Loan Management

The loan origination procedure is critical in the financial industry because it allows individuals and organisations to obtain the capital they require for a variety of purposes. However, this lifecycle is frequently time-consuming and resource-intensive and can result in delays and inefficiencies. With improvements in technology and automation, financial institutions now have the ability to streamline and optimise the loan origination lifecycle.

This article explores the key steps in loan origination, finds opportunities in which automation can be leveraged and offers examples of successful implementation.

What is the Loan Origination Lifecycle?

The loan origination lifecycle refers to the sequential stages involved in processing a loan application. It begins with the borrower submitting an application, followed by documentation verification, underwriting, loan approval, loan processing, loan funding, loan servicing, and finally, loan closing.

For example, let’s consider a mortgage loan:

1. The borrower submits a mortgage application to a bank, providing personal and financial details.
2. The bank then verifies the information by collecting documents such as income statements and credit reports.
3. The underwriting team assesses the borrower’s creditworthiness, employment stability, and loan suitability.
4. If approved, the bank finally issues a loan approval letter.

Loan processing also involves preparing necessary documents, signing them, and funding the loan. In the servicing phase, payments are collected. The loan closes after the borrower receives ownership rights and fulfils formalities.

Why is Automation Essential for Loan Origination Lifecycle?

Automation has become essential for loan origination as it offers significant benefits and efficiencies for lenders, borrowers, and the lending process. Here’s why it matters:

• Efficiency

Automation streamlines and accelerates the loan origination process, reducing the time and effort required to process loan applications. Tasks that are traditionally performed manually, such as data entry, document collection, and verification, can be automated, leading to faster turnaround times and increased operational efficiency.

• Accuracy

Manual processes are prone to errors, such as data entry mistakes or miscalculations. Automation minimises human error by using predefined rules and algorithms to perform calculations, validate data, and ensure consistency throughout the loan origination lifecycle. This helps improve data accuracy and reduces the risk of errors in loan processing and underwriting decisions.

• Consistency and Compliance

Automation ensures that loan origination processes are consistently executed according to predefined rules and compliance requirements. By automating the enforcement of regulations, policies, and procedures, lenders can reduce the risk of non-compliance and ensure that loans are originated in a standardised and compliant manner.

• Scalability 

Automation allows lenders to handle larger loan volumes without significantly increasing their workforce. By automating repetitive and time-consuming tasks, lenders can process more loan applications efficiently, scale their operations, and accommodate growing business demands.

• Data Analytics and Decision Making 

Throughout the loan origination process, automated systems capture and store data. With the help of data analytics, lenders can make informed decisions, optimise loan origination strategies, and improve business performance by analysing lending patterns, borrower behaviour, and risk assessment.

Overall, by leveraging automation, lenders can streamline operations, enhance productivity, and stay competitive in the lending industry.

What Are the Steps in the Loan Origination Lifecycle, and How Can Automation Help?

Here are the steps in the loan origination lifecycle, followed by an explanation of how automation can help in each step:

1. Application 

The borrower submits a loan application with personal and financial information. Automation can assist by providing online application platforms that automate data collection, validation, and integration with various systems. This reduces manual data entry and streamlines the application process.

2. Documentation and Verification 

The lender verifies the information provided by the borrower through document collection and verification. Automation can help by using optical character recognition (OCR) technology to extract data from documents, automate data validation against trusted sources, and streamline the verification process. It reduces manual effort, improves accuracy, and speeds up verification.

3. Underwriting

The lender assesses the borrower’s creditworthiness and determines loan risk. Automation can assist by using algorithms and decision models to analyse credit scores, income, and other factors. This speeds up the underwriting process, reduces manual errors, and provides consistent decision-making based on predefined rules.

4. Loan Approval

The lender reviews the underwriting results and makes a decision on loan approval. Automation can help by providing automated loan approval systems that can process data, assess eligibility, and generate loan approval letters or commitments. This expedites the approval process and ensures consistency in decision-making.

5. Loan Processing

The lender prepares loan documents, and the borrower reviews and signs them. Automation can assist by generating pre-populated loan documents based on the borrower’s information, reducing manual document preparation time. Electronic signature tools can be used to facilitate remote signing, improving efficiency and reducing paperwork.

