Financial services are evolving rapidly, with small business lending leading the way. A recent Allied Market Research report states that small business lending can grow at 13% CAGR from 2024 to reach a market size of $7.2 trillion by 2032. If banks and credit unions act now, they will have a tremendous opportunity to be global market leaders by 2032.
New-age borrowers prefer seamless, instant digital experiences. Competition and regulations are intensifying around small business lending. Banks and credit unions must leverage an automated loan origination solution to offer seamless and compliant digital-first experiences. Leaders must adopt it as a strategic solution for growth, customer acquisition, and long-term success.
Here's why top banks and credit unions in the US are embracing this shift
Though many financial institutions use different tools throughout the loan origination process, those aiming to gain a leadership rank adopt an end-to-end approach. Banks and credit unions are achieving beyond the expected ROIs by adopting a unified AI-powered loan origination solution.
Simplifying small business lending applications, sorting documentation for underwriters, facilitating customizable workflows, and automating analytic capabilities can support faster loan decisioning while reducing the lowering chances of errors and preventing customer attrition due to slow and often siloed processes.
Top 6 considerations for choosing the right loan origination solution
The right loan origination system acts as a one-stop solution to automate and optimize the complete loan application journey. A rules-driven and flexible platform can adapt quickly to your institution's change in workflows and goals. Let's explore the top capabilities of the best loan origination solution for banks and credit unions.
1. Automation and Workflow Management
Today, automation sets the foundation of efficiency. Leading platforms automate intelligently, freeing human resources' time for more complex tasks. The right loan origination platform will automate data entry, client communication, document curation, report generation, and underwriting insights. These features help reduce errors, bias, processing time, and operational costs.
Since every bank and credit union has unique processes, the platform must offer highly flexible and customizable workflow management. You should be able to map your exact processes onto the platform, ensuring a consistent workflow.
Pro tip: Look for visual workflow builders that allow easy modification.
2. Flawless User Experience and Accessibility
Platform adoption relies heavily on its usability. An interface that requires extensive training hinders productivity and frustrates users. Conversely, an intuitive design boosts adoption, streamlines operations, and directly contributes to faster loan processing and higher customer satisfaction. For borrowers, a simple online application process is important.
An omnichannel loan origination solution would ensure accessibility and process continuity from any device—laptop, mobile, or any other device. It also helps in onboarding and maintaining users from any device, capturing collateral from any source, and managing it in one central repository. A unified dashboard will also provide a centralized view to the borrower and your underwriting teams.
3. High Integration and Compatibility
A new platform should enhance, not disrupt, your current operations. The best loan origination solution can smoothly integrate with core banking systems, CRM software, underwriting engines (if separate), document management systems, and e-signature platforms.
A smooth integration between existing infrastructure and the LOS is essential for established institutions. Loan origination software that demands extensive middleware or major changes to existing systems makes the overall solution costlier.
4. Robust Data Security and Compliance
The best loan origination solution will rigorously protect sensitive customer and institutional data. It will continuously comply with all relevant SMB finance regulatory trends, including BSA/AML, Fair Lending, TILA, and RESPA. The platform must employ robust data encryption, multi-factor authentication, and granular access controls to customize data accessibility for different teams.
Choose a loan origination solution with built-in compliance monitoring and automated audit trails to proactively meet regulatory standards. Regular security audits and certifications (like SOC 2) are strong indicators of a vendor's commitment to security.
5. Deep Customization and Configurability
The best loan origination software enables high configurability, allowing you to adapt workflows, rules, scorecards, and user interfaces without requiring a complete revamp or downtime to other functionalities. The lending origination solution should act as a unified solution for all lending offerings.
A rule-based engine helps underwriting, compliance, and business intelligence teams automate loan decisioning, logging, and analytics. A customizable platform provides on-demand scalability to handle increasing loan volumes and potential expansion into new products or markets without performance degradation.
6. Actionable Reporting and Analytics
Loan origination involves capturing, processing, and storing vast amounts of information from diverse sources. The right lending origination solution will automatically aggregate, analyze, and present data from multiple sources. For underwriters, this means having a 360-degree view of the applicant for accurate credit risk assessment and decision-making. Banks and credit unions can also automate lending decisioning if the borrower meets all their preset rules.
For senior management, robust analytics provide crucial insights into pipeline velocity, portfolio risk, operational efficiency, staff productivity, and market trends. It helps them make data-driven strategic decisions and identify areas for improvement or growth.
