Several types of loans are available for borrowers, from medical to education loans. You might be familiar with mortgage loans offered against residential properties. Similarly, lending institutions distribute CRE (Commercial Real Estate) loans. CRE loans benefit organizations, corporations, or business owners with commercial spaces. Like every other industry, the lending industry is also going through a paradigm shift. Recent innovations have changed the lending industry’s day-to-day operations, impacting CRE loan processes due to the emergence of new-age technologies.
Read on to understand the recent trends in CRE Loan Origination.
What Is A CRE Loan? What Is Its Origination Process?
Before delving deeper, let us clear some basics regarding CRE loans. As discussed above, CRE loans are offered to businesses or organizations with commercial spaces. Since businesses require funds for different operations, they opt for CRE loans. A business can use funds to expand or remodel its existing commercial spaces. Businesses can also use CRE loans to purchase new commercial spaces. A business must use an existing real estate property as collateral to acquire a CRE loan. It is different from mortgages, where household properties are used as collateral. Besides organizations, individuals can also apply for CRE loans to purchase or renovate commercial real estate properties.
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Several financial institutions offer CRE loans, from national to regional banks. Mortgage lending arms of insurance companies are involved in CRE loans. Credit unions, REITs (Real Estate Investment Trusts), government agencies, and online lenders also distribute CRE loans.
Lenders do not approve CRE loan applications as soon as they are available. They take time to validate the documents, run background checks, and perform credit analysis. The process through which lenders initiate, validate, and approve CRE loan applications is called loan origination. CRE lenders have taken several measures to reduce the turnaround time for the loan origination process. The loan origination process includes everything from loan application to approval or rejection.
CRE Loan Origination Trends
Here are some CRE loan origination trends you must know:
As discussed above, CRE loan origination encompasses several processes. Borrower application, pre-qualification, documentation, underwriting, loan approval, and loan rejection are some processes under loan origination. Since CRE loans are usually high-value loans, lenders take some time to complete the loan origination tasks. With the emergence of digitization, lenders are limiting the requirement of manual labor for loan origination processes. Most loan origination tasks are digitized or automated with technology integration. It is one of the most popular trends in loan origination, as it enhances speed and productivity for different processes.
High-End Data Analytics
Before the rise of digital tools for underwriting, loan analysts manually determined creditworthiness. They did so by going through the borrower’s financial statements and credit history. Lenders now prefer data analytics tools to determine the borrower’s risk score, credit rating, or creditworthiness. An advanced data analytics tool will collect financial data related to the borrower from different sources. It also organizes the data and generates the risk score, credit rating, and other metrics. CRE loan providers are now actively leveraging the power of advanced analytics for informed decision-making. Remember, data analytics tools curb the time required for loan underwriting.
Online CRE Loan Marketplaces
After the emergence of online CRE lenders, digital marketplaces are the new trend. You can find digital marketplaces that show several available CRE loan options. Borrowers can compare the loan offerings of different providers and choose the right one. Online CRE loan marketplaces are simplifying the loan research and application process for borrowers. They also fuel the competition between CRE loan providers.
Consideration of ESG Factors
For CRE loan approvals, lenders now consider ESG (Environmental, Social, and Governance) factors. Financial institutions are keen on making sustainable investments in the real estate sector. For the same rationale, they consider the sustainability of the commercial property before distributing CRE loans. Carbon emission, energy efficiency, and other ESG factors are considered for the loan origination process. Before the rise of sustainable investment, lenders used to evaluate the credit risk of risk of default associated with a borrower. Currently, investors evaluate ESG and credit scores to approve CRE loans.
Remote Access to Applicants
Lenders now offer remote or mobile access to CRE loan applicants. It has reduced the need for in-person visits to get a CRE loan. During the recent COVID pandemic, many financial institutions started offering CRE loan facilities to borrowers via mobile applications or online platforms.
The CRE loan origination process has drastically changed over the years. Lenders now use advanced technologies to simplify the loan origination process. Remember that borrowers can now use mobile applications or digital platforms to apply for CRE loans. AI, ML, and other automation technologies have made loan origination smoother.