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According to a McKinsey & Company report, commercial lending software continues to push the digitization of lending forward. For the financial institutions that are already there, the digitization of lending workflows has positively impacted the bottom line. Commercial lending, retail banking, and business banking all have this opportunity in front of them. The software allows lending businesses to make quick credit decisions using customized credit risk profiles, enhance customer experience by implementing full automation or more basic human enablement, and make workflows more efficient to lower costs.
At the core of lending digitization is software. In this article, we will review key types of commercial lending software, the automation spectrum from full automation to human enablement, and their impacts on both commercial and business lending.
We will cover:
- Key types and features of commercial lending software
- Prominent software vendors
- Using different levels of automation for SMB loans and commercial loans
Key types and features of lending software
Commercial lending software comes in various forms and offers a broad range of functionalities. The market boasts an impressive array of solutions that address both minor and major components of commercial lending workflows. Some SaaS lending platforms even provide a comprehensive approach by combining software with connectivity to third-party data integrations and partnerships, allowing users to manage the entire process from a single screen with multiple modules and dashboards.
The advantage of having numerous software options is that a commercial bank can implement a solution tailored to their current position or future goals in their digital transformation journey. Below is a list of types and key features of commercial loan software that bankers should utilize to enhance lending operations. While most features are included in specific software solutions, they are significant enough to highlight individually in our list.
In addition to types and key software features, we also discuss top vendors in the space, using data from Capterra, a leading website for software reviews and research. The vendors mentioned are all highly rated.
Commercial loan origination software (including loan management, loan servicing software, and all-in-one commercial lending software platforms)
Commercial loan origination software (including loan management, loan servicing software, and all-in-one commercial lending software platforms)Loan origination software (LOS) provides a comprehensive infrastructure for the loan origination process, covering everything from the application and applicant verification to processing fund disbursement. This enables banks to manage the entire loan lifecycle, from disbursements to pay-offs. LOS software comes in various levels of complexity, with some evolving into full-fledged software platforms. These platforms act as all-in-one systems for managing the entire lending process, combining software with third-party data integrations to handle the complete commercial lending lifecycle on a single screen. The primary benefit of such fintech platforms is the ability to fully digitize the loan origination process, reducing the administrative burden associated with multiple systems and logins.
Some notable LOS platforms include Biz2X, Jack Henry, Finastra, and HES Lending Platform. The best loan origination software will seamlessly integrate components or entire solutions from other top software types. For instance, Biz2X combines elements of CRM, document storage/management, compliance, and risk monitoring with core loan origination software into a single platform. This integration makes the platform more convenient for bankers, offering access to multiple systems involved in the lending workflow in one place.
Customer relationship management (CRM)
CRM platforms enable banks to nurture customer relationships by blending automation with human interaction. They handle a range of tasks, from sending newsletters about interest rate impacts to prompting relationship managers to personally reach out. They can also set up automated, highly personalized outreach sequences to nurture and expand accounts. CRMs provide a communication infrastructure and management system for existing accounts and can engage prospective borrowers who interact with your brand online. For example, if a prospective borrower fills out an online form requesting loan rates but doesn’t start the application process, the CRM can capture this information and automatically send a follow-up communication.
Monitoring & risk assessment
Risk analytics encompasses credit decisions, risk assessment, and ongoing credit risk monitoring. Banks can leverage data from these vendors to make more informed “yes decisions” and enable relationship managers to keep track of high-profile accounts, or automatically monitor all accounts, using real-time data to identify those at risk of default. By providing real-time insights into credit and cash flow to the relevant teams, commercial lending banks can proactively engage with at-risk accounts.
Customer Identification/Customer Data
Critical software helps instantly verify a customer’s identity, enabling financial institutions to understand who they are doing business with. Without this software, managing customer identification at scale can be challenging.
eSignature
Electronic signature software accelerates the application process by eliminating the need for borrowers to visit a branch for a physical signature. These eSign solutions are compliant, secure, scalable, affordable, and popular with customers, as they save them a trip to the branch.
Document Management
This software focuses on internal document storage related to the commercial loan process. Unlike data hosting/customer data storage, document management pertains to internal documents such as meeting notes and presentation slide decks. Cloud-based storage providers enable team members to access files from any device.