A practical selection process to find the right LOS partner
1. Explore All and Shortlist the Best-Suited Vendors
Before anything else, make sure you define all business challenges, goals, and expected outcomes for your lending organization. List down all the vendors offering a loan origination solution for banks and credit unions and compare their proposals. Clearly define your institution's must-have features versus nice-to-have features. Prioritize objectives, like improving speed for small business loans, reducing abandonment rates, and improving creditworthiness transparency.
Consider future needs like scalability, adaptability, and integration with emerging technologies in banking. Narrow your list to 2-3 vendors whose loan origination platform aligns with your strategic direction.
2. Customize Demo Requests & Evaluation
Engage with your shortlisted vendors and request personalized demonstrations. Prepare use cases relevant to your institution like processing specific loans. Evaluate all the features along with the platform's responsiveness, ease of navigation, and overall user-friendliness.
3. Prepare a Detailed Review for Stakeholders
The loan origination software you choose impacts multiple departments in your organization. Record the end benefits for each department to provide the stakeholders with a holistic view of the ROIs. An AI-powered LOS directly benefits underwriting, IT, compliance, marketing, and analyst teams.
Include your underwriters' and loan officers' real-time feedback. They are best positioned to judge the platform's day-to-day usability, efficiency, and support in their work. Their buy-in is vital for the successful adoption of the right lending origination platform.
4. Check References and Client Reviews
Consider reviewing online ratings, case studies, and directory ranks of vendors. Find common keywords in the independent reviews, media mentions, and industry reports to gain a broader perspective. This exercise will help evaluate the credibility and client satisfaction rate of the vendor. You can also contact one of the clients mentioned on their website to confirm their partnership related to your project.
5. Understand Pricing and Assess ROI
Ensure to gather all the pricing models from your loan origination platform vendor. They may include a one-time fee, subscription model, or flexible retainer plan. Evaluate each according to your budget plan and cash flow. Get written clarity on all the inclusions, exclusions, and the additional costs. Your vendor may charge additional costs for implementation, training, support, and integrations. Always document the negotiation to maintain a minimum pricing guarantee.
Before finalizing the solution and vendor, run an ROI assessment based on the below pointers or more according to your business:
- Reducing processing time by X%
- Cutting operational costs by XX%
- Ensuring compliance and monitoring
- Minimizing error rates to X%
- Increase customer retention by X%
Collectively analyze them to compare the potential value of your investment against the total cost of ownership.
Going Forward
Small business lending is booming at an unprecedented pace. Those who take a smart early mover advantage will reap the most benefits both in the short and long run. Take a structured, informed approach to selection by comparing vendors diligently. Involving your key stakeholders throughout the process fastens the decision process. With this comprehensive exercise, you can confidently choose and implement a platform that delivers tangible results.
The right loan origination solution for banks and credit unions in the US doesn't just optimize their operations. It equips them with a long-term competitive edge and positions them to thrive in the dynamic, fast-paced future of digital lending.
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Frequently Asked Questions
1. Why should I think about choosing a Loan origination solution?
In an age where digital-first and mobile-first experiences are defining the future of a business, leveraging an LOS can support your financial institution in multiple ways. Some of the most common benefits of adopting an LOS are automation, reduced errors, consistent process logs, and unbiased decisioning insights, all of which work together to improve your efficiency, reduce TATs, and minimize applicant abandonment rates.
2. Can a loan origination solution increase client retention?
Yes, by automating consistent engagement with the borrower during the onboarding, form-filling, and application process, a lending origination solution can minimize application abandonment rates and improve client retention.
3. What types of lenders benefit most from modern loan origination software?
A loan origination solution directly empowers banks and credit unions by improving efficiency while reducing manual intervention in multiple stages of the origination. For lenders offering multiple loan products, an LOS can centralize the operations, offer a unified experience, and improve insights on cross-selling opportunities.
4. How do I evaluate which LOS is right for my lending business?
The right way to evaluate any lending platform involves a 5-step process in chronological order as shown below:
- Explore all & shortlist the best-suited vendors
- Customize demo requests & evaluation
- Prepare a detailed review for stakeholders
- Check references and client reviews
- Understand pricing and assess ROIs
Following these evaluation steps will help find the right loan origination platform from the best vendor for your organization’s needs.
5. What key features should I look for in a loan origination solution?
The right LOS for your lending business will have the below-mentioned capabilities:
- Automation & workflow management
- Flawless user experience & accessibility
- High integration and Compatibility
- Robust data security & compliance
- Deep customization & configurability
- Actionable reporting & analytics
