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The defi Team defi INSIGHT, Loan Origination Software

Loan Origination Software

Bank loan-to-deposit ratios (LDR) average between 80% to 90%. It’s an understatement to say that lending is critical to profitability. With a wide range of loans, from simple personal loans easily granted to applicants with excellent credit to more complex factors that impact approvals and credit scores, loan origination processes can consume a significant proportion of a lender’s time and resources. To get the most value out of lending activities, lenders need efficient loan origination software (LOS) to manage it all.

There are many different software options out there. Which is the right one for your needs? If you’re looking to upgrade your current LOS, there are five important questions you should ask before you sign a contract with a vendor.

Want to find out more about our software and services? Contact our team today.

Why You Should Use Modern Loan Origination Software

Some lenders still depend on largely manual processes or semi-automated systems to originate loans. While this is a valid strategy, lenders who continue to use these systems may not be making the most of the digital lending technology currently on the market. Manual processes lead to inefficiencies, mistakes, compliance issues, and wasted time and resources.

For example, lenders that still use manual paper forms will spend more time entering data and processing applications. The consistency of their systems may also be compromised, as it’s more common for staff to make mistakes during the loan origination process.

Modern loan origination software reduces some of these challenges by making your system more efficient, cost-effective, and reliable. Not only can it automate many of the processes that would normally take your staff hours to complete, but it will process applications and other tasks more consistently. This, in turn, leads to higher customer satisfaction and a faster—and potentially higher—return on investment.

However, to gain all these benefits, you need to know which loan origination software is right for your business. To make this decision, look for answers to the following questions:

  1. Which features, if any, are automated?
  2. Is the software configurable?
  3. How does the software handle exceptions?
  4. How long will it take to see a return on investment?
  5. Is the software secure and compliant?

These aren’t the only questions you should ask, but they’re a good starting point to help you weed out ineffective software systems that aren’t worth your time or investment.

#1: Which Features, If Any, Are Automated?

ai, artificial intelligence, automaton, brain, electronics, robotics, technology iconHaving an automated loan origination system is important because it helps you keep better track of the entire origination process. Automating tasks like data entry, rules-based decisioning, and risk calculations also makes your system more consistent and reduces the amount of time your staff spends on this process. Plus, your customers will appreciate receiving decisions on their applications almost immediately after submitting their information.

Ideally, your loan origination software should include automated:

  • Decisioning, including exceptions;
  • Origination;
  • Predictive models;
  • Scorecards;
  • Workflow assignments and monitoring;
  • Covenant monitoring;
  • Loan spreading;
  • Collateral management.

Some LOS systems include additional automated features. When you speak with the vendor, ask for a comprehensive list of all of the automated features they offer.

#2: Is the Software Configurable?

config, configuration, settings iconA modern loan origination software system should address your specific workflow needs. Decision rules that drive workflow should give lending professionals the ability to configure the process (no programming required) to their unique requirements, and easily make modifications as needed. In today’s economy, it’s essential to have the option to configure the system and add new rules or exceptions even after you’ve installed the software. The software should evolve along with your business strategy.

#3: How Does the Software Handle Exceptions?

newline, no iconThis question is closely related to the one above but deserves its own consideration. One of the last things lenders want is to needlessly reject a borrower’s application without considering all of the facts related to the potential risk. For example, some borrowers have very little credit history or a spotty traditional credit record. Some loan origination software systems would reject these applicants outright without providing any recourse. Instead, the software should flag the application for closer review or assess it based on additional criteria, such as alternative credit data. Software that handles exceptions well will provide you with more lending opportunities and help you retain loyal customers.

#4: How Long Will it Take to See a Return on Investment?

investment iconThis isn’t the easiest question to answer because every LOS is different. Still, you can ask the software vendor approximately how much time it will take to implement the software based on your operations. Is the software designed to be functional out of the box, or does it require custom programming based on your workflow? Do you have the option to test a basic version of the software and upgrade to a more complex system later? Generally, the faster you can deploy the new LOS and smoothly integrate it into your lending process, the sooner you can realize a return on your investment. Ask your vendor for some specific time estimates based on your business’ operational needs.

#5: Is the Software Secure and Compliant?

lock, protection, safe, security iconWhenever you introduce new software into your existing system, you must ensure it is as secure as possible to protect your business and your customers. This means choosing a loan origination software that:

  • Requires multi-factor authentication;
  • Stores data securely and includes encryption where necessary;
  • Locks down sensitive data, only allowing authorized users to access it;
  • Is frequently patched and updated based on the latest security technology and compliance standards.

The vendor should take security and compliance seriously and be committed to updating the software as these regulations evolve.

Consider Investing in End-to-End Software

An end-to-end loan origination software system answers all these questions effectively. While you could invest in multiple software systems that address each of these questions individually, it’s much more effective to use a software that incorporates all these features in the solution.

End-to-end software makes your loan origination process more efficient and consistent. Every aspect of loan origination, from application processing to loan structuring and risk management to offer delivery are handled by the same system. This ensures that the lending process flows smoothly from one step to the next and reduces the risk of information silos and workflow interruptions.

An end-to-end vendor that has a satisfactory answer to all these questions can help you create this type of streamlined system. With advanced, automated software, your loan origination process will be far more efficient and consistent.

defi SOLUTIONS is a loan origination software vendor that specializes in automation and configurable, rules-based decisioning. We’ll help you create an efficient and secure lending system. To learn more about the software features we provide, contact our team today or register for a demo.

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