LOAN PIPELINE MANAGEMENT EXPLAINED

In essence, a loan pipeline is simply a sales pipeline that pushes loans through pre-qualification to loan funding. Like sales pipelines, it involves leads, and to be successful, it’s critical that lenders properly manage their loan pipeline. Management also means understanding each of the steps involved in the process of onboarding a new customer, which becomes increasingly complex as more loan applicants are added to the pipeline. This involves establishing each applicant’s needs and wants while tracking where they are along the path to funding the loan. Pipeline management, whether it’s for sales or loans, is essentially just seeing that a lender’s customers progress through the application process until a loan agreement is signed.

Loan pipeline management describes this advancement of potential borrowers through a series of steps towards a long-term goal, generally achieved with the funding of a loan. Pipeline management can also describe an ongoing process, with lenders referring to it as the processing of new loans. It may also include marketing meant to generate new customers, checking applicants’ credit scores, and processing all the documentation necessary to conclude a loan. Whatever specifics are involved in a lender’s loan pipeline, management needs to always keep in mind that their customers, and potential customers, are the most important aspect of the loan pipeline.

How Loan Pipelines Work

One important facet of loan pipeline management involves identifying the most productive means by which a lender can use their resources. There are many ways to accomplish this, with the most basic identifying from which types of borrowers and what types of loans a lender is making the most profits. This should also look into the amount of resources a lender has invested in moving these customers through the loan pipeline. Management of this movement should additionally be tracked, as this gives lenders an overview of the time it takes to onboard customers and the profits involved in each.

Some key functions of loan pipeline management include:

• Identifying and planning for both growth and declines in sales.
• Recognizing and eliminating bottlenecks and other points throughout the loan where potential customers leave the process.
• Understanding the fundamentals of how and why some deals succeed while others fail.

Beyond these functions, lenders can employ techniques for collecting and analyzing data throughout the process of onboarding customers, as well as making decisions based on data collected from the flow of applicants through the loan pipeline. Management of this pipeline is at its best when determining what actions require completion and which conditions need to be met at each step within the loan origination process.

Key Aspects of Loan Pipeline Management

To optimize their loan pipelines, lenders must understand how they flow. Mapping out all the steps visually is useful in loan pipeline management. Through process mapping, lenders can identify areas where there are inefficiencies, look at ways to improve processes, and help employees understand their role within the loan pipeline. Management of leads (aka potential borrowers) should look at how much time it takes to move through a lender’s pipeline and can even extend through both the servicing and closing of a loan.

In the chart below, we have outlined the fundamentals of loan pipeline management.

Fundamentals of Loan Pipeline Management	Description
Roles	Describes specific departments, employees, or third-party partners responsible for various tasks.
Communications	Examines how communications are conducted between entities involved in the loan pipeline, including mobile options like chat and texting.
Customer Service	Ensures potential borrowers have access to assistance during the application process, account inquiries, or any other barriers within the loan pipeline.
Systems and Processes	Utilizes a loan origination system (LOS) to facilitate the movement of potential borrowers through the pipeline while complying with rules and regulations.
Technology	Embraces technological advancements, such as cloud-based LOS, software, and automation, to streamline the loan pipeline and enhance efficiency.

Each step within the loan pipeline should also be evaluated to provide the greatest efficiency, which will, in turn, also benefit a lender’s customers.

Loan Pipeline Management Post-COVID

When the COVID pandemic hit, lenders focused on liquidity to ensure they could meet any funding challenges brought on by borrowers who might become delinquent or default on their loans. Yet some households found that their credit scores improved as the government provided consumers a financial lifeline during US lockdowns and the recessionary pressures due to the pandemic. In fact, according to an analysis by the Consumer Financial Protection Bureau (CFPB), the distribution of all credit scores shifted upwards.

After the worst of the pandemic passed, the consumer loan market grew buoyed by the influx of stimulus and low-interest rates. However, the market changed rapidly, and with rising interest rates and high inflation, delinquency rates have risen to the highest levels since 2010. Yet despite these challenges, a Consumer Pulse survey conducted by TransUnion showed that 52 percent of American consumers felt optimistic about their financial future over the next year, with younger generations being even more optimistic.

Maximizing Loan Pipeline Management With Technology

While the goal of sales pipelines involves gaining customers through the conversion of every lead possible, this isn’t the case with a loan pipeline. Managing a lender’s leads also involves assessing the risk of lending to each potential borrower and if the risk is deemed too high to pass on offering a loan. Pipeline management in lending must thus undergo a more rigorous review of loan applicants, which requires gathering more intimate data about them and a way to analyze that data (i.e., analytics software).

Risk assessment is aided by automated technology, which can help lenders:

• Explore data and create reports without the need for technical experience.
• Perform custom calculations to monitor key performance indicators (KPIs) to stay competitive and quickly adjust to changing economic conditions.
• Provide both general and detailed analyses through data-centric insights.
• Visualize and manage their loan pipeline through easy-to-understand charts, graphs, and maps.

Understanding patterns in the data enables lenders to make better decisions and even helps grow loan portfolios without increasing risk. On the surface, certain applicants may seem too risky because of a subprime credit rating or no traditional credit history. Yet, with the information supplied by an applicant as they go through the loan pipeline, management of these risks should look beyond traditional credit scores.

But perhaps the most important reason to use technology is because it’s something that benefits their customers. Technology helps enable lenders to personalize the products they provide to consumers coming through a lender’s loan pipeline. Management of each requires looking at their individual histories and, more importantly, developing a relationship with each one. This technology can start with something as simple as an auto-fill in a loan application that keeps a potential borrower from having to enter the same information over and over again.