With so much lending to businesses, aren’t we forgetting about the risk?

Lending Risk Management Software

After years of hesitance by business owners to invest in new equipment, many are feeling comfortable enough to take out a loan from a bank. For financial institutions, years of low interest rates have inspired more deposits from customers, instead of investments, and banks are “starving for growth,” as a Wall Street Journal article says. Fortunately both major and small banks increased the number of loans given to businesses in 2012. While this means growth for businesses and banks alike after months of low lending rates – are we going too far in the other direction?

As the Journal puts it, the competition among banks for lenders could possibly cause the same risky environment that lead to the financial crisis – the reason for the low interest rates in the first place. Many are lending at much higher levels in 2012, and are lowering interest rates to attract more customers. As a result, the average lending spread has decreased, forcing banks to continue lending at high rates to make up for the lost profits.

Businesses, of course love this environment. Carl DelPrete, a business owner told the Journal that he had three banks competing to lend to him, all offering lower rates to seal the deal. While good news for those looking to borrow, this attitude could inspire unqualified borrowers to tap into the new source of funds.

To prevent the same borrowing tactics that led to the crisis, risk management software can help. By weeding out the qualified borrowers from the unqualified, financial institutions can determine who to lend to and keep profits from falling in an already competitive market.

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From loan originations and decisioning, to customer management and beyond, GDS Link helps thousands of clients manage risk while driving growth.

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