Loan Origination Software for Banks: Enhancing Customer Experience in SME Lending

In today’s competitive financial world, lenders need to provide their borrowers with a great experience during the loan application process. A smooth, cloud-based loan origination software for banks can significantly enhance the process by making it faster and easier without compromising important details. Using a modern loan origination system (LOS) helps improve customer experience in lending.

Small and medium-sized enterprises (SMEs) are the backbone of many economies worldwide, but they often struggle to get timely commercial loans to help grow and succeed. There is a $5.7 trillion finance gap in SME lending. It will be one of the most profitable contributors to banking revenues in the coming times.

The commercial lending process can be time-consuming and complex. The borrower experience of many SMEs is affected by the lengthy and vague application process. AI-powered loan origination software for banks makes the lending experience more efficient, accessible, and user-friendly.

Banks and credit unions still use outdated systems with limited configurable functionality, which results in poor performance. This gap has allowed fintech companies to step in with end-to-end digital banking solutions that meet SME lending needs. Loan origination software for banks that offer streamlined onboarding and intelligent decisioning can help better serve SMEs.

In this article, we will explore how loan origination software for banks can enhance the lending experience for SMEs and the benefits it provides for both borrowers and lenders.

What are SME Loans?

An SME loan is a special type of financial loan designed to help small and medium-sized businesses secure the funding they need to scale their operations. These loans can be used for buying equipment, managing daily expenses, handling operational costs, and other similar purposes.

SME loans are not like other financing options. They are made to be more flexible and suitable for small businesses, so they don’t have to deal with irregular cash flow, seasonal ups and downs, or unexpected expenses. SME loans act as a safety net to address these hurdles. Here are some more reasons as to why SME loans are important:

• Working Capital

  To keep day-to-day operations running, businesses need cash for salaries, utilities, raw materials, and other expenses.

• Growth and Expansion

  Businesses often need funds to expand into new markets, purchase modern equipment, or upgrade technology.

• Weathering Financial Gaps

  Delays in client payments can disrupt cash flow. Loans help bridge the gap until payments are received.

• Seizing Opportunities

  SME loans ensure that businesses don’t miss out on growth opportunities due to a lack of funds.

The Challenge of SME Lending for Financial Institutions

Small and medium-sized enterprises (SMEs) have unmet finance needs of around $5.2 trillion per year, making SME lending operations a crucial and profitable opportunity for banks. However, banks face challenges in creating effective loan origination solutions for SMEs and reducing the cost of serving them.

To capitalize on SME lending opportunities, banks must leverage forward-looking data sources, invest in technology, prioritize digital engagement, and offer a suite of services. By adopting four building blocks – strategy, process, analytics, and operating model – banks can reimagine loan management and improve their bottom line.

For instance, digitizing the customer journey and enhancing risk models can increase revenues, boost operational efficiency, and reduce the risk of non-performing loans.

The ideal SME lending model should align with the bank’s aspirations and business objectives, considering key elements such as target segments, SME pain points, and ecosystem partnerships.

In enhancing the lending experience for SMEs, more and more financial institutions are leveraging automation and loan origination systems to handle the entire lending procedure.

What Is Loan Origination Software?

Loan origination software for banks is a web-based application that automates many of the manual tasks involved in the loan origination process. This includes tasks such as application processing, document management, risk assessment, and loan approval.

Loan origination software for banks automates and speeds up the loan approval process, making it faster and easier for SMEs to secure the financing they need. This can be a significant advantage for SMEs, who often don’t have the time or resources to navigate a lengthy and complicated lending process.

Key Features of a Loan Origination System for Banks

Before going into the details of how these systems improve user experience, some key features of a loan origination software for banks are:

• Workflows Automated:

  Loan origination software for banks covers the entire loan lifecycle from application to disbursal, eliminating bottlenecks and reducing processing time.

• Integrated Credit Analysis:

  Advanced tools evaluate the applicant’s worth using historical data and financial statements, leading to more accurate and timely decision-making.

• Regulatory Compliance:

  Loan origination software for banks makes sure that every loan process is compliant with all the requirements. Failure to comply can cause considerable risks. In this case, as corporate loans are being made, regulations often tend to be more complex.

• Real-time Reporting:

  Loan origination software for banks provides real-time reporting and monitoring of loan applications. Thus, lenders and borrowers receive the most up-to-date information about the loan’s status.

• Customer Relationship Management (CRM) Integration:

  The system allows seamless integration of CRM for better customer contact and communication regarding the loan application status. Many loan origination software for banks include built-in CRM tools.

