Commercial loan origination is becoming increasingly competitive, with new-age players like neo-banks and FinTech companies permeating the market with reimagined borrowing experience that is faster and easier.
To meet customers’ growing expectations and gain an edge over competitors, traditional banks and financial institutions need to automate their processes to improve the efficiency of originating commercial loans.
Managing Commercial Loan Operation – Key Challenges
The commercial lending process involves plenty of manual documentation and review processes during underwriting. Besides tackling issues like evolving customer expectations, burgeoning costs of resources and maintenance, growing competition, and stringent regulations, lenders seek solutions to inefficient documentation, manual data entry, legacy systems, inflexible business models, etc.
Studies show that only one-third of lenders allow prospects to submit their loan application documents digitally. Further, loan processing officials spend about 35% of their time on data entry tasks, which can be automated.
Automating Commercial Loan Origination Processes
Today, customers demand a 32% increase in company responsiveness and empathy toward their needs. As borrowers become more demanding, lenders need to digitally transform and automate commercial lending services to yield optimal results.
While automation is not a complete cure-all, it does create a real impact on commercial loan operations. Automating commercial lending processes can be a boon for banks and financial institutions. It can improve competitiveness across the board and also reduce overall lending costs.
Commercial Lending Origination – Automation Scope
1. Customer Management
56% of banks state that their biggest problem in loan origination is data collection from the prospective borrower. Currently, most banks and lenders re-enter data into their internal systems after procuring the relevant documents from prospective borrowers. This process is error-prone and complicated.
With the help of APIs, prospective borrowers can directly enter their loan application documents and relevant data points into the loan management system used by the lender. This setup helps avoid repetitive data entry tasks and removes the chance for manual errors.
2. Credit Analysis
Another critical aspect of the lending process is credit analysis, which involves collecting data and documents from prospective borrowers and then spreading the data to assess their financial state. Half of all bankers state that they do not automate this phase of the loan origination process.
With the help of OCR and workflow automation, lenders can take relevant financial data points from documents such as income tax returns, financial statements, and related documents to provide a snapshot view of the borrower’s financial health for credit analysis.
3. Credit Presentation
While making the credit presentation, loan officers need to sift through volumes of data and mine it for relevant data for presentation purposes. This tedious task is prone to errors and mistakes.
Automation can help lenders perform real-time data synthesis with better accuracy and efficiency, reducing the time for making better decisions.
4. Decisions and Approvals
After preparing the credit presentation, loan officers determine whether approving the loan is in the lender’s interest. This phase is largely automated for low-ticket retail lending. However, thanks to technological advancements, it is now possible to automate high-ticket commercial lending.
5. Covenants Monitoring
Covenants determine whether there is an event of default by the borrower or not. Traditionally, these covenants were monitored using spreadsheets, however, this is notoriously error-prone and inefficient.
Automated covenant monitoring software exists, which can monitor all the relevant documentation submitted by the borrower and use this data to provide any red flags in case the borrower fails to meet any of the relevant covenants.
6. Portfolio Risk Management
Lenders use pre-determined risk appetite tolerances to manage risk in their portfolios. However, without a proper portfolio reporting tool, this exercise is usually just theoretical. This is where the latest automation tools can help by providing accurate reports to help determine whether risk parameters are being met or not.
DKO™ – A Pragmatic Approach to Automating Commercial Lending Operations
Process automation is gaining industry momentum due to its several benefits in commercial lending and other verticals. From significant overhead cost reductions, improved closing timeframes, enhanced competitiveness, and market presence to Improved delivery quality and loan data quality, automation can add value for lenders and borrowers.
The Digital Knowledge Operations™ or DKO framework provides a practical, tailored, and cost-effective approach to automating loan origination processes. The framework combines domain-led consulting expertise, intelligent automation, and human talent to help lenders achieve hassle-free and effective outcomes.
Chief Delivery Officer
Atul is an executive leader with over 22 years of experience in strategic business planning, transformation, business development, operational excellence, and talent management in the BFSI domain. His expertise spans building business functions across geographies and domains, including Retail & Corporate Banking, Lending, and Compliance.