What To Look For in Loan Origination Software Pricing & Licensing

For decades enterprises assumed responsibility for the complete lifecycle of computing and communications hardware: Selection, purchase, installation, configuration, management, upgrades, and decommissioning within their data centers. With the cloud, the majority of these responsibilities and expenses are now assumed by the service provider. When you move from outdated lending software to modern cloud-based loan origination software, you no longer have to include CapEx items for new hardware in your budget.

The move to the cloud also reduces lenders’ OpEx costs. Physical space devoted to servers, storage, and communication infrastructure can now be eliminated or repurposed for more profitable use. Power and cooling costs are reduced. You won’t have to worry about hardware disposal costs. IT staffing costs for hardware maintenance and management are also reduced. 

We’re assuming you’re convinced of the overwhelming benefits of moving to modern loan origination software hosted by a cloud provider. Let’s call this model SaaSS – Software as a Subscription Service. To prepare for that transition we pose a few questions to help you think about pricing, licensing, and long-term success. Overall, you’ll want to work with a vendor whose loan origination software pricing/licensing offers flexible termss to meet your unique financial requirements.

If you like to distribute expenses throughout the fiscal year, or don’t have the budget at the moment for a big up-front licensing payment, then monthly subscription payments are the ideal option. You may also opt for a monthly payment plan based on expected loan application volumes. This provides flexibility by matching payments to loan volumes as they vary throughout the year. With monthly payments, your CFO makes a close connection between payments and the value of the loan origination software that is the backbone of your lending business. For their part, software vendors welcome the predictable monthly revenue stream.

This is a great option if your accounting department’s goal is to reduce the number of annual payment transactions. In comparison to monthly payments, you’re likely to get a better deal, thanks to the time value of money. Alternatively, you may select a payment plan based on the quarterly volume of application loans. This plan can be ideal for accommodating differences in monthly volumes during any quarter. This option allows you to handle varying monthly loan volumes as long as the total for the quarter doesn’t exceed the maximum quarterly volume in your contract.

If you have ample cash flow, or have been budgeting for the transition to cloud-based loan origination software, then the “once and done” annual payment offers the simplest payment scheme. In comparison with monthly or quarterly payments, your annual cost should be lower. An annual plan based on loan application volumes may offer the most flexible and economic approach. Similar to the quarterly plan based on volume, you can opt for a payment plan based on estimated annual loan application volumes. An annual payment also tells your software provider that you take a long-term approach to this vendor relationship. As a result, you might find that the vendors offers additional perks throughout the contract.

The monthly/quarterly/annual software subscription and support costs may include additional offerings. When comparing vendors, also consider the value of these other services, capabilities, and programs that may be included or priced separately.

Ask your vendor which of the following they provide, which are included as part of the software pricing, and which are extras. You’re making a multi-year investment in loan origination software, so you’ll want to make your decision based on the long-term value of the software, support, and services as a complete package.

• Consulting: Your lending practice is unique and you may need anywhere from a small number to many hours of consulting to achieve the desired results. Does the vendor include a certain number of consulting hours as part of the initial implementation? What options are offered for additional consulting, if needed?
• Integration: Loan origination software doesn’t work in isolation. Is the software pre-integrated with popular lending services such as application sources, bureaus, alternative data, and vehicle valuation, or will that require custom programming that may lead to a protracted implementation?
• Configuration: It’s rare that out-of-the-box software meets your exact needs. Does the software allow you to quickly and easily configure the software to your needs using configuration menus, or does configuration require a statement of work and weeks to months of custom software development?
• Training: Is it provided online and self-paced, on-site so your employees don’t need to travel, or will employees need to travel to vendor offices?
• Technical support: What levels or plans of support are included? Does the vendor provide a community portal where customers can pose questions, get answers, search FAQs, and share best practices?  Does the vendor offer webinars to introduce product roadmaps, new features, and technical updates
• Conferences: Is the customer base large enough to support an annual conference to learn about new functionality and product direction, meet with software partners who provide complementary solutions, and discuss best practices? Is there a cost to attend the conference or is it included in the software licensing agreement?

Moving to a new loan origination software is a significant undertaking. However, the cloud, new CapEx and OpEx models, and flexible software pricing terms and licensing options can make the transition operationally and financially attractive. When looking at loan origination software pricing and licensing, adopt a long-term economic perspective. In addition to software, there are many other valuable capabilities, services, and programs offered by vendors that may be included in your licensing agreement and contribute to the overall success of your lending practice. Get everything you need, and nothing you don’t.