6. Loan Funding

The lender disburses the loan amount to the borrower or relevant parties. Automation can help by automating fund disbursement processes, such as electronic fund transfers or payment systems, reducing manual handling and improving transaction speed.

7. Loan Servicing

The loan enters the servicing stage, where ongoing management and collection take place. Automation can assist by providing loan servicing platforms that automate payment processing, account management, and borrower communication. This reduces manual effort, improves accuracy, and enhances customer experience.

8. Loan Closing

The final stage involves the borrower and lender representatives meeting to finalise the transaction. Automation can help by providing virtual closing platforms where borrowers can review and sign documents remotely. This eliminates the need for physical meetings and expedites the closing process.

How to Choose an Automated Platform That Can Help in Loan Origination Lifecycle?

Automation improves efficiency in finance and banking, including lending. Well-designed application processing systems optimise decision-making and expedite service delivery to borrowers, expanding customer reach.

Some of the key benefits of utilising a loan origination platform are:

• Centralised System: Having a single, centralised system simplifies operations and enhances coordination.
• Reduced Approval Time: Automation reduces loan approval time, allowing borrowers to access funds promptly.
• Elimination of Manual Processes: Automating manual loan processes minimises errors and improves efficiency.
• Improved Customer Relationship Management: Automation enhances customer relationship management, leading to better borrower experiences.
• Fraud Detection: Automated systems aid in detecting and preventing fraudulent activities.
• Simplified Audits: Automation simplifies lending audits, ensuring easier compliance monitoring.
• Data Security: Automation helps mitigate the risks of data compromise.

For lenders, adopting a unified automation solution can be a strategic investment to scale up operations and gain a competitive edge in the market.

Summing Up

Automation optimises loan origination, benefiting borrowers and lenders. Streamlined processes, reduced manual efforts, and enhanced efficiency result from leveraging technology. Automation expedites applications, credit decisions, and document verification, ensuring compliance and risk management. Embracing automation leads to better customer experiences, faster approvals, and increased operational effectiveness.

Finezza is an all-in-one Lending Lifecycle Management Platform and Credit Evaluation Services platform that simplifies lending management and enables efficient loan handling and credit assessment. It automates loan origination, underwriting, and servicing, offering advanced credit evaluation tools.

With Finezza, financial institutions experience faster loan approvals, improved risk management, and enhanced customer satisfaction. This comprehensive platform streamlines the lending process, empowering financial institutions to optimise operations and provide efficient lending services.

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Traditionally, securing a commercial loan was anything but a cakewalk. From assessing a range of parameters, including the business’s credit history and financial statements, to calculating collateral requirements before finally approving the loan, -the process is evidently time-consuming and lengthy.

Additionally, multiple teams from various business units that are at times located in different cities and offices were involved on a selective basis adding to the complexity of the overall process.

Therefore, it is clear that this document and process-intensive activity was in dire need of a major revamp.

This is where commercial loan origination software solutions entered the fray. These tools are integrated with a range of features that aim to accelerate the entire loan approval process, making it efficient and also aiding lenders to make smarter decisions.

In this blog, we will cover the role of commercial loan origination software in streamlining and accelerating loan approval for businesses.

Before we being, let’s understand what we mean by commercial loan origination software.

What is a Commercial Loan Origination Software?

Commercial loan origination software is a unified digital solution that facilitates seamless loan origination, provides detailed insights into various loan accounts, and helps lenders underwrite loans without any hassles. Further, it is a useful tool that enables lenders to stay on top of the latest regulations and also provides a spotless customer experience.

It is known that commercial lending primarily refers to creating economic benefits for businesses while simultaneously creating profits and managing risks for lenders. Evaluating the creditworthiness of a business is a nuanced process wherein several intricate parameters are taken into account. It is also worth noting that digital tools used by lenders can influence underwriting standards, the scale of unpredicted losses, approval times, and cos

Therefore, more and more lenders are looking for digital solutions that streamline and also automate loan processing, boosting the overall quality of the loan portfolio.

4 Ways Commercial Loan Origination Software is Streamlining Loan Approval

Now that we know what commercial loan origination software is, it is a good time to explore its features.