Cloud Hosting
Due to the sensitive nature of data collected during the loan application process, commercial lenders require a reliable, secure solution for customer data storage. Options include cloud-based, on-premise, or hybrid approaches. Depending on borrower types and lending regulations, multiple hosting solutions may be needed. Cloud-based hosting vendors are advantageous for their scalability and integration with software solutions for automated data storage.
Using different levels of automation for SMB loans and commercial loans
Commercial lending and small and medium-sized enterprise (SME) lending differ significantly in volume, complexity, and loan size. Typically, small business loans are more frequent and less complex but involve smaller amounts than commercial loans. Due to these differences, distinct risk management strategies and lending solutions are necessary, making it sensible to adopt different automation approaches for each. From full automation to simple human enablement, software solutions can be tailored to meet the personalized needs of a bank.
Small Business (SMB / SME) Loans
SME loans often involve smaller amounts but higher volumes, making them ideal for a more automated approach. A high volume of loan applications can overwhelm a bank if a non-digital approval process is used. Relationship managers and underwriters need to follow up with applicants for various documents, credit inquiries, and data. Processing loans manually at scale is complex, slow, and administratively burdensome. A digital, automated approach allows certain SME loans to be self-served, with credit decision-making algorithms providing real-time approvals, significantly reducing time-to-approval and time-to-cash, leading to increased profitability. Credit-scoring automation can be customized to the bank’s risk profile specifications, while more complex business loans can be referred to relationship managers for human review.
Smaller financial services like community banks and credit unions may lack the staff to meet demand or manage SME loan portfolios at scale. Here, software can augment the human staff, providing the technology infrastructure to scale while maintaining quality standards.
Commercial Loans
For larger loans but lower volumes, banks can use software to support relationship managers and automate parts of the business. For instance, low-risk lines of credit renewals can be fully automated, or the latest data can be provided to a relationship manager for quick decision-making. The aim is to streamline processes where possible while providing up-to-date, accurate data to relationship managers to handle more complex loans.
Where to Start with Commercial Loan Software
Given the robust software and automation solutions available, banks can find a solution regardless of their digital transformation stage. However, starting in a highly regulated industry requires careful planning. Banks need buy-in from many stakeholders to move forward. For more on getting buy-in, see our related article “Six Things to Do Before Selecting a Business Banking Platform.”
Assuming you have buy-in and your team is ready to start, the first step is to detail the end-to-end customer loan acquisition journey, including the internal workflows supporting each step. Document every detail. Here’s why:
- Identify High-Level Digital Transformation Opportunities: Understanding the overall opportunity is crucial for maintaining buy-in and excitement. Having a clear “north star” is vital as digital transformation projects can be lengthy.
- Identify Automation Opportunities: A tangible look at specific opportunities within business segments. Business segment leaders can support this effort and highlight pain points as potential automation opportunities.
- Identify Testing Opportunities: Prioritize high-impact opportunities to show stakeholders tangible results quickly through early tests or beta launches.
- Identify Minimum Viable Product (MVP) Opportunities: Develop an MVP to test the highest-impact opportunity. An MVP is a “beta solution” that launches with the minimum features needed to demonstrate the impact of digital transformation in a real-world test. The goal is to minimize complexity and features initially, informing stakeholders of additional features to be included upon successful testing and rollout.
- Identify Rollout Opportunities: Once the MVP has been tested and data gathered, outline what a “V1 solution” will look like and its impact.
Repeat this 5-step process for all business segments (and sub-segments) that can be impacted by digital transformation. It’s okay to start with a small scope and gradually expand using this process-driven approach. Scope creep can derail digital transformation projects by raising unrealistic expectations, so this controlled approach helps manage expectations effectively.
Using Commercial Lending Software to Enhance Relationships
We’ve discussed a lot of commercial lending software that bankers should use in 2023. With soaring customer expectations, banks must embark on digital transformation. Importantly, software and automation are not meant to replace customer relationships but to enhance them. Customers desire a personal touch, and a good software and automation infrastructure can provide that. Commercial lending software can deliver the latest data to your relationship managers, enabling them to offer a personalized experience while allowing your bank to scale and manage risk effectively.
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