A loan management system gives your financial institution the ability to manage the lending process – everything from processing new loan applications to the management of your active loan portfolio. If you had a loan portfolio where every loan was the same, loan management would be relatively simple, but alas, that isn’t the case for most banks and credit unions.

Since you probably have a lot of variety in your client profiles, types of loans (e.g., term loans and equipment loans), and stages of the loans, you need a system that can account for all variables. In this guide, we’ll look at what goes into loan management – and how a top-notch lending solution can do the heavy lifting for you.

Loan Management 101: Loan Origination

In the loan origination stage, the focus is on issuing loans that meet your financial institution’s objectives, and creating an outstanding customer experience.

From your financial institution’s perspective, it’s important to find out if a loan comes with an acceptable level of risk. You are looking at a host of factors including the small business owner’s credit score, cash flows, profitability, and length of history. You may also need to meet certain regulatory requirements. If you try to complete this process without the right loan management software, you are likely going to be overwhelmed, and forced to slow the pace of your lending. With a robust lending solution, on the other hand, you can automate repetitive workflows and quickly gain access to key data, enabling you to quickly and effectively process applications.

In a post-COVID world, small business owners expect increased convenience and speed in every area of their lives – including the lending experience. A “time to decision” of a month was acceptable in the not-too-distant past, but that is no longer the case. To speed up the time to decision, lenders must streamline the loan origination process.

That sounds all well and good, but how can you actually make that a reality? The answer is by identifying where your loan origination process is falling short for borrowers. Is your onboarding taking way too long? Or maybe the underwriting department is where your loans are getting stuck? In any case, the first step to making improvements is finding the source of the problem. And with good loan origination software as part of your loan management system, you can actually improve upon any problems.

Loan Management 101: Loan Servicing

Loan servicing refers to the process of administering loans, including the collection of payments and the maintenance of records. Since there are different interest rates, payment dates, and types of loans, there’s a lot to keep track of. With loan servicing software, though, you can streamline the loan servicing process, allowing you to automatically calculate and collect payments, unlock several analytics possibilities, and generate routine reports.

Automatically Calculate and Collect Loan Payments

Through automation, you can easily and accurately calculate and collect payments, reducing the risk of errors and allowing your team to focus on higher-value priorities. Let’s say you have the following on your books:

In that case, it would be challenging to calculate the monthly payments without quality lending software. And if you hoped to scale up your operations to 10x their current level? You would have to hire a lot more employees and hope that your current system bends, but doesn’t break.

Moving on to the collections piece of the puzzle, loan servicing software allows you to automate the collection of payments, sending payment reminders to avoid late payments without any manual intervention required. Still, you are going to deal with some delinquent accounts. But loan servicing software can quickly identify those accounts, giving you time to create customized repayment schedules before they become unsalvageable.

Unlock Lending Analytics for Your Bank

In order to find the best way forward for your financial institution, you need to get an accurate handle on the trends that are driving its performance. Loan management software not only contains all of the data on your lending activity, but also gives you the ability to turn that data into statistical reports. You can break down your loan portfolio by:

  • Industry, region, income, and credit score of the borrower.
  • Type of loan
  • Time of issuance

You can really drill down and identify the characteristics of your best payers… and your worst payers. From there, it’s easier to determine possible courses of action.

Let’s say that you’ve found that your Florida clients’ mortgage loans have extremely low delinquency rates. Perhaps real estate is booming in Florida. Or maybe something else is at play. Whatever the case may be, you can spend time evaluating why something is happening… instead of spending time figuring out what is happening.

Looking at another potential situation, you notice that loans from borrowers with a low credit score on the West Coast are delivering a strong performance on a risk-adjusted basis. Upon further analysis, however, you uncover a reason: the loans are concentrated in a booming industry. With the realization that an economic downturn could lead to an increase in delinquency rates, maybe you decline to scale up your lending activity to clients who fit that profile.      

Generate Periodic Loan Servicing Reports

The executives at your financial institution may want to see a high-level overview of small business lending on a consistent basis, whether it’s daily, quarterly, or somewhere in between. Loan management software makes it easy to build and generate custom reports that meet your objectives, giving you a quick look at cash flows, profitability, delinquency rates, and much more.

What if You Plan to Sell the Loans to a Third-Party?

If your financial institution originates small business loans and then sells them to a third-party, it can still derive value from loan management software. You would still directly benefit from the loan origination piece of the software. On top of that, you could provide the third-party with more data on the characteristics of your loans – data that could translate into a smoother process and a higher sales price.

The Bottom Line on Loan Management

Loan management software streamlines the lending process, automating the repetitive parts of originating and servicing a loan and giving financial institutions visibility into their loan portfolios. In a post-COVID world, there is the opportunity to provide a seamless customer experience and offer that experience on a greater scale than ever before. But in order to make that a reality, you need to implement a first-rate lending software, such as Biz2X.