7 Key Considerations for Selecting the Right Loan Origination Platform

The lending market is growing continuously, and along with the growing volumes, there has been a steady increase in tech-savvy alternative lenders. These lenders offer financial services that traditional banks are not offering. Alternate lenders and Fintechs are offering digital services that traditional lending models struggle to match.

A high-performing loan origination platform for commercial lending can create an exceptional borrowing experience for consumers, businesses, and credit departments. The digital revolution has turned remarkable advantages like speed, simplicity in design, and delightful experiences into capabilities expected by everyone.

Banks and financial institutions need to reimagine the whole lending experience and think and operate beyond modern expectations to win in the crowded financial market.

The best loan origination software (LOS) or platform is the one that can cater to all kinds of customer needs, and аt the same time, fuel your growth. It should help optimize portfolio management, financial statement analysis, underwriting, and executive reporting.

In this article, we have discussed the top 7 features to look for in a loan origination system. This will help you to achieve top performance in all stages of the lending process and also improve customer experience.

What is a Loan Origination System (LOS)?

By definition, it is a software solution that digitizes, automates, and manages all steps in the loan process – from application, through review, risk rating, approval, to disbursement, and relationship building.

In other words, LOS streamlines the whole loan origination process, integrating seamlessly with core and other systems (core banking system, SMS gateways, credit bureaus, AML, etc.).

You can recognize an advanced loan origination platform by the following key elements:

• One database with a unified view for all credit activities
• Powerful end-to-end credit risk management 
• Best-in-class omni-channel experience
• One system for all loan types
• Advanced financial analysis
• Robust workflow and integrations 
• Communication between departments

7 Smart Tips to Help You Select the Best Loan Origination Platform

Slow decisions are a significant problem for banks. Even a one-day delay or uncertainty in responding to the customer could result in losing the business to a competitor. Banks may not even realize they have lost this opportunity, as the potential customer may dodge the bank completely and apply directly through a digital lender.

To avoid such scenarios, it becomes important for your bank to invest in a loan origination platform that helps overcome your operational shortfalls and understand your customers’ needs. A loan origination platform can quickly and independently adapt to changing market conditions and business needs. To choose the best loan origination platform, keep the following points in mind:

1. One database for all credit activities

For many banks, data still exists primarily on paper or in the Excel sheets of different account officers and credit analysts. This directly hinders credit team efficiency and results.

Therefore, it is key that your loan origination platform is an end-to-end solution that offers a centralized database that presents data to the designated officers of the bank to support effective credit decisions. 

Often, such data comes from multiple sources:

• Customer data (demographics, banking history, market data, etc.)
• Relationship (subsidiary, holdco, parent/child, spouse, etc.)
• Collaterals (type, value, insurance, etc.)
• Financial (Limit, balance sheet, P&L, Ratios, etc.)

In addition to centralizing data, an end-to-end approach will also ensure that the bank’s credit policies are respected as part of the loan evaluation process.

2. Powerful end-to-end credit risk management 

Risk in banking is inevitable, but it can be controlled and mitigated with the right software tools.

The world-class loan origination systems come equipped with proven end-to-end risk management capabilities, allowing banks to protect themselves from unreliable borrowers, make smarter credit decisions, and improve profitability.

Moreover, they enable lenders to balance credit risk with loan approval speed, volume, and quality, and thus outperform competitors.

When evaluating LOS options, look for strong risk management capabilities like:

• Workflow management
• Collaterals capturing
• Document management
• Memos & relationship management
• Credit policy enforcement
• Account aggregation
• Advanced financial statement spreading and analysis 
• Wide range of risk assessment models
• Portfolio manager, encompassing concentration analysis, exposure analysis, volume analysis, etc.

3. Best-in-class omni-channel experience

It is more than clear that digitally-savvy Millennials and Gen Z’ers are increasingly preferring user-friendly mobile methods of engagement.

To stay on top of evolving market trends, banks need to offer digital lending solutions. Their loan origination platform should seamlessly connect to any digital self-service channel for consumers or employees, preferably through an integrated, omni-channel digital banking platform.

Digital platforms enable consumers and businesses to fulfill the full application process entirely digitally, feeding data directly into your LOS at the right steps of the loan origination workflow. 

A remarkable digital loan origination experience, be it self-service or assisted, is a combination of many factors, such as:

• Intuitive interfaces with reduced need for data entry
• Smart data collection via OCR for fast and secure scanning and uploading of documents
• Efficient document management & eSigning of documents
• Customer-centered mindset
• Loan status information in real-time for both customers and bank staff, along with automated notifications
• Opportunity to integrate a video call with a bank officer during the loan application
• ID verification (KYC) and authentication tools via fingerprint and facial recognition, and many more.