Typically, it took a few days and even weeks for loan applications to move between stages. Automation is proving to be a game-changer and has shown promising signs thus far to accelerate loan processing.

Are commercial loan origination software worth the hype? Let’s find out.

1. Enhanced Customer Management

Loan processing involves multiple steps that can easily turn into an unpleasant experience for both lenders and borrowers. The starting point of the process is to gather all the necessary and relevant information from the borrower.

As straightforward as it may seem, this task is labour-intensive and also challenging. From filling out different forms and a series of printed and electronic documents to creating a physical customer profile, the process is mundane and cumbersome.

The likelihood of incorrect data being captured in the lender’s systems increases with the frequency at which the information in these electronic and paper documents is entered in and re-keyed.

A commercial loan origination software eliminates this problem making it easier to access data and also minimises duplication of documents. As the data is stored in a central location, every employee with the required access can view it without any problems.

2. Systematic Credit Analysis

A commercial loan origination software allows lenders to analyse a customer’s credit history within seconds. The tool can collect relevant data from a borrower’s financial documents once it receives permission from the lender.

Further, many loan origination solutions can also go through borrowers’ documents and create a spreadsheet. New-age technologies, including optical character recognition and machine learning, help lenders extract the right information and also pre-screen borrowers to facilitate swift credit decisions within a few minutes.

3. Risk Management

One of the major benefits of electronic data collection and automated financing is that it gives analysts more time for risk assessment. Ultimately, the analysts are either relying on or creating new forecasting models to evaluate the financial risk of the borrower and their ability to repay the loan.

Credit analysis also includes automated risk rating that is calculated based on the probability of default (PD) and loss-given default (LGD) models.

A commercial loan origination software considers these risk metrics during loan assessment.

4. Optimized Workflow Automation

Another reason why commercial loan origination solutions have taken centre stage in recent times is their ability to automate workflows. These tools can define and automate various workflows during loan processing and distribution for in-house teams.

These solutions come with several features that facilitate scheduling meetings and interactions with borrowers. Onto the next step, these digital tools also assist in underwriting and various decision processes based on which lenders can sanction loans.

Wrapping It Up

Automation is not just a buzzword in the financial services sector anymore. At present, a majority of financial service providers and financial institutions are turning to automation to accelerate their processes. This also explains why the demand for commercial loan origination software has witnessed steady growth in recent years.

Additionally, the digital lending platform market is tipped to grow at a CAGR of 26.5% from 2023 to 2030, indicating the rising demand for digital finance solutions.

Finezza’s loan origination system has paved the way for a swift, streamlined, and powerful loan origination process. Trusted by multiple leading financial service providers, our commercial loan origination software is loaded with an array of useful features to facilitate effective loan processing.

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The lending industry in India is expected to play a major role in helping the country reach the $ 5 trillion economy milestone. Adequate and timely access to capital can help businesses grow faster, drive employment, and operate at the cusp of innovation.

However, lenders face a number of challenges in their daily operations. For instance, the continued reliance on manual processes and the lack of innovative solutions in assessing creditworthiness restrict their ability to scale as quickly as they need.

This is where combining modern technologies like Artificial Intelligence (AI) with an agile loan origination system can enable lenders to make data-driven decisions and scale faster.

In this blog, we explore how banks, Non-Banking Financial Companies (NBFCs), and digital lenders can strengthen their processes through the use of an AI-driven loan origination system.

What Is A Loan Origination System? 

A loan origination system is a tech-enabled solution that automates the loan origination process end-to-end. This solution leverages multiple technologies such as Artificial intelligence (AI), Machine learning (ML), And automation to value-add in multiple ways.

For instance, a loan origination system can be customised to meet the needs of diverse lenders such as banks, non-banking finance companies (NBFCs), and alternative lenders.

By leveraging such a platform, digital tenders can expedite the loan application process and serve more customers accurately and efficiently.

Digital Lending: Size of the Market and Opportunities

In 2022, the digital lending market in India was estimated to be worth $ 270 billion. The market size is expected to rise to $ 350 billion in 2023. But the true opportunity is projected to be closer to the tune of $ 1383 billion by 2030.

