Outsourced business model seen as a plus by lenders

ARTICLE | October 19, 2023

Authored by RSM US LLP

Flexibility is the name of the game for midsize companies trying to maintain operational efficiency amid inflationary cost pressures and sharply higher lending rates.

At a time when new loans are under significant scrutiny, the ability to quickly scale a business up or down as demand dictates can be seen as a positive in the eyes of lenders.

Beth Johnson, a technology consulting principal with RSM, says the flexibility gained through strategic outsourcing often demonstrates that a business is nimble enough to ride out economic volatility due to its ability to pivot quickly when market conditions change.

Outsourcing specific functions ranging from IT, finance, risk and operations allows companies to keep their eyes on the prize—strategic growth for their core business. 

“It gives you a lot of agility,” says Johnson, whose clients include banks, credit unions and other financial institutions. “If you have to tighten your belt, if your loans are going to cost more money, you are not pigeonholed by your business model.”

Johnson highlights just a few of the benefits of strategic outsourcing:

• Consistent service: “Your costs can flex up or down, based on seasonality,” she says. “Take a block of 1,000 hours to use at your discretion and consume it as you go.” Outsourcing provides consistent service, month after month. Third-party providers are specialists in their fields with well-defined, standardized processes for their offerings, and they can quickly scale with the needs of the business amid fluctuations in demand.
• Limited compliance: “If you outsource a compliance function, 99% of the time you’re not going to get over scrutinized by regulators,” Johnson says. Outsourcing compliance-heavy functions can take the bulk of the regulatory burden to the third-party provider, freeing the core business from potential scrutiny. Providers have specialized knowledge of their service and are responsible for staying up to date when changes in regulations arise.
• Shared risk: “There is shared responsibility,” she says. Using an outside provider for cloud-based information storage, for example, reduces the risk profile of the business because both parties share financial and operational risk through pre-defined contracts and other agreements. Some providers may carry insurance that can mitigate potential losses.