4. One system for all types of loans

Often, banks rely on separate LOS to originate the different types of credit – personal loans, business loans, commercial loans, SME credit, etc. 

Very few are the loan origination systems that provide workflows for multiple credit types.

By having one system for all loan types, the institution can benefit from significant cost savings in terms of total cost of ownership. 

In addition, a centralized system allows for a 360-degree view of the customer relationship, which aids up-sell/cross-sell opportunities and drives customer satisfaction and retention.

5. Advanced financial analysis

The most effective and rewarding loan origination system is the data-driven one with financial analysis capabilities that let banks derive critical insights to form credit decisions.

A modern LOS lets you control credit risk through advanced financial statement spreading and analysis. Configurable financial ratios, peer group comparisons, projections, and more can help you enable effective customer risk ratings, forecasts, and consolidations.

Key features that allow you to grasp the enormous potential of data include:

• Financial statements spreading (ratio)
• Peer group analysis
• Financial covenants tracking and financial projections
• Advanced credit memos 
• Effortless report creation without the need for database expertise
• Automatic generation of periodic reports
• Portfolio oversight to see the big picture and to outline and understand trends.

6. Workflow and integrations

Banks need a thoughtful integration strategy that scales lending operations, accelerates loan automation, enhances financial care, and boosts customer onboarding.

As loan origination involves a vast number of steps and processes (like document management, underwriting process, risk rating, etc.), manual operations can hinder scalability.

On the other hand, the number of systems involved in the process makes it hard to automate using the old point-to-point integration approach.

APIs and workflow eliminate the manual steps, handle high volumes at scale without errors, and allow systems to work together seamlessly.

The result is increased automation and a much more effortless and convenient operational efficiency for lenders and borrowers.

Besides automation, APIs enable easy integration with many external partners (like credit bureaus, national registries, and SMS gateways) to fuel growth and unlock new revenue opportunities.

Integrations are also about creating an ecosystem of digital products, designed for one vital goal – to create the perfect user experience.

Therefore, when choosing a loan origination software, investigate the API integration options and workflow features. If done right, they can bring a priceless wealth of benefits for both customers and lenders.

7. Communication between departments

A loan origination process in the branch and on-premise involves the efforts of multiple roles within the credit and risk departments.

A modern, efficient LOS should enable easy collaboration between relationship managers, credit analysts, credit committees, and senior executives through clear workflows and task management.

Timely, transparent processes help teams make credit decisions faster, achieving the desired portfolio growth through a single platform.

Conclusion

In today’s lending world, speed, accuracy, and great customer service are some features that all loan origination platforms must have. A good loan origination platform provides an end-to-end lending solution. It helps pull data from different sources into one place, keeps everything compliant, and helps teams approve loans faster. It can handle all loan types in one system, run advanced risk checks, and give borrowers the flexible, digital experience they expect. As a result, you get quicker decisions and happier customers.

Choosing a loan origination platform is a long-term investment for every lending business. These businesses benefit from integrating loan origination platforms that can easily track funding and ensure that all the needed documents are in place before the assessment begins.

Times call for the use of loan origination platforms that rely on data analysis to make strategic decisions on behalf of the lender. A business that values its customers continually welcomes technology upgrades, like a new-age loan origination platform. Companies must leverage loan origination solutions that create value and thus earn loyal customers with excellent service.

Interested to learn more about a loan origination platform? Contact us today.

FAQs About a Loan Origination Platform

• What is the difference between LOS and LMS?

  LOS (Loan Origination System) and LMS (Loan Management System) are distinct yet complementary technologies used in the lending industry. LOS focuses on the initial stages of the loan process, like application and approval, while LMS handles the ongoing administration and servicing of loans after approval. Essentially, an LOS is for getting the loan application approved, and an LMS is for managing the loan throughout its life. 

• What is POS and LOS?

  Generally speaking, an LOS is mainly used by lenders and mortgage professionals who deal with loan processing, underwriting, and closing. On the flip side, POS software is made for borrowers to interact with lenders during the application process.

• What is PD in the loan process?

  Probability of default (PD) is a financial term describing the likelihood of a default over a particular time horizon. It provides an estimate of the likelihood that a borrower will be unable to meet its debt obligations. PD is used in a variety of credit analyses and risk management frameworks.

• How do lenders typically verify collateral?

  The lender assesses the value of the collateral and determines the loan-to-value (LTV) ratio, which dictates the maximum loan amount a borrower can receive. Once the loan is approved, the borrower agrees to repay the principal amount along with interest over a fixed period.

• What is P2P Lending?

  P2P stands for Peer-to-Peer lending. It enables individuals to obtain loans directly from other individuals without the involvement of any intermediary. It’s an alternate option for borrowing money other than Banks. The Reserve Bank of India regulates P2P lending.