When it comes to commercial loan closings, we have found that speed and bank profitability are correlated. This is to say that the faster you can close a loan, the more likely you are to be booking more than your share of loans. We are not sure which way the cause and effect happens – either you are good at closing loans, and so that drives business, or you are good at driving loan business, so you learn to close loans fast, but it doesn’t matter as speed and loan success go hand and hand. In this article, we give you the latest statistics that we collected on time-to-close as well as provide some observations on the data.
Here Is The Average Time-To-Close
We chart loan closing times for more than 100 banks, and the average bank takes about 44 days to close a commercial loan. A recent poll by Sageworks of 171 bankers supports this average and shows the following distribution:
Some Other Observations
- Banks take longer to close loans above $150k, $250k, $500k, $1mm and $5mm, respectively than loans under those respective amounts. While loan size and time-to-close is correlated, there are certain “breakpoints” that banks have a faster approval and signing authority process.
- Commercial Real Estate loans take just slightly longer to close (15 days) than C&I loans of the same size.
- Banks that have a linear closing process take almost two times longer to close loans than banks that go down parallel lines such as ordering appraisals during the underwriting process (instead of waiting until underwriting is complete).
- Lines of credit usually close faster than term loans regardless of size
- Some banks take almost 120 days to close loans below $200k.
Putting This Into Action
There is, of course, a wide distribution for some banks and in many cases, closing time is outside of a bank’s control. The good news is that just a couple of years ago, closing times for loans over $500k were almost 90 days. Now, this time has improved and we suspect will grow even shorter as more banks digitize their lending workflow.
Next to branches, the loan process is the second largest functional cost at a bank, and the longer a loan takes to close the more it costs a bank to process. Finding ways to speed up loan closing usually results in lower per loan cost. On top of all that, customer satisfaction correlates to faster loan closing times.
If you say your bank’s value proposition is about “service,” then loan closing times should be a metric you should be tracking since it has such a large impact on profitability and the customer experience. Use the above data to benchmark your bank and then look for ways to shave even more days off your time-to-close.
Submitted by Chris Nichols on September 26, 2017