The lending industry is considered a key driver of economic growth in India. On the business side, lenders are attempting to fill the credit gap, enabling businesses of all sizes and scales to reach their full potential. On the retail side, timely and affordable loans enable consumers to fulfil various aspirations, from purchasing a home to pursuing higher education.
Lenders need to strengthen the loan origination process to keep pace with the growing demand. By facilitating an efficient, accurate, and swift loan origination process flow, lenders can ensure that every step contributes towards the culmination of timely delivery of loan approvals.
In this blog post, we deconstruct the loan origination process flow, key challenges lenders face, and how technologies such as AI, Machine Learning, cloud computing, and automation can help lenders expedite the process.
What Is the Loan Origination Process Flow?
The loan origination process flow refers to a series of steps involved in the loan application and underwriting process:
- Potential borrowers apply for a loan
- In turn, the lender assesses the risk associated with a borrower
- They analyse multiple financial statements such as credit scores, bank statements, revenue statements, etc.
- Based on the data, the lender establishes the borrower’s creditworthiness and ability to repay the loan
Loan origination is critical for both lenders and borrowers for successful loan approvals and disbursals. However, lenders often struggle with slow and complicated loan processing timelines, which remains a key bottleneck when it comes to efficient loan origination.
Slow Loan Processing Time: Key Reasons
The lending landscape today has several entities vying for similar target audiences. These include banks, digital lending platforms, non-banking financial companies (NBFCs), and payment apps. Therefore, lenders looking to capture better market share and offer higher value to borrowers must be able to scale quickly.
However, quick turnarounds on loan applications continue to be a key challenge.
Here’s a snapshot of key reasons for slow loan processing:
1. Incomplete Applications
Borrowers often submit incomplete applications with critical information missing. Lenders spend time following up to receive the data.
2. Limited Credit History
Borrowers may be unable to demonstrate creditworthiness due to a lack of credit history and assets. Lenders invest an extensive amount of time in the underwriting process to identify solutions for such use cases.
3. Manual Financial Analysis
The financial analysis process continues to be a manual one with extensive dependency on human interventions, which is time and labour-intensive.
Strategies to Strengthen Loan Origination Process Flow
Today, borrowers are often spoiled for choice when applying for a loan. On the other hand, micro, small, and medium-sized businesses continue to struggle to find lenders due to a lack of credit history.
Forward-thinking lenders can capitalise on this opportunity by taking strategic steps to build an efficient, accurate, data-driven loan origination process flow.
Here are some strategies that can optimise the process flow:
1. Automate Process End-to-End
Lenders can completely automate repetitive, non-strategic tasks in the loan origination process flow by leveraging automated loan origination tools.
For instance, a cloud-based, AI-powered loan origination software such as Finezza automates the process end-to-end. The benefits of automating the process include error-free outcomes, prevention of duplication, and timely loan turnarounds. Lenders can run with lean teams, and teams’ bandwidth is freed up to focus on strategic tasks.
2. Simplify the User Experience
Lenders must ensure that the loan application submission process is completely simplified and intuitive; the overall user experience is streamlined and easy to navigate.
For instance, introducing processes such as video KYC can make the entire experience less complicated.
3. Embrace Easy Data Sharing Protocols
Borrowers often struggle with providing enough financial data to help lenders make critical decisions. However, advances in technology are addressing these challenges.
For instance, lenders can pull financial data from account aggregators, Goods & Service Tax Returns information from the government’s GST portal, and credit history from the relevant credit agencies, with the borrower’s consent.
4. Leverage AI-Powered Financial Analysis Process
One of the most resource-consuming and important steps in the loan origination process flow is accurately and quickly assessing a borrower’s risk profile. Lenders struggle with access to large volumes of and sometimes too little data.
However, superior loan origination software enables the swift and automatic segregation of financial data into over 20 to 30 inflow and outflow categories. Lenders can get a 360°perspective of a borrower’s financials and access to a creditworthiness score that enables swift underwriting decisions.
Another important solution is the capability of vendors to cross-reference banking transactions related to revenues with the corresponding GSTR data. This is an effective way to analyse cash flows for businesses with no assets or credit history that generate healthy revenue.
5. Use Predictive Data Analytics
Superior loan origination process flow software like Finezza has built-in AI-based predictive data analysis, allowing lenders to accumulate, process, and store large amounts of consumer data securely.
Unlike regular data analytics, AI-based predictive data analytics can detect unusual patterns in a borrower’s transactions within seconds. Lenders can quickly anticipate potential loan fraud while also predicting a borrower’s ability to repay alone based on past consumer behaviour.
6. Customised Solutions
While quick turnarounds are essential for any lending business to become competitive and scaleable, providing customers with relevant solutions is equally important.
The use of AI in loan origination process flow software enables lenders to access recommendations for personalised solutions that can serve a business based on its real-time needs.
With more micro, small, and medium-sized businesses applying for loans, this is a differentiated offering by lenders, who can grow the business ticket size as the borrowers they serve scale.
Lenders taking steps to optimise the loan origination process flow can develop a competitive edge. They will be in a position to strengthen risk assessment and fraud detection capabilities and respond to potential borrowers quickly, turning leads into customers.
Automating the loan origination process with superior software can help lenders expedite the process without jeopardising the financial analysis aspect of loan origination.
As a future-proof tool, Finezza harnesses AI technology to provide tailored analytical solutions, enhance loan decision-making, reduce lead-to-loan time, and effectively evaluate creditworthiness for faster loan approvals.
Sign up to learn more about Finezza and revolutionise your financial operations with advanced technology today!