How Technology Shapes the Future for Community Financial Institutions
By Ollie Sutherin, Chief Financial Officer, Young & Associates
The challenges posed by the COVID-19 pandemic are no surprise to anyone in the financial services industry, least of all to the small business owners across the country. However, concerns around small business lending were growing well before the pandemic and continue to rise, particularly for community financial institutions (CFIs). The evolution of technology has introduced a unique set of challenges and opportunities for CFIs, often seen as a double-edged sword: it both undermines the traditional values CFIs are known for and opens up a vital path to remaining competitive.
Historically, community financial institutions have built their foundation on personal relationships and tailored, customer-first service. It’s this “high-touch” approach that has endeared CFIs to their communities. However, as a new generation of small business owners emerges, so too does the demand for efficiency, automation, and immediate access to capital. In today’s fast-paced business environment, entrepreneurs are less interested in handshake deals and more focused on solutions that save them time and hassle. This shift in expectations is being effectively capitalized upon by fintech companies and larger financial institutions.
The Rise of Technology in Small Business Lending
For many entrepreneurs, the path to success hinges on one critical element: access to capital. Yet, what was once a deeply relational process—built around trust, face-to-face meetings, and careful consideration—has been revolutionized by technology. Today’s small business owners want quick answers. They want the loan process to be as streamlined and efficient as possible. Fintechs and large banks have answered that call by offering tech-driven solutions that not only provide rapid loan decisions but also reduce administrative burdens on both sides of the equation.
The ability to upload financial documents, run credit checks, and aggregate tax returns through automated platforms has cut out many of the manual processes that used to consume weeks or even months in the lending cycle. Fintech innovations use predefined input criteria to spread tax returns, perform credit analysis, and score loan requests—almost instantly. These advances have reduced the reliance on human loan officers and credit teams, who once reviewed each file manually, often delaying decisions and requiring more information from business owners. This high-tech, low-touch approach is particularly appealing to time-strapped small business owners.
The Technology Investment Gap
While fintechs and large institutions are surging ahead, many community financial institutions are lagging behind in terms of technological investment. A significant factor is the stark difference in budgets allocated to technology. Reports indicate that many CFIs dedicate only 3-5% of their total budget to tech solutions, compared to the 10% or more that larger institutions consistently invest. This discrepancy is further widened when considering that large financial institutions often invest in proprietary technologies that require ongoing development and maintenance, allowing them to stay on the cutting edge.
Fortunately, this doesn’t mean community institutions are left without options. Many vendors now offer solutions tailored specifically to CFIs, and these technological tools can be integrated as add-ons to existing products. These systems give CFIs the ability to provide faster decisions, greater transparency, and a smoother experience for small business clients—all without requiring massive investments in proprietary systems.
The Path Forward for CFIs
So, where does this leave community financial institutions in the rapidly evolving small business lending landscape? The answer lies in striking a balance between the traditional values that define CFIs and the technological advancements necessary to compete in today’s marketplace. CFIs possess a unique advantage that fintechs and large banks cannot easily replicate: a deep connection to their local communities and a personal touch that resonates with customers.
By leveraging technology to streamline processes while preserving the relationship-focused nature of their services, CFIs can offer the best of both worlds. Automated loan processes reduce friction and save time for both lenders and borrowers, but the human element—offering personalized advice, local expertise, and building trust—remains critical. This “high-tech, high-touch” approach enables CFIs to retain their core values while meeting the evolving demands of small business owners.
Conclusion: A Double-Edged Sword
Ultimately, the gap in technological investment presents both a challenge and an opportunity for community financial institutions. To remain competitive in today’s lending environment, CFIs must embrace technology without abandoning the personal service that sets them apart. The future of small business lending will depend on the ability of community institutions to wield this double-edged sword—combining the efficiency of streamlined processes with the warmth and trust of personal interaction. By doing so, CFIs will not only bridge the technology gap but also deepen relationships with their clients, ensuring they remain a trusted partner in their communities for generations to come.
If you have questions or would like to discuss how Young & Associates can help your institution tackle its lending challenges, contact us today. Together, we can find the solutions that best fit your needs and ensure your continued success.
