Integrative action research paper: Addressing the high number of unprocessed loan applications of small and medium enterprise (SME) customers of ZGD Leasing and Finance Corporation

• Main Author: Orquillo, Opalyn O.
• Format: text
• Language: English
• Published: Animo Repository 2020
• Subjects: Financial institutions—Management; Loan servicing; Entrepreneurial and Small Business Operations; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_masteral/6163; https://animorepository.dlsu.edu.ph/context/etd_masteral/article/13240/viewcontent/ORQUILLO__OPALYN_11772417__Addressing_the_high_number_of_unprocessed_loan_applications_Redacted.pdf
• Institution: De La Salle University

The main issue that the action research addressed was the high number of unprocessed loan applications of Small and Medium Enterprises (SME) customers. One of the main goals of our company is to provide credit access for Large, Small and Medium Enterprises (SME) and maintain a healthy Loan Portfolio mix of our customers. The behavior of the Loan Portfolio of a Financial Lending Institutions (FLI) dictates the company’s position. Since the primary source of Bank’s income is from the efficient allocation of funds from deposit to loan borrowers. Pricing of interest rate is being done by evaluating client’s credit risk, the higher the risk, the higher the interest rate. Most of the FLI target customers are Large Corporation, since the risk is much lower than the SMEs which are being evaluated as higher risk. However, the continuous growth of other lending companies caused some boundaries to lower down the Interest Rates for Large Corporations. While, SMEs find it difficult to borrow due to lack of collateral to offer, no proper technology and information asymmetry in SME credit (SME Business Specialist, 2017). Saunders & Cornett (2018) discussed that the common failure of Financial Lending Institution is due to the improper credit allocation, where they failed to properly match the sources of funds with the user of funds. It also mentioned the importance of the flexibility of FLIs to adapt in changing regulations and markets. It expected to properly manage and address the present and future risk to protect the depositor, borrower and FLI company. Based on the collective experiences of Management Account Officers (AO’s) who process the loan evaluation and from the discussions with customers of ZGD Corp., we are all having difficulties in complying with the set of policies and standard requirements for all the SME loan applications. Since all the Large Corporations have available information in their websites, Account Officers find it easier to evaluate. Compare to the SME clients who have limited documents which often the reason to disqualify their application or sometimes might either underestimate or overestimate the customers needed loan amount and terms of payment. After a series of discussions and analysis of the issue, we have figured out that the Account Officers preferred to process the loan application of Large Corp. versus SME customers. AO’s were not responsive to SME borrowers, due to its unfamiliarity and incorrect mindset towards the characteristics of SME businesses.