What is a LOS?
What is a LOS, and Why Use One? CFIs
A loan origination system organizes and automates the lending process.
Automatically handles loan origination.
Loan origination systems (LOS) have been a popular banking term. However, the word LOS might signify various things to different people.
Some define a LOS as a collection of software solutions that automate commercial loan origination procedures. Others see it as a magical instrument for development and better borrower experiences. Some may call it a fad. The loan procedure is still stressful and time-consuming. It’s crucial to grasp what a loan origination system is. It’s also critical to understand how a LOS might aid your institution.
A LOS is a system that automates and administers the loan process from application through financing and administration. To authorize loans and establish a lending relationship, each bank or credit union follows a similar approach. Try our bridgepayday.com online for more options.
No LOS lending
Without a comprehensive loan management system, lenders depend on spreadsheets, printers, emails, phone calls, and other manual operations. This leads to mistakes, version control concerns, and inconsistencies. Manual processes may result in repetitive data entry. Office work overtook business growth.
Loan Origination Systems Advantages
A LOS helps banks and credit unions with four difficulties.
According to Aite Group, specific issues associated with business loan booking push financial institutions to employ a loan management system. “Aite highlighted the following four market dynamics as driving lenders’ “appetite for automation”:
1. Competitive Demands
According to Aite, lenders have needed to shorten their time to field, underwrite, and record possibilities since the financial crisis. The ability to enhance throughput without expanding headcount: Since time is money, Aite argues that underwriters and relationship managers should work quickly.
2. Behaviors of clients
Principals and decision-makers of commercial borrowers demand comparable convenience when borrowing (think Amazon and Uber). They want a digital loan application process that is simple and quick.
3. Participants’ needs
According to Aite, those engaged in the lending process (lenders, BRMs, underwriters, LOMs, credit authorities, and back-office staff) “have come to expect more accessible and automated procedures for jobs they accomplish throughout the loan life cycle.”
4. Rules & Regs
Regulations such as the allowance for loan and lease losses (ALLL) and currently anticipated credit loss (CECL) require lenders to explain and record their risks and actions in detail. Automation helps lenders satisfy these standards more efficiently.
Internal vs. external loan origination
Once a bank or credit union recognizes the need for a LOS, it has two options: design it internally or use a third-party provider.
To decide between constructing an internal LOS or employing an external loan origination system, consider the following:
- Staffing. Larger financial institutions with great IT staff may create and operate a new commercial loan origination system alongside conflicting objectives like cybersecurity and fraud. However, many banks and credit unions find employing an existing third-party system more resource-efficient.
- Compliance. The system must also comply with current regulations and industry standards. Rules change often. Therefore, any LOS should be able to respond to new regulatory or best-practice standards quickly. The Federal Financial Institutions Examination Council regulates several third parties (FFIEC).
- Effort efficiency. Creating a commercial LOS requires effort. The choice to abandon paper-based or Excel-based operations excites some financial institution executives. A software LOS provider’s solution has often been installed at many other banks or credit unions, simplifying deployment. A third-party LOS also benefits from having been through the product development process. Before releasing the solution to the market, the vendor gathered and fixed bugs.
Choosing a LOS
The origination system
The first step in choosing a loan origination system is determining the institution’s aims. Many institutions want to improve revenues, the borrower or member satisfaction, and portfolio growth. The finest commercial lending software can manage the whole loan life cycle.
A good LOS will handle the whole loan procedure digitally. Effectiveness, consistency, and scalability need this. What makes a LOS unique?
First, removing manual chores like data entry and document monitoring allows employees to spend more time building connections with borrowers or members. Not having to re-enter financial data from an application to compute relevant statistics like debt service coverage ratio and global cash flow, or prepare a credit approval note, saves time for credit analysts.
Second, commercial loan origination software that includes digital loan applications and electronic signatures allows financial institutions to meet borrowers where they are, when they are ready – at home or work, during regular business hours, or on holidays.
Financial spreading and automated loan decisions may aid credit staff. These also save time. In this way, financial institutions can manage more loans without expanding people.
One platform for all loans
Different loan origination methods exist based on the loan products offered by a bank or credit union. A financial institution might, for example, utilize commercial, consumer, and mortgage loan origination systems. Loan origination software, with changes to suit different compliance and process variances, is used to originate and decide these numerous loan kinds.
If the LOS for commercial loans can “talk” to other systems for these different loan kinds and has these fundamental functionalities, that is one factor to consider. Having a LOS for business loans on the same platform as for consumer loans allows for a complete borrower picture. Similarly, a LOS that can analyze commercial, SBA, and personal loans on a single platform makes data sharing across the portfolio simple. By not entering into several systems, lenders and credit analysts may save time.
Furthermore, financial organizations may get improved insight into portfolio health enterprise-level risk development prospects and overall bank or credit union financial health.
Staff and executives may utilize drillable dashboards and reports to make better data-driven choices.
A LOS can help banks and credit unions organize and improve lending operations through closure and financing from the first borrower contact. Financial institutions can deliver high-quality service to their customers and borrowers quicker with