults. Those include thin-file or no-file consumers, such as:

• Seniors who are unscorable, particularly widowed or divorced adults. Many have relied on lines of credit in their partner’s names for most of their lives, leaving them with a lack of credit history and a sudden lack of credit access.
• Immigrants, who can present a conundrum to lenders, as their credit data does not immigrate with them. Lenders are left to make assumptions about credit history, and often the safer decision has been to exclude or decline the individual.
• Minority groups, who today are disproportionately underserved. According to a LexisNexis study, 41% of Hispanics and African Americans were unscorable using traditional methods, compared to only 24% of the general population.
• Millennials tend to rely on credit less frequently and a significant portion prefers debit cards. This leads to thin credit files and “hidden” financial transactions that do not help boost credit scores.

Here is another proof point that alternative lending has arrived: Adding utility payment data into VantageScore’s credit score increased approval rates for low-income adults, African-Americans, and Hispanics by more than 20% – without overextending credit.

Alternative data has become the Holy Grail for lenders because they can increase the size and improve the quality of their approvable populations. But, even with mountains of evidence of the viability of alternative lending, it may be that only the word of regulators has the power to move alternative lending from trend to a sustainable mainstream industry practice.

On Dec. 3, 2019, regulators backed the use of alternative data, such as borrowers’ cash flow, as an alternative to the traditional credit-evaluation system, which relies on applicants’ history of borrowing and repayments. Alternative data “may help firms evaluate the creditworthiness of consumers who currently may not obtain credit in the mainstream credit system,” the regulators said in a written statement. “To the extent, firms are using or contemplating using alternative data, the agencies encourage responsible use of such data.”

Now, with increasing adoption of alternative data by lenders, there comes word that “innovative” new options in lending will gain momentum. According to researchers, “It [alternative lending] has already gained momentum in developed countries. The growing significance of innovative lending practices is foreseen to put a positive impact on the growth of the global alternative lending market. Demand for peer-to-peer (P2P) marketplace lending and crowdfunding, in particular, is expected to increase in the near future. This could play a crucial role in the development of the global market.”

As always, the proof is in the numbers. In a recent report of more than 300 lenders by TransUnion, the agency said that “83% of adopters using alternative data to score credit applications report seeing tangible benefits.”

It’s been said that the best test of an innovation is to observe its acceptance and performance in the marketplace. By that measure, alternative lending has been thoroughly tested and is here to stay. This is great news for both alternative lenders like the ones who use MoneyThumb's software and for borrowers who before could not qualify for a loan. It is a new dawn for the lending industry!

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The survey is titled How Lenders Asess Their Digital Transformation Efforts. Nearly 200 senior lending executives were surveyed so that we could have a better understanding of how lenders balance front- and back-end digital transformation investment, as well as how they assess the success of each. If you would like to read the full 29-page report in PDF form, follow this link. For your reading convenience, we have created a rehash of the results of the survey below:

• Digitization is rapidly changing how organizations create value and compete. The main takeaway from the survey performed by Fannie Mae was that the majority of lenders are more concerned with improving the front end prospective borrower's experience than on their own back end operational efficiency. As a result, the lenders found more success with front end changes they made in their digital transformation efforts.
• Lenders were also asked to identify the most important areas they focus on when improving the front-end borrower experience. Most lenders cited reducing cycle time, providing more user-friendly loan application platforms, and training personnel to be consultative as the most important focus areas. By contrast, reducing borrower costs were generally considered less important.
• While most lenders cited the implementation of a Point-of-Sale (POS) system as a successful example on the front-end, it is more difficult to implement a single solution to transform backend operations. Lenders who were surveyed said that they found it relatively straightforward to calculate returns on the implementation of a POS system, but that calculating returns on back-end digital transformation efforts are often harder to measure, and, any returns might stay negative for several years as these efforts generally do not yield immediate cost savings.

Taking these survey results into consideration, the beauty of PDF Insights for lenders is that it is extremely helpful with the backend process that plagues lenders in the age of digital transformation. Our software serves as your first set of eyes by automatically processing bank statements. Then, through a side-by-side feature, it empowers an underwriter to manually review the actual bank statements, while also instantly pulling insights and calculations. This dramatically increases the speed and accuracy of the human underwriting process.

