Posted by: Ian Group, June 12, 2019

Avoiding Pitfalls of Tech Adoption in Private Lending


Avoiding Pitfalls of Tech Adoption in Private Lending

Consumer Behavior Drives Digitization

Consumer behavior has driven demand to digitize and streamline all ways of transacting; think Uber, Netflix and Amazon. If your firm has not adopted technology that enables you to process borrower information quickly, securely and transparently, you risk losing a customer to a more tech-enabled competitor. On the other hand, adoption is not exactly a walk in the park. In fact, half of software implementations fail. Arvind Krishna, IBM’s senior vice president of cloud and cognitive software, said it best, “In the world of IT in general, about 50% of projects run either late, over budget or get halted.”

Hard Money 101

To understand tech adoption pitfalls in hard money lending, it is first imperative to define a hard money loan. At its core, a “hard money” or “private money loan” is simply a short-term loan secured by real estate. This is an alternative financing option used to fund the purchase and/or renovation of an investment property. They are funded by private investors, or a fund of investors, versus conventional lenders, such as banks. Real estate investors use hard money loans for a plethora of reasons, but the primary reason is the ability to fund the loan quickly. The hard money space is extremely competitive so speed to process a loan and borrower experience is everything.

Speed to market

Typically a hard money loan can be funded within a week, as opposed to the 30–45 days it takes to fund a bank loan. The application process for a hard money loan generally takes 1 or 2 days and in some cases they can be approved the same day.

The common use cases for these loans are: renovations, rehabs of rental properties, land loans, construction loans and fix-and-flip projects. Private lending is also an avenue for the buyer who has credit problems or perhaps they can’t get conventional financing. The borrower that goes the private lending route may also simply want to facilitate an expeditious purchase and transfer of real estate, so hard money is their solution. Any technology that can aid in speed to market is a tool worth assessing. In an ultra-competitive vertical, speed and scale wins the day.

Considerations prior to adopting technology

Now that we have highlighted the basics of hard money and it’s competitive landscape, it’s time to address the considerations of firms of all sizes. Buzzwords like “Digital Transformation”, “AI” or “machine learning” invoke a sense of excitement and uncertainty. This intrigue can lead firms to hasty decision making in an effort to become tech-enabled and leverage any tool as a means to give their firm a competitive edge. Knowing that 50% of IT implementations fail, below are three considerations to keep in mind prior to considering whether or not to adopt new technology for your firm:

1. Do your due diligence

As you begin to assess different vendors, it’s imperative to engage in an RFI/ RFP process in order to compare feature functionality of several vendors, narrow down your short list and finally pick the perfect fit for your budget and need. It is also critical to ensure that vendors are following cyber security and data governance best practices; ensuring data privacy and security is in alignment with industry regulations. This can be done with a vendor risk assessment. People, processes and tools enable adoption and if you have no process on the front-end in your assessment of technology it will turn to Shelfware. This is as important as top-down and bottom-up buy-in and support across the organization.

2. Is this a need or a nice-to-have?

Prior to engaging with any third-party vendor to assess technology, ensure you have explicitly stated and scored the necessary feature/functionality to achieve your business goals. Failing to do this can result in getting oversold features you don’t need or worse; end up with a solution that doesn’t satisfy your business requirements and leaves you high and dry.

3. Try before you buy, but be SMART

This may seem like a no-brainer, but many firms engage in shallow pilot programs or 30 day trials which are completely void of any measurable success criteria. Instead, they rely on subjective feedback from a select number of power users who kick the tires without purpose. Success criteria is critical to ensure you are mapping to your use cases and business requirements with a Pass/Fail grade system. This allows you to ensure your firm is kicking the tires with purpose and that pilot is measurable; based on a SMART goal format.

In today’s daunting business climate, tech-enabled firms will have the competitive advantage in their ability to scale and capture market share over their peers. This starts with implementing adoption best practices. Procuring technology without heeding these three considerations is a recipe for disaster. By leveraging tools like ProDeal, you can become tech-enabled in as little as 30 minutes. Adoption and data security are ProDeal’s core competencies. Empower your firm to secure and streamline your deals with ProDeal.

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