How to Minimize Friction in the Loan Origination Process

Are you looking for a way to turn frustrating loan origination processes into smooth, predictable sequences of actions that save time and delight your clients? It’s now more possible than ever. You just have to be smart and strategic in your planning.

What’s Holding Your Loan Origination Process Back?

As you know, the lending process is serious business. While your client might be confident in their ability to repay the loan, you have multiple fish to fry.

For starters, you have to ensure you can make a profit on the loan. Plus, you must create shareholder value and simultaneously manage risk. In order to succeed in each of these areas, the business/founder’s creditworthiness, financial history, and business plans must be carefully evaluated. This takes time and plenty of resources.

Lenders who haven’t yet streamlined their lending processes through automation are quickly falling behind. And in an industry where other lenders are leveraging automation, the slackers have nowhere to hide. It’s becoming painfully obvious which lenders are leaders and which ones are struggling to hold on.

Even in 2022, some lenders still use manual and paper-based procedures for due diligence and loan approvals. Sadly, these processes are misaligned with the capabilities of a digitized world. This leads to much slower decision times, which means wasted resources and frustrated clients. It can also create serious data management problems for bankers and lending institutions that need greater clarity.

If you want a practical example of something that holds loan origination processes back, consider the use of spreadsheets and manual underwriting methods. While spreadsheets can be enormously helpful in business – and even compute complex functions – they were never intended to be the go-to model for underwriting loans.

“Using a spreadsheet to underwrite credit in any form can be cumbersome,” Moody’s Analytics notes. “Data and financial entry can be time consuming and might lose uniformity over time. Data entered into a spreadsheet is sometimes reentered directly into a lender’s other core systems, doubling effort and creating duplicate records of the same data. From a storage, lineage, retrieval, and portfolio insight perspective, this method has  serious flaws.”

If parts of your underwriting and loan origination process are still being done by hand, it’s a clear sign that you’ve yet to fully optimize for efficiency. It’s time to build out an automated process that smooths over existing friction and paves the way for growth.

Developing a Smoother Process

No two small business loan origination processes will be the same. Every lender has its own unique steps, rules, and techniques – and that’s perfectly fine! The key is to identify your process and to make it as simple and frictionless as you can. Here are a few pointers:

1. Choose the Right Loan Origination Software

The simplest way to streamline your approach and kiss complex and outdated lending processes goodbye is by using loan origination software. These tools act as a centralized loan origination hub – an all-in-one system, if you will. All data is processed through the platform and both the lender and the business are connected and kept in the loop each step of the way.

2. Configure Your Software

Choosing software is just the first step. Once you have your loan origination “hub” in place, it’s time to optimize it so that you can extract maximum value. This requires you to configure the software to your specific needs, circumstances, and use-cases. You’ll want to work carefully with the software vendor’s support team to get everything properly optimized and aligned. 

3. Train Your Team

Don’t underestimate the importance of training. Your team of underwriters will be using this tool exclusively. There should be no confusion or gray area. Show them how to use it and invest the time and resources into equipping them for mastery.

4. Iterate to Great

Finally, you should know that automating the loan origination process and streamlining friction is not a one-time event. It requires you to keep your ear to the ground and constantly iterate and evolve. Study what’s working, identify what’s not, and continually iterate to great!

Adding it All Up

As you re-architect your loan origination process, make automation a priority. While you can’t automate 100 percent of the steps, you can streamline the majority of the problem areas that are holding you back from being as efficient and productive as you could be. It may feel like an uphill battle at first, but the reward will come.