Unlike competing solutions, this software doesn't need to be told upfront which bank or format is being used, yet correctly processes over 99% of U.S. bank statements. The output from each statement is delivered in a standardized format, even for statements from different banks. Through simple API Integration, PDF Insights automatically initiates and conducts a statement reading process. It then identifies high-level calculations, such as total deposits and total withdrawals, plus line by line transactions. It can also identify targeted transaction types, such as large deposits or large fees.

In addition to text-based PDF statements, PDF Insights also processes scanned or faxed image-based PDF statements. Our proprietary OCR algorithms review questionable fields, look for patterns to self-correct and then flag transactions that are still unknown or questionable for manual review and correction. PDF Insights can be installed as a web service that can be called to convert several bank statements at the same time (e.g. 3-6 months). This web service can be locally installed on your bank’s servers to function as a powerful batch processing engine for your custom workflows.

Our automated statement reconciliation feature compares transaction totals to summary information on the statement. If all information on the statement is consistent, PDF Insights will identify the statement as reconciled, meaning you don’t have to spend time manually reviewing statements to identify inconsistencies.

If you are a lender who has yet to try out this great product from MoneyThumb that will help your organization make more informed and safer lending decisions, below is a video demo of how PDF Insights works.

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In order to stabilize in the current lending environment and promote sustainable growth, lenders much achieve three critical objectives: Optimize the borrower experience; renegotiate long-term contracts, and evaluate compensation plans.

"Most lenders intuitively know they must do a better job meeting the needs of customers," Garth Graham, senior partner at STRATMOR Group, says in the report. "However, they don't always measure the impact of their technology and their system investments on the consumer. The mortgage industry is in an environment that is about stealing market share and succeeding with the tougher purchase transactions. Ultimately, that means exceeding borrowers' expectations. Today, it's all about customer satisfaction, maintaining the relationships and meeting the needs of borrowers and referral sources."

Paying attention and responding to these needs is one of the key drivers of process change. Creating processes with the first priority being that of the client rather than that of the lender provides a competitive advantage. It’s also a factor in determining referrals. According to STRATMOR’s MortgageSAT Borrower Satisfaction Program data, the top three reasons borrowers choose a lender are all based on relationships, and clients with positive interactions are more likely to refer to others.

“Lenders who focus on creating a good borrower experience will naturally end up with more effective fulfillment practices, because they button up processes, systems, and communications to make the borrower happy and this gives these lenders an edge," STRATMOR principal Jennifer Fortier says in the report.

Fixed costs are sometimes overlooked as immovable, but that’s not always the case. When it comes to renegotiating long-term contracts, STRATMOR suggests taking a closer look at office lease agreements. Working remotely can also be a consideration for lowering fixed office space costs, with the added benefits of increased productivity, healthier employees, and savings on operating costs.

Software agreements can also be worth analyzing. STRATMOR’s 2018 Technology Insight Study revealed that more than 67% of lenders surveyed are paying subscription fees based on volume, but many of those contracts also have a minimum volume. Ideally, vendors should be willing to be flexible with minimum volumes, not require lenders to pay unnecessarily maintenance and support fees and be willing to discuss moving to a concurrent user model, which charges based on the number of users simultaneously logged into the system.

Compensation is always a hot topic, and the Insights report advises lenders to evaluate compensation plans and “get creative” with incentives in order to attract and keep desired staff while attaining desired efficiencies.

In addition to lowering fixed office space costs, a remote model can also offer positive incentives when it comes to staffing.

"Remote staffing expands the pool of candidates as it reduces geographic boundaries, so lenders can recruit nationwide versus in a local market," writes Lisa Springer, STRATMOR CEO, and senior partner. "Further, remote work offers lenders the opportunity to add and reduce staff quickly as needed. And, offering remote workers more flexibility in schedules can offset the need for higher cash compensation. While remote work does not mean below-market compensation, lenders may not need to pay a premium to steal talent in a local market if similar skills can be found in a remote worker."

Incentives are often tied to volume, but they don’t have to be. Customer satisfaction and overall team performance and file quality are also ways that expectations can be set and better aligned with company performance.

