The term "loan origination system" (LOS) has become increasingly commonplace in the banking and credit union industries in recent years suntell. However, in the banking business, the word LOS can have a variety of various connotations Makers of the Square. Some define a loan origination system as a suite of applications used to streamline the process of making business loans. Others see it as a miraculous device that facilitates expansion and enhances the borrowing experience. It has been called a "buzzword" by some. In light of the fact that competition in the lending market is heating up and the loan procedure is more tedious and time-consuming than ever before, it is useful to have some familiarity with how such a system works. It's also crucial to learn how a LOS might benefit your financial institution. From the initial application through the final stages of underwriting, approval, paperwork, pricing, funding, and administration, the whole loan lifecycle is managed and automated by the LOS. Despite slight variations, these are the standard procedures followed by every bank or credit union when approving a loan and continuing to service an existing customer.

 

Lending without an LOS

 

Spreadsheets, printers, emails, phone calls, and other forms of human labor are necessary for lenders since they do not have access to a system that can manage and automate the whole lifecycle of a loan. Because of this, there are frequently mistakes, problems with version control, and inconsistent conclusions suntell. In addition, when operations are performed manually, they need the entry of the same data many times. Instead of working on business development, the staff spent their time on administrative activities.

 

An LOS meets 4 challenges of banks, CUs

 

According to the findings of a study conducted by Aite Group, a financial institution will generally choose to implement a loan management system in response to a number of issues associated with the booking of business loans. Aite recognized the following four market trends as drivers of lenders' "appetite for automation" in its paper titled "Lender's Perspectives: Commercial Loan Origination Automation." These market trends are as follows:

 

Competitive demands

 

According to Aite, since the financial crisis, there has been a rise in the demand for credit from commercial and industrial organizations. As a result, lenders have been driven to minimize the amount of time necessary to field prospects, then underwrite, and record these possibilities. Additionally, speed facilitates scale, which is defined as an increase in throughput without an accompanying increase in headcount: "After all, the faster underwriters and relationship managers can handle deals, the more deals they can process in a given period," Aite stated.

 

Customer and member demands

 

Commercial borrowers' principals and decision-makers anticipate the same level of ease when borrowing money as they do when making use of their other services (think Amazon and Uber). When seeking for a loan, they want a digital experience that prioritizes ease of use and quick processing times.

 

Lending participants’ demands

 

Lenders and business relationship managers, underwriters, line-of-business managers, credit authorities, and back-office staff "have also come to demand more easy and digitalized procedures for jobs they accomplish across the loan life cycle," Aite said.

 

Regulatory demands

 

Lenders are being forced to justify and record their risks and actions in more detail due to requirements connected to the allowance for loan and lease losses (ALLL) or the current anticipated credit loss (CECL), as well as Dodd-Frank stress testing and other regulatory regimes. Lenders can more quickly and easily comply with these regulations thanks to automation.