Generally, there are multiple stages in loan origination that require much documentation. These stages include pre-screening, application processing, credit score verification, and pre-approvals. Consequently, loan origination becomes a labor-intensive process. As a solution, automated loan processing comes to light.
Loans can range in size and complexity. Much of the loan origination process is the same for most loans that consist of the following stages:
- Loan application: The first step is collecting the basic and financial information from the prospect. Whether the borrower is eligible for the loan or not, they can request to check their eligibility.
- Documentation: The applicant provides documents as proof of their provided details; income proof, employment proof, address confirmation, and financial status.
- Screening: A check to the application and documentation whether the borrower has provided full details and all documents required to approve or reject a loan application.
- Underwriting: The lender checks the applicant’s credit history and assesses his financial status by verifying the information and documents.
- Approved/unapproved loan: Based on underwriting, the lender can approve or reject a loan application. If approved, there will be burdensome paperwork requirements. The manual and paper-based loan approval procedures can frustrate borrowers in need of urgent money and lenders too.
- In-person verification: A lender may ask for a written declaration for the authenticity of the information provided by the lender.
- Money transfer: The lender credits the money to the borrower’s account after successful documentation and verification.
- Covenants monitoring: After granting the credit, the lender monitors the loan account periodically. Monitoring each customer’s account consumes a huge amount of time of the lender’s management.
In this pandemic era, most financial service providers are in a challenging position as there is an increase in the non-performing assets and default rates leading to decreased profits in the business. This is also where loan origination automation can help.
To cope with the situation effectively and cost-efficiently, managers need to upscale the credit granting process. Technological fixes can help. With automated financial spreading, you can streamline your loan origination process and increase productivity. It can complete a loan request in less time, with accuracy and cost-effectively.
Automated Loan Processing
An automated loan processing system is an emerging cloud-based web technology to digitize all phases of a loan cycle. It has eliminated the paperwork or in-person meeting to complete the loan processing. It enhances the overall decision-making. A few hours are required to complete the online loan application form, loan approval, and funds transfer and close the loan with zero human interventions in between.
Automation streamlines and quickens the loan spreading process with solid audit and control benefits in the following phases:
Customer Management
Based on Moody’s Analytics survey, 56% of lenders said that manual data collection is the biggest challenge in initiating the loan process. It is prone to delay and inaccuracy in data records. An automated loan processing can relieve the lender from inconsistency and delays. A web-based dedicated portal and APIs can process and scan more new prospects at a fast pace.
After receiving the information from the applicant, the lender can automate differentiating loan applications based on defined business rules.
Credit Analysis
The risk assessment process is a critical stage and repetitive task also. Automation helps credit analysts develop financial spreads with higher accuracy. They can extract the necessary financial data for a credit risk assessment using accounting software, including tax returns. It tabulates the borrower’s financial statements for better analysis.
One of the helpful features of automation is the hierarchies based on the credibility and eligibility of the applicant. It decreases the complexity of screening and relieves a substantial administrative burden.
The decision to approve or decline the loan
After collecting the prospect’s information, analyzing the financial statements, running the ratio analysis, and assigning the risk rating, lenders have an accurate idea to reject or accept an application through automated financial spreading, especially for a new relationship.
An automated process during the verification process enables multiple teams across locations to access the documents electronically, as per their need from a centralized source, following the protocols within the system. It keeps the customer information safe.
Covenants and policy exceptions monitoring
After a successful loan origination process – documentation, verification, and granting a loan- lenders need to monitor the loan account for covenants. Many lenders prefer monthly tracking, which is a time-consuming procedure for each customer’s account.
Tracking can be risky and inefficient while relying on manual tools. Automated covenant solutions can help with efficiency and effectiveness. Lenders can record the applicable covenants in the automated loan application process and find those immediately when required. An in-built calendar alert in an automated covenant system helps the lender act on impending breaches immediately.
Thus, automation improves your loan origination process by:
- Quickly identifying the eligible applications based on lending criteria
- Underwriting efficiently
- Enhancing the overall decision-making accuracy.
- Higher security features
- 24×7 online support system
