Lender’s Guide To SME Loan Automation Systems

SME lending can be one of the most underserved segments of technologically advanced lending. Small businesses usually spend a lot of time and effort applying for a loan to incumbent banks, while startups push hard to get verified with their unknown credit scores and limited historical data.

As the banking system is rigid enough to serve small and medium-sized companies and is not able to provide them with quick money, and a of alternative lenders are out there to help, the interest in small business loan origination systems is growing.

The global lending market is expected to be worth $8809.25 billion by 2025, at a CAGR of about 6%.

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The pandemic also contributed to the splash in the technology demand: more fintech and banks started looking for loan automation systems that make the lending process more customer-oriented and effective. Small business lending software helps to reduce costs, time to money and streamline lending in general by reducing human errors or missing documents.

For example, previously the time from application to funding took at least a week, while now financial institutions can manage onboarding, verification, decisioning, and underwriting in a matter of hours and 100% online. According to Moody’s Analytics, in most banks, the traditional costs of underwriting a $10k and a $1 million loan are almost equal. The technology is there to change it.

What Makes A Good SME Loan Origination Solution?

Easy online onboarding and easy data entry, auto-filling, intuitive forms for documents uploading, and integration with third-party bureaus, agencies, and verification providers. Fintechs introduced convenience to financial services and made it the new normal. A lot of banks take the challenge and update their legacy loan origination for businesses.

Another aspect is the easy decision-making process and underwriting. Both are subjected to bias as the human factor is involved. However, the use of traditional and alternative historical data, AI and ML-based algorithms can significantly lower it.

Why So Many Banks And Lenders Are Struggling To Get Functional Lending Software For SMEs?

A lot of institutions still use paper-based loan application procedures, while the investment in digital experience is out of their short-term priorities. In some cases, it is difficult to merge the existing systems with the new ones, so banks may tolerate slower decision times, higher customer acquisition costs, and internal data management problems to build up resources for their digital transformation happening later.

However, going digital with commercial lending is a highly recommended activity.

For example, manual underwriting using spreadsheets requires a higher level of attention, takes a lot of time, and may use uniformity over time. Re-entering business data again and again into lenders’ core systems doubles effort and creates duplicates. So automation has a substantial advantage over manual underwriting in terms of storage, lineage, portfolio management, and retrieval.

Does SME Loan Software Use The Existing Credit Policy Of A Financial Institution?

The black-box credit policies may be implemented, but more and more financial institutions leave it in the past. Loan software providers respect the bank’s risk profile and can digitize their credit criteria, risk management policies, and corporate values.

How The Omnichannel Trend Is Implemented On The Application Portal And Borrower Portal?

Top-notch loan origination software re-builds the customer experience keeping the focus on convenience. A loan automation system allows borrowers to fill out the application any time from one device, then pause the process and continue from the other one. Omnichannel experience meets the trend of hybrid banking and allows working with documents and applying for a business loan with or without the help of the bank’s or lender’s employees. The technology is to enhance the human interaction within financial services, not necessary to eliminate it completely.

How Quickly Can A Bank, A Credit Union, Or An Alternative Lender Launch An SME Loan Origination Platform?

If the goal is to build a separate online channel for customer acquisition powered by basic functionality, the financial institution may use out-of-the-box lending software with a quick launch in 3-4 weeks or even faster. If the goal is to migrate all of the data or develop a custom solution that will be integrated into legacy software – the project may take a few months, a year, or even more. Start with your goals to help vendors provide you with realistic estimations.

Will A Small Business Loan Origination System Provide Actionable Insights And Analytics?

Yes, and this is a major benefit of digital lending. Built-in modules able to generate reports and create dashboards can be very helpful in business decisioning, as well as marketing activities. Also, financial service providers can consider using professional Business Intelligence systems and integrate their SME lending platforms with them. Banks and lending institutions need a platform that can maximize the value of data and demonstrate business performance in a simple and understandable way: be it pipeline management, customer experience, process, and exception tracking.

The Bottom Line – What Are The Areas Of Lending Operation That Can Be Automated?

Reliable lending software vendors provide 360-degree automation of operations, including loan origination, risk management, credit decisioning, underwriting, collateral management, loan servicing, debt collection, reporting, regulatory compliance, and even more.

By automating commercial lending you can cut risks, replace outdated processes with renewed ones, eliminate paperwork, avoid human errors, reduce time-to-market of launching new SME loan products, unify loan management tasks in a single lending platform, and reduce the operational cost of running a lending business.

Author Bio: Dmitry Dolgorukov – A Co-Founder and a CRO of HES FinTech and CEO at GiniMachine – an AI-driven platform that solves traditional credit scoring challenges with machine learning algorithms. In 2018, he was ranked as one of the top 200 Fintech leaders in Europe who contribute to the industry as influencers through action. In 2019, Dmitry was ranked as one of the most influential AI leaders in Eastern Europe. Since 2020 Dmitry Dolgorukov has been a member of the Forbes Finance Council. – LinkedIn

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