In recent years, many banks and credit unions have been motivated to enhance their lending processes due to rising competition from non-traditional players such as marketplace lenders. In fact, financial institutions planning to upgrade their loan origination systems (LOS) outnumber those planning to update their core systems by two to one, according to a recent industry report.
You may already have tools in place to streamline your loan processes and improve efficiency, but a comprehensive end-to-end solution is often required to take your lending operations to the next level. Perhaps you built an in-house system that has served your needs so far, but it may not have the capacity to scale or fully optimize your loan origination processes. Or maybe your current LOS is outdated, costly to maintain, and potentially causing lost business. Smart financial institutions carefully study available options to find the most efficient systems that maximize profitability, leverage customer relationship data, and protect technology investments.
Because efficient, intuitive lending processes are critical to your business, conducting a thorough LOS evaluation is essential. This guide provides five key guidelines to consider, discuss with your team, and document before deciding to purchase, replace, or retain your existing LOS. These guidelines will help identify the right LOS to:
- Provide a cohesive strategy for your loan origination process
- Handle compliance and functionality requirements
- Increase efficiency, manage costs, and meet regulatory challenges
- Prepare for the changing loan marketplace and capitalize on new lending opportunities
1. Think of Your Customer
Your loan origination system should significantly improve the customer experience, so it’s important to understand the challenges they face during the lending process.
For example, a recent Federal Reserve survey revealed that nearly half of applicants at both small and large banks were dissatisfied with long waits for credit decisions. Additionally, 44 percent of applicants at large banks and 42 percent at small banks were unhappy with the complexity of the loan application process. In contrast, only 26 percent of applicants using online lenders reported dissatisfaction with the application process, and only 17 percent experienced long waits for credit decisions. These insights emphasize the importance of selecting an LOS that addresses these pain points and supports a smoother, more positive customer experience.
If you provide consumer, small business, or commercial lending, ensure your LOS supports a common loan origination design. A unified system standardizes processes for all loan types, driving efficiency in underwriting and maximizing the use of customer data. This reduces repetitive data collection, streamlines application fulfillment, and provides actionable insights across all customer relationships, enabling more accurate risk assessment.
Also, review your business strategy for both new and existing clients. Each requires a different perspective on data, so your LOS should allow you to extract the right information efficiently and meet both your borrowers’ and institution’s needs.
Consumer Lending Needs
Today’s borrowers expect a transparent and efficient lending process. Your LOS must support this demand by leveraging analytics and scoring to respond quickly with minimal resource investment. It should engage consumers on their terms, providing mobile or online access for 24/7 convenience. Speed of decision-making is critical; institutions that capture and process loans efficiently with minimal customer friction often succeed the most in consumer lending.
Small Business Lending Needs
A centralized workflow is crucial for small business lending. A strong LOS should support a flexible yet controlled workflow that minimizes risk while allowing lenders to capitalize on opportunities.
The LOS must provide access to both personal and business financial histories to manage portfolio risk effectively and remain responsive to customer needs. By centralizing data from both core and external systems, your LOS can organize customer relationships for better risk management. It should also support multiple decision strategies aligned with your institution’s credit policies and facilitate transitions toward auto-decisioning if desired. Even if full automation is not implemented, consistent LOS workflows enhance efficiency, giving staff more time to focus on revenue-generating activities.
Commercial Lending Needs
Commercial lending demands speed, efficiency, and accuracy. Your LOS should produce robust credit memos, pulling relevant and accurate information from multiple systems. Customizable credit memo capabilities provide a comprehensive view of risk while maximizing portfolio opportunities.
A capable LOS should also manage the entire commercial lending process, including relationship management, deal structuring, pricing, profitability, and credit analysis. This ensures your institution can assess deal opportunities efficiently, price accurately, make informed decisions, and optimize portfolio performance.
For all lending types, an LOS should take borrowers from application through workflow to documentation. Automated, thorough documentation is essential for regulatory compliance and overall loan success. Start by listing your borrowers’ needs, and your LOS selection will be aligned for optimal results.
Risk Management and Your LOS
Your LOS should support risk management and transform annual reviews into growth opportunities for both your institution and your clients. With effective reporting and risk tools, ongoing monitoring and renewal processes can be streamlined. High-performing credits can be flagged for new opportunities, and potentially troubled accounts can be proactively monitored.
Imagine meeting with a client armed with detailed knowledge of their revolving credit performance over the past year, allowing you to turn discussions into forward-looking strategies. Your LOS should enable these insights and more.
Document Your Processes
Clearly documenting your current loan origination processes is critical. Without this, your LOS may dictate workflows that could negatively impact your business. By understanding your existing processes, you can implement an LOS that enhances efficiency rather than simply automating current workflows.
Identify areas that empower or hinder your team, and look for opportunities to improve speed and expand revenue potential. A reliable LOS provider will offer expert guidance, implementation support, and advisory services, serving as an extension of your team.
Review Your Data and Analytics Needs
Assess your current data capabilities and define the analytics you need now and in the future. A robust LOS with integrated analytics enables your institution to understand customer needs, strengthen relationships, and increase wallet share.
Key reporting features to consider include customizable dashboards, integration with core data, actionable insights, and enterprise-level views that identify risks and opportunities. Effective analytics allow you to track profitability at the account, branch, region, and enterprise level while highlighting high-performing products and services.
Prepare for Integration
Integration is the final step in optimizing your LOS. Work with a partner who understands your institution and can implement solutions that maximize efficiency. LOS implementation should include consulting, configuration, training, testing, and ongoing support.
A cloud-based, end-to-end LOS offers flexibility, scalability, and collaborative workflows across multiple devices. Employees can process loans efficiently, focus on business development, and manage customer needs effectively. Ensure the system supports automation, risk management, document handling, and reporting to maximize benefits.
Conclusion
Selecting the right loan origination system is a strategic decision that impacts efficiency, risk management, and customer satisfaction. By focusing on customer needs, documenting processes, leveraging analytics, and ensuring seamless integration, financial institutions can optimize lending operations and drive growth.
A modern LOS not only streamlines workflows but also provides insights for proactive decision-making, improved risk management, and enhanced portfolio performance. Investing in the right system allows your institution to scale, improve profitability, and deliver a superior lending experience for both consumers and businesses.
