Loan Origination Systems (LOS) are rapidly becoming ubiquitous digital tools for lenders and financial institutions as they digitize and automate their loan application process. The ROI for implementing an LOS in your bank can have a substantial impact on both your operational efficiency, customer service, and even income; especially in processing loans for your small business customers.
You may already have an LOS for small business loan applications, either through building a home grown one or integrating software into your workflows. Or you may still be processing small business loans manually and considering the benefits of getting your own LOS.
In either case, we have provided a checklist of factors to consider when weighing the possibilities of what a modern LOS can do for your small business lending program.
Functionality to look for:
- End-to-End core functionality: A proper LOS should cover all critical aspects of the loan origination process, including application intake, digital document management, underwriting, decisioning, and closing. If your current system doesn’t cover this entire flow, then you’re missing out on the full value and savings of an LOS.
- Automation capabilities: Automation is one of the biggest benefits with a LOS, as it streamlines the lending process and saves resource time. Identify opportunities for automated decisioning based on borrower rules, verified data, and processing notifications. Then speak with an LOS vendor to get a better idea of how their system implements automation across your workflows based on borrower-supplied information, your own FI data, and 3rd party data.
- Integrations: Seamless integration ensures data accuracy and simplifies operations. Your LOS should be able to integrate with in-house systems like your Loan Management System (LMS) and customer relationship management system (CRM). A good LOS can adapt if one of these systems changes, so you aren’t locked into costly updates across your systems. Also, the LOS should be able to integrate with new APIs and grow with you as your needs and technology solutions evolve.
Features you need:
- Custom branding: Ensure your LOS can be white-labeled to adhere to your brand standards. Bouncing to another digital experience with different logos and brand messaging can be confusing and detrimental to your customer experience.
- Regulatory compliance: The right LOS will help you meet all relevant regulatory requirements, which are unique for small business lenders. These include Know Your Customer (KYC) and Know Your Business (KYB). While it may seem like table stakes for any LOS, this may not be available, or may require costly customization.
- Reporting and analytics: Choose a system with robust reporting and analytics tools to track key metrics, identify trends, and make data-driven decisions about your loan portfolio. Reporting should not just be in the application, but also post-closing. This can provide valuable insights across your portfolio.
- User-focused views: Not every FI employee needs to view the same information. Your LOS should customize around user-focused views to show specific data based on the employee’s role and what they are being asked to do within the lending process.
Technology and architecture:
- Deployment: You can choose between on-premise, cloud-based (SaaS), or hybrid deployment models based on your budget, security needs, and IT infrastructure. SaaS often offers less risk with greater scalability and flexibility to adapt to changes in your systems or processes. As an added bonus, they often require less effort for internal IT support teams, who are often already stretched to their limit.
- Security and data protection: Ensure your LOS adheres to all relevant data security regulations and has robust security measures to protect customer information.
- Scalability and performance: Choose a system that can not only handle your current loan volume but can easily scale to accommodate future growth. Consider processing speed, uptime, and capacity for data storage.
- User interface: An LOS should be user-friendly for both loan officers and borrowers. A clear and intuitive user experience can improve workflow efficiency and customer satisfaction.
Functional integrations:
- Credit Bureau Integration: Your LOS should be able to prepare a credit profile of any borrower using integrations. This data will also become the base from which you can develop automations and rules to allow you to vet the customer at the outset of their online application.
- Financial Profile Analysis: Your LOS should be able to analyse a borrower’s financial data to allow for a review of ratios like debt coverage. That way, you can get an accurate forecast of borrower debt and repayment ability to determine your offer.
- Fraud Detection: The LOS should also include integrated fraud detection capabilities to help you help yourself. Fraud is a major concern for any lender, but is critical for smaller banks which are often key targets for fraudsters.
- Referral networks: A good LOS should help you quickly identify applications that fall outside your lending criteria. However, those applications can still bring you non-interest revenue in the form of fees for referrals to trusted lending networks. For example, Rapid Finance’s Decisioneer LOS offers one-click referrals to its trusted network of SMB lenders which may lead directly to risk-free income for you.
Implementation and ongoing support:
- Vendor financial stability: Your LOS vendor should have a strong financial standing and proven longevity to ensure long-term support to avoid the risk of future service disruptions.
- Implementation costs and timeline: Understand the upfront costs of purchasing and implementing the LOS, as well as the ongoing maintenance and support fees.
- Training: Ensure the vendor provides adequate training for your staff and has documentation and a plan to help you implement across the organization.
- Support: Does the vendor offer the ability to support as your needs change? Teams may have questions outside the implementation timeline, so support should be available (in the form of a human!) to address any technical issues or user queries.
- Customization and configuration: Evaluate the system's flexibility for customization to fit your specific business processes and regulatory requirements. Every lender is different in small ways, so know what you need or ask the vendor questions until you understand what you need.
It may not be necessary to implement an LOS that does everything on this checklist. However, your choice should at least be informed by understanding what is possible in order to make the best decision for your financial institution. While Rapid Finance’s Decisioneer LOS can manage all the items on this list, it is also scalable and customizable to your particular needs.
To learn how Decisioneer can help drive profitable, efficient small business lending that customers love, email us at EnterpriseSales@rapidfinance.com or fill out our contact form to get started.