• Document Management:

  The system has integrated document management, providing secure storage and easy retrieval of essential loan documents, thus eliminating paperwork for both lenders and customers.

How the Loan Origination System for Banks Impacts SME Lending

Loan origination software for banks has strategically changed the lending experience for SMEs and MSMEs. We’re seeing faster loan underwriting processes, fewer non-performing loans, and better products tailored to each customer’s needs and financial capacity. Here are a few ways loan origination software for banks is impacting both the loan providers and SME borrowers.

• Increased Efficiency

  Loan origination software for banks can help lenders reduce processing times, minimize errors, and increase efficiency by automating many of the manual processes involved in lending. Ultimately, it results in faster loan approvals and disbursements, which is especially beneficial for SMEs looking to access financing quickly.

• Improved Risk Management

  Loan origination software for banks comes with a fast underwriting process that uses both traditional and alternative data in making lending decisions. With this, lenders can better manage the risks associated with lending to SMEs. By automating the credit assessment process, lenders can have a clearer and more accurate picture of a business’s financial health.

  It enables lenders to make more informed lending decisions and minimize the risk of loan defaults.

• Enhanced Customer Experience

  With the use of an online platform, SMEs can apply for business loans, upload required documents, and track the progress of their loan application all in one place. The entire financing process for SMEs becomes more convenient and accessible, providing customers with an enhanced personalized experience.

  By collecting data on the borrower’s financial history, credit score, and other key financial indicators, the software can help lenders make more informed decisions and offer more tailored loan products to SMEs. This ensures that the loan types offered to SMEs meet their specific financial needs, helping them achieve their business goals.

• Lesser Application Time

  Loan applications that previously took months to disburse can now be processed in a few minutes or hours.

  These lending systems help increase the volume of loans lenders can originate, alongside the cost of loan origination. It eliminates many of the manual tasks involved in loan origination, such as data entry and document management.

• Reduced Risk of Loan Fraud

  Digital lending solutions automate many manual procedures in Loan origination, reducing the possibility of human error and speeding up the detection of potential red flags. As a result, both lenders and SMEs can be confident that their loan applications will be handled fairly and transparently.

• Increased Access to Financing

  Loan origination software for banks can help increase access to financing for SMEs by making the loan application process faster, more efficient, and more transparent. This can help SMEs get the funding they need to grow and succeed, which can benefit the overall economy.

How Bizz2X’s loan origination software can help

Biz2X’s AI-driven loan origination software is one of the top lending systems in India. Over 250,000 businesses trust it, and it has assisted loan disbursements of more than ₹2.7 trillion. It offers:

• 40% faster loan decisions
• 2X growth in loan portfolios
• Up to 10% reduction in default rates

One of the key features that makes Biz2X’s platform the leading lending system in India is its smart automation. The document verification process and the information exchange with CIBIL, GST, and KYC are carried out by AI. This reduces time-consuming manual processes, making the whole process more reliable.

This loan origination software handles all the main loan types, like personal loans, business loans, agri-loans, and SME financing. It uses workflows that you can change according to the needs of the financial institution. Also, it offers strong security for businesses, multilingual support, and accessibility through mobiles to make loan processing easier.

FAQs about Loan Origination Software for Banks

• How do lenders evaluate the repayment capacity for an SME loan? 

  Lenders look at the Debt-to-Income (DTI) ratio to assess the repayment capacity. Your SME loan payment shouldn’t exceed 25-30% of your monthly earnings. This way, you still have about 70-75% left for other financial requirements while comfortably managing your loan repayments.

• Can I apply for an SME loan online?

  Yes, it’s fast and hassle-free to apply for an SME loan online. Begin with the official website of your preferred lender, their SME loans webpage, and their terms and eligibility criteria. When you’re ready, click on ‘Apply Now,’ complete the application form, and submit the required documents. A bank officer will contact you to assist further.

• Can I pay back my SME loan sooner to pay less interest?

  Most lenders let you pay off your SME loan early. Many don’t even charge you extra for it. Paying it back sooner not only reduces your debt faster but also lowers your total interest. This really gives you more breathing room financially.

• Which businesses are qualified for SME loans?

  SME loans are provided for various businesses, including sole proprietorships, partnerships, private limited companies, and public limited companies. If your business falls under the categories mentioned above, you are eligible to obtain an SME loan to meet your financial requirements.

• Why do SME loans get rejected?

  Common reasons for rejecting a business loan application include: a low credit rating, insufficient security for the loan. A weak business plan and financial forecasts, including cash flow, can also result in SME loan rejection.