Double-entry bookkeeping was invented in 13th-century Italy.
Today, while this methodology remains more or less the same, advancements in technology have allowed for complex data organization and automated calculations at the click of a button.
Odds are, if you showed a 13th-century Italian merchant how small businesses use spreadsheets to balance their books, he would quickly recognize the system.
And while the advent of spreadsheets certainly revolutionized productivity, in 2023 they are not without their limitations. Though they work wonders as a personal productivity tool, they are particularly limited when it comes to more complex financial calculations, like those needed for successful commercial lending.
The task of coaxing precise data insights from hundreds or even thousands of cells is not only time consuming, it is also prone to errors. In the world of commercial lending, where precision and efficiency are paramount, these limitations can no longer be overlooked.
In today’s article, we’ll explore some of the issues that lending spreadsheets present to modern commercial lenders, and how an agile SaaS lending platform can help.
The Challenge of Data Analysis
Effective commercial lending requires effective data analysis.
Nothing controversial there.
And yet, trying to achieve this with spreadsheets in the modern lending landscape means pushing the technology to its limits.
Each borrower and their data tell a unique story.
Aggregating hundreds of these unique narratives into a single spreadsheet can create a bottleneck of information flow, hindering the swift identification of emerging patterns and critical insights that could be leveraged for strategic advancements.
Lending stakeholders, even when utilizing advanced cloud-based spreadsheets, find themselves grappling with issues of data recency and accuracy.
The reliance on a single spreadsheet as the “source of truth” invariably restricts the breadth and depth of available information, creating a tunnel vision that may overlook vital indicators and trends.
This scenario is far from ideal when multi-million dollar business decisions hang in the balance, decisions that necessitate a multifaceted analysis drawing from multiple sources, data cross-referencing, and insightful visualizations…functionalities that are conspicuously absent in traditional spreadsheets.
Instead, commercial lenders should opt for something modern that can help them assess trends across their portfolio.
With an agile digital lending software, lenders can bring all of their loan data under one roof, so that they visualize it unambiguously, as a whole.
In other words, a SaaS lending platform like SPARK empowers lenders to easily see and understand the bigger picture so they can act upon strategic insights with confidence.
Collaboration Issues: The Drawbacks of a Static Tool
Successful lending has always required efficient cross-team collaboration…something that is difficult to achieve with spreadsheets.
Using a spreadsheet for your own, personal bookkeeping is one thing—which works pretty well—but when working within a team with complex data, that’s a whole different story.
One of the most glaring issues arising from the use of spreadsheets for collaboration is data reentry, a problem that becomes particularly prominent as an applicant moves through the various stages of an organization’s lending workflow, from sales to underwriting to closing.
When multiple teams are involved (as they always are and always will be), the use of spreadsheets often leads to the creation of numerous versions of the same document, making it an uphill battle to maintain a singular, cohesive view of the data.
With each transition, team members find themselves inputting the same information multiple times, a laborious process that eats up resources and increases the likelihood of manual errors.
Here’s the hard truth: spreadsheets are a breeding ground for inconsistencies and discrepancies when it comes to collaboration, which can potentially undermine the integrity of the entire process.
This last point is particularly important, as one study found that in 88% of all spreadsheets, 1% or more of formulas contain errors. These errors tend to be mechanical (i.e., an incorrect number), logical (i.e., an incorrect formula), or a data omission.
Data Security: How Spreadsheets Leave You Vulnerable
In the digital age, safeguarding sensitive data stands as a pivotal concern for lenders and borrowers alike.
While spreadsheets have served as a traditional data management tool for years, their security features lag far behind the fortified defenses exhibited by modern lending tools and platforms.
Spreadsheets tend to rely heavily on password protection as a primary means of securing data.
However, this mechanism offers only a rudimentary level of security, providing a permeable barrier that can be easily breached by seasoned cybercriminals that know how to hide malicious code in a lender’s data. Techniques such as brute force attacks can quickly overcome such protection measures, leaving sensitive data exposed and vulnerable.
As previously mentioned, spreadsheets are also notorious for being susceptible to human error.
The manual handling of data inherently creates opportunities for information to be accidentally deleted, altered, or leaked, presenting a constant risk of security breaches. As if that wasn’t bad enough, tracking changes and identifying unauthorized access or alterations in a spreadsheet can be nothing short of a Herculean task, often resulting in lapses that go unnoticed until it’s too late.
In contrast, agile SaaS lending platforms are designed with stringent security protocols in place to counteract these vulnerabilities.
At the forefront of these measures is data encryption, a technology that safeguards data by encoding information in such a way that only authorized parties can access it. This formidable barrier serves to deter potential cyber-attacks effectively, ensuring that confidential data remains secure.