Underserved areas such as rural financing, green financing, and secured loans, especially requiring large-scale financing. However, this milestone market size can only be achieved provided lenders upgrade their loan origination system to bring efficiency, accuracy, access, and speed to operations.

Loan Origination System: A Snapshot of Current Challenges

While the number of loan applications is increasing daily, lenders find it difficult to keep pace and ensure a quick turnaround on loan processing.

Here is a list of common challenges:

1. Lack of Efficiency and Accuracy

Manual processes used for the loan origination workflow reduce the turnaround time for loan applications. As the number of loan applications increases, there is scope for more errors and data duplication.

Also, a large number of loan applicants submit incomplete documentation. Manual follow-ups consume time and can lead to applicant drop-offs.

2. Risk of Loan Fraud

In Financial Year 2022, the total number of bank loan frauds amounted to a ticket size of INR 58,303 crore. In FY23, this trend continued, with INR 18,746 crore of loan fraud already reported in the first half of the year.

Using manual processes leaves lenders at risk of red flags in bank statements and other documentation being overlooked. These oversights can have long-term consequences, such as the growth of loan fraud and non-performing assets. Furthermore, lenders risk being embroiled in criminal cases.

3. Lack of Access

A large number of followers do not have a credit history. Yet, they may have a profitable business. By sticking only to traditional data points, lenders lose out on being able to finance creditworthy borrowers without a credit history. There is a need to identify alternate data points and serve these customers.

4. Compliance Issues

The financial services industry is getting increasingly regulated due to the growing incidence of loan fraud. Lenders can often not apply new compliance guidelines to their existing processes seamlessly.

5. Inability to scale 

These collective limitations result in the inability of lenders to scale operations. On the other hand, the sheer number of loan applicants is rising, resulting in missed opportunities and an inability to capture more market share.

Major Benefits of AI-driven Loan Origination System

The introduction of AI enables a loan origination system to deliver higher value to lending outcomes. It brings not only efficiency and speed but also flexibility and insights.

Here are some of the key benefits:

1. Speedy Loan Approvals

AI automation enables the various steps in the loan origination system workflow to be fully automated. For instance, massive numbers of bank statements can be analysed accurately and efficiently within minutes.

Identifying missing documents and follow-up notifications issued to loan applicants can be automated. Process automation enables lenders to expedite loan application processes and drive conversions.

2. Fuelling Access 

The use of AI enables multiple possibilities to service underserved customers. Say a borrower’s business is profitable but has no credit history.

An AI-powered loan origination system can recommend alternate data points such as a Goods and Services tax return (GSTR). This data point can easily help verify the company’s performance and establish creditworthiness.

3. Fraud Detection Capabilities

AI has advanced pattern recognition capabilities when processing large amounts of data. It can catch irregularities in transactions, income statements, and banking statements, which are not visible to the human eye. This valuable capability, especially, helps in fraud detection.

4. Customised Products 

A one-size-fits-all no longer works for businesses which have such diverse needs. In this context, another outcome of an AI-driven loan origination system is that lenders can customise products at scale and speed.

Based on the data available, AI-driven insights help lenders deliver customised products that serve the business’s specific needs.

5. Data-Driven Decision Making 

Using AI-powered loan origination systems enables lenders to make comprehensive, accurate underwriting decisions based on all the accessible data in play.

It can serve deserving first-time borrowers, and turn down borrowers with a fraudulent business history and cooked books.

Lenders also have access to massive amounts of data from customers. The dashboard can be customised and analysed to build superior products and services for future customers.

Final Takeaway 

Today, the lending business has become a competitive space. Banks, NBFCs, fintech, and neobanks are vying for similar audiences.

In this scenario, lending businesses that digitise their processes and leverage an AI-driven loan origination system will have a comparative edge.

The best approach is for lenders to partner with a technology specialist to access the right solutions for your lending framework. A one-time investment in the right technology can help lenders scale faster and capture more market share in a dynamic space.

Finezza offers comprehensive fintech tools and solutions to manage your lending portfolio. Our end-to-end lending management solutions are trusted by brands like ftcash, Hiranandani Financial Services, gromor Finance, and UC Inclusive Credit, to name a few.

Finezza’s intuitive loan origination system is geared to analyse bank statements quickly and accurately and detect potential fraud.

Book a demo to know more.