“On the sales side, no lender wants to radically change commission plans. Originators are still the source of leads and a critical part of a mortgage company. However, commissions are not adjusting as margins drop. The current plans were built in an era of ‘big’ margins and level set at a time of historic profitability. Nevertheless, there are ways to look at LO plans to better align with company performance,” Springer writes.

The report also suggests that lenders be more aggressive in managing their lowest producers. Not only do consistently low producers cost lenders money when recruited, but they can also cause “friction” with other team members. Productivity costs matter just as much as dollar figures.

“Lenders must actively manage out low producers,” says senior partner Nicole Yung. “Our data shows that even for the bottom 20%, almost 60% of terminations are voluntary, which means these originators are leaving on their own versus the company managing them out or up. If lenders are looking to cut costs, they must be more aggressive in terms of managing sales. Set expectations and stand behind them.”

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To help you as a private lender to learn how crooks go about creating false loan applications and how to avoid falling for such a scam, take a look at this article from Identity Mind. The article even lists 8 Identity Verification Tests you can perform to prevent loan application fraud. For your convenience we have included those 8 tests below:

1. Identity Document Verification
2. Identity Data Validation
3. Bank Account Ownership
4. Out of Wallet Questions
5. Identity Risk Scoring
6. Out of Band Phone Identification
7. Social Media Analysis
8. Video Conversation

That article from Identity Mind goes into much greater detail, so if you are a private lender, do yourself a favor and read the article in its entirety. Identity fraud is a very serious offense and similar to identity theft. In fact, the two terms are pretty much interchangeable. The U.S. Department of Justice says both terms “refer to all types of crime in which someone wrongfully obtains and uses another person’s personal data in some way that involves fraud or deception, typically for economic gain.” Experian has an article that does a wonderful job of covering the 20 types of identity theft and fraud.

We hope that the information we have provided above can help you as a lender avoid unscrupulous people creating false loan applications directed at your lending business for the intent of obtaining a loan.

Before we close out this blog post, we'd like you to understand that MoneyThumb provides the best PDF financial file converters on the market. Using our tools can be an additional way to prevent identity fraud. For instance, our proprietary software can spot indiscretions and unusual loan application activity, such as a loan applicant listing an unrecognized bank. MoneyThumb has a version of our PDF financial file converters specifically designed for lenders. If you are a private lender, take a free test drive of our software today.

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SBA Website Is a Great Resource for Lenders

Here is a quote from the SBA website For Lenders section: "Lenders play a vital role in helping SBA achieve its mission of helping small businesses start and grow across the United States. Check out the For Lenders section of the SBA website, which provides lenders with the resources they need to issue SBA loans."

The link above leads to that section, for our Rules of Thumb blog from MoneyThumb's readers who are lenders. If you aren't yet a lender with the SBA but want to become one, this link takes you to information on becoming a lender. Below is a list of the qualifications required to become a lender with the Small Business Administration:

Eligibility

To participate in the 7(a) Loan Program, a lender must meet the following requirements as indicated in the Code of Federal Regulations (CFR):

• Have a continuing ability to evaluate, process, close, disburse, service and liquidate small business loans;
• Be open to the public for the making of such loans (and not be a financing subsidiary, engaged primarily in financing the operations of an affiliate);
• Have continuing good character and reputation, and otherwise meet and maintain the ethical requirements as identified in 13 CFR Sec. 120.140;
• Be supervised and examined by a state or Federal regulatory authority, satisfactory to SBA.

The Rules of Thumb blog from MoneyThumb strives to help lenders be more successful. If you are a lender or are considering becoming one, whether with the SBA or lending money to individuals privately, read this post we wrote last Christmas that offers tips for peer-to-peer lending. Another way that MoneyThumb can help you as a lender is by offering specific PDF financial file converters made for lenders. By using these MoneyThumb tools, which are the preferred financial file converters of many lenders, you can quickly convert the financial statements of those people you are considering loaning money to. This will save you a ton of time and many headaches.

Please do us a favor. If you are a lender or know someone who is that is on your social media page, take just a second to share this post with them, either by sharing using the social media icon sharing buttons below the post or emailing the article to your lender friend. We are sure they will appreciate this helpful information.

Thank you and have a great day!

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