3 Loan Growth Strategies to Build Your Customer Lending Portfolio

Written by: HUB Financial Services

With the fluctuation of lending markets, financial institutions must be prepared to enhance customer retention, acquire new clients, and manage risk – building a lending portfolio in any circumstance. Especially as the housing market rides on tumultuous waters, it is critical that you diversify loan growth strategies across multiple avenues.

In the following content, we explore three loan growth strategies to build your lending portfolio, helping your institution expand and thrive, even when markets are uncertain.

Building Your Consumer Lending Portfolio: 3 Loan Growth Strategies to Implement

#1. Home Equity Lending

The Financial Brand, a resource for financial institutions, emphasizes the importance of capitalizing on home equity lending: “If your institution isn’t actively marketing home equity loans and lines of credit, you’re giving up potential market share to a handful of giants.”

Home equity lending can be used as a strategy to allow homeowners to tap into their home equity at a time when real estate values continue to climb. Thus, even if the housing market does start to slow and homeowners are staying put, home equity lending offers an additional income source for lending institutions.

Unfortunately, homeowners with substantial home equity often have little knowledge of how to effectively access it or understand the benefits associated with utilizing it. However, this allows lenders the opportunity to build their lending portfolio while helping homeowners navigate the world of home equity.

Your lending institution can identify customers with good equity and educate them about the possibilities of a HELOC or home equity loan. If prompted and educated by a trusted expert, more homeowners may consider the opportunities and advantages of growing and utilizing their home equity.

Why Might Someone Pursue a Home Equity Loan?

Having now understood the purpose and benefits of home equity loans, homeowners often find the prospect of leveraging home equity appealing, especially when compared to the other common methods of financing large sums, such as credit cards. Home equity loan interest rates are often much lower alternative options.

Home equity loans offer great flexibility in terms of how one acquires the loan. For example, homeowners can select a second mortgage, a home equity line of credit (HELOC), or cash-out refinance.

  • Typically, homeowners who choose a second mortgage will use the entire sum to consolidate debt, pay for unexpected medical expenses, fund wedding expenditures, or finance another urgent need.
  • Alternatively, the HELOC may be selected by homeowners engaging in home improvements, starting a business, or pursuing an endeavor that would require cash over time.
  • Cash-out refinancing provides fast cash, measured by increased home value. Homeowners may use this cash to reimburse credit card or college debt, better positioning themselves to receive better interest rates and refinance opportunities.

According to TransUnion, a projected 10 million Americans would pursue HELOCs between 2018 and 2022 – and the trend is continually upward. Therefore, lending institutions should proactively guide homeowners to choose a second mortgage, HELOC, or cash-out refinancing, depending on how the homeowner wants to use those funds.

Don’t hesitate to pursue this untapped market!

#2. Home Improvement Lending

Like home equity lending, unsecured home improvement lending has increasingly grown in popularity, especially during the past year. The prospect of increasing the resale value of one’s home or enhancing quality of life at home is attractive – but home renovation is expensive.

Most individuals do not have the cash on hand to cover these expenses, so they approach financial institutions for lending options. As a result, this loan growth strategy is an excellent opportunity to reach broader markets. Therefore, with your diversified lending portfolio, having the expertise to recommend and provide a home equity loan or unsecured home improvement loan will provide opportunity for growth in diverse economic circumstances.

#3. Quick Installment Loan (BNPL)

Quick installment loans are another growth strategy with rewarding potential for building your lending portfolio, specifically for payees of younger generations.

Consumers are seeking quick, easy ways to make purchases. Especially for millennials and members of Gen Z generations, the buy-now-pay-later (BNPL) mentality is a powerful motivator, inspired in part by COVID-driven ecommerce shopping.

A variety of point-of-sale loan technologies, such as Afterpay, have already been developed and deployed in response. The BNPL trend is based on consumers’ subscription mindset and is not likely to disappear soon. A study by The Ascent, a Motley Fool unit, found that the BNPL trend has increased by nearly 50% in a single year, and the rate of growth is rapidly continuing upwards.

Though lending institutions can capitalize on this shift in consumer behavior, it requires technological execution to approach the market.

John Grund, one of Accenture’s payments group managing directors, said:

Banks should be mindful of further consumer behavior changes and the appeal and importance of a seamless, integrated customer experience to both consumers and merchants. Also, banks are taking note of merchants showing a willingness, at least near-term, to pay a fee to BNPLs after decades of pressuring banks and networks to reduce fees.

This market has tremendous potential and banks should take note of this trend as it could define entire future generations.

HUB Financial Services: A Strategic Resource

At HUB Financial Services, we are experienced insurance consultants who focus exclusively on decreasing risk and increasing profitability for lenders across the nation. Known for our integrity, dependability, and expertise, our customers are the best insurance companies and service providers in the business.

Innovative banks and credit unions will be looking for new revenue streams from services or products they are not offering today. This will require financial institution leaders to think outside their traditional boundary lines. How will your financial institution become more relevant as consumers’ expectations evolve and change, and new technologies emerge?

To learn more about our services or our impact, get in touch with our team! You can reach us via our contact form below. A specialist will promptly reach out to listen, answer your questions, and provide suggestions regarding our innovative insurance products and services.