In addition to encryption, these platforms often employ multi-factor authentication (MFA), an advanced security measure that requires users to verify their identity through multiple layers of validation before granting access. This multi-tiered approach significantly reduces the risk of unauthorized access, providing an added layer of security that goes far beyond the limited capabilities of password protection.
Finally, lending platforms can also provide advanced tracking and alert systems to monitor data access and alterations, ensuring real-time detection of any unauthorized activities, and facilitating immediate action.
A Lower Upfront Cost That Adds Up
Commercial lending requires complex workflows that beg for customization—a static, inflexible spreadsheet simply won’t cut it.
While the initial appeal of spreadsheets often lies in their perceived affordability, many organizations cling to them long-term under the assumption that they present a lower upfront cost compared to modern, automated lending platforms.
However, this surface-level cost-saving is a distraction—one that hides within it a number of hidden costs—which in the long run can inflate operational expenses substantially.
As we have already mentioned multiple times, one of the most significant drawbacks of employing spreadsheets is the heightened error rate that accompanies manual data handling. Each and every manual entry harbors a potential mistake: a transposed number, a missed cell, or a broken formula can lead to erroneous data interpretation and decision-making.
Over time, these errors can accumulate, translating to substantial financial setbacks as lenders may make misguided investments or credit decisions based on faulty data.
Need an example?
In 2003, a copy-paste error wiped out $24 million of a big company’s profit. There was also the case in 2020 when a bank’s employees accidentally paid off a $900 million loan for a client, due to poor workflow and UX design.
In addition to the human error element, the manual labor involved in managing and maintaining spreadsheets is another hidden cost that slowly but steadily drains resources. Employees who spend hours navigating through complex spreadsheets are unable to focus on more strategic, value-added tasks, thus reducing overall productivity.
This loss of shared productivity, when quantified, unveils a considerable expense that organizations take on, often unknowingly, perpetuating a cycle of inefficiency and resource drain.
In summary, lenders think they can get by with spreadsheets, but long-term, spreadsheets likely end up costing more in opportunities lost than what is being saved.
A SaaS lending platform might cost more upfront to implement, but in the long run, the efficiency lenders gain helps ensure a bright and scalable future.
The Agile Advantage: Audits Made Easy
Audits, although uncomfortable for any lender, are a powerful tool for building trust and credibility in the industry.
As commercial lenders grapple with the complexities of modern lending, the need for a seamless, transparent, and consistent process has never been more pronounced. Here, the use of spreadsheets for lending workflow management introduces significant risk, especially when auditors demand an in-depth inspection of transaction histories and decision-making pathways.
For those lenders using spreadsheets, the audit process often unfolds as a high-stress scramble to compile and validate information.
Let’s imagine that an auditor requests a detailed account of a particular transaction’s history—seems simple, right?
Well, if the transaction was tracked in a spreadsheet, and the person who managed the transaction’s data is no longer part of the organization, a lender is left in the unenviable position of trying to defend and explain their decisions without a solid base of data to refer to.
Also, there’s the issue of actually accessing those files. If you keep risk factors in a spreadsheet, which is located on a hard drive, it becomes quite hard to pull them up whenever an audit is performed. Sure, two days after saving a spreadsheet, you can easily remember where it is—but when an audit comes 12 or 18 months later, good luck finding it.
Such scenarios create a fertile ground for discrepancies and inconsistencies, giving auditors more reason to probe deeper, thereby prolonging the audit process and elevating the risk profile of the organization.
Let’s contrast this with an organization that leverages an agile lending platform, and can keep consistency in decision making and easy access to records much after the loan decisions are made.
In the case of an audit, this technology acts as a preventive measure against such a nightmare. Even if every employee from every team involved has moved on from the organization, a modern loan management platform stands ready to showcase a transparent trail of every transaction, detailing the exact decision criteria applied, the documents collected, and the steps undertaken.
The beauty of this technology lies in its ability to demonstrate consistency at a moment’s notice.
Even if an auditor questions a specific transaction, a lender can demonstrate a standardized procedure that has been followed meticulously over time. While an auditor might scrutinize the transaction, the uniformity demonstrated serves as a strong defense, showcasing adherence to policies and highlighting a structured, well-organized operational flow.
Go Digital With SPARK
While many successful lenders will swear by the master spreadsheet they’ve used for years, they need to understand where the market is headed—and where spreadsheets run short.
The transition from traditional productivity tools to agile SaaS lending platforms is not just a necessary step, but a golden opportunity for the commercial lending sector. While spreadsheets have served their purpose well in the past (and still do as a personal productivity tool), their limitations are becoming glaringly evident, particularly in terms of data analysis, collaboration, and security.
SPARK is here to help.
Our industry leading lending management platform makes it easy to manage more loans in less time with fewer errors. We help you drastically improve operational efficiency as you optimize your lending workflows, drive employee satisfaction, and improve the borrower experience.
Schedule a demo today, and we’ll show you how bright the future is beyond the spreadsheet.