Soft Information
Unlike hard information, which can be easily quantified about a person or business, soft information includes facts, commentary, and other details that are less tangible and somewhat difficult to share. Soft information is of significant importance to smaller financial institutions that emphasize relationship lending and regularly make loans to startups.
Examples of Soft Information
The Small Business Lending Survey of 2024, published by the Federal Deposit Insurance Corporation (FDIC), lists several types of soft information:
- Business plans
- Industry experience
- Business advisors
- Loan officers’ assessments
- Knowledge of market conditions
Although banks of all sizes rely on soft information, the FDIC study found that smaller institutions are more likely to leverage soft information when underwriting small business loans. This may be due to a fundamental difference in how large and small banks generally approach commercial lending, especially startup lending. According to the study:
“To manage the risk of lending to start-ups, large banks more often rely on government guarantees, while small banks more often use soft information gleaned from meeting with applicants.” – Source: FDIC Small Business Lending Survey, 2024
Managing Soft Information with ECM Technology
Accurately assessing the soundness of a founder’s experience, knowledge, and business plan can be highly subjective. Organizing information gleaned from meetings into a loan officer’s assessment is a practical step, but such assessments are still based on the lender’s perception. Despite the lack of hard facts, small lenders still view soft information as a critical source for informing decisions about business loans.
Given the importance of soft information for commercial lending, financial institutions should identify opportunities to consolidate soft and hard information about each borrower. Modern ECM (enterprise content management) software, such as Alogent’s suite of solutions, can make it easier to provide lending staff with a comprehensive view of each relationship. For example, banks and credit unions can use our FASTdocs solution to electronically request (via digital banking integration), store, and manage borrowers’ business plans and other documentation. AccuAccount, our ECM software that’s optimized for commercial lending, offers a straightforward way for lenders to capture important context via comments. Information in AccuAccount is organized into a visually intuitive experience that “looks like” a traditional loan file, bringing together hard and soft information about each borrower.
Read more banking definitions or request information about Alogent’s ECM solutions for financial institutions. Contact us to schedule a demo for your bank or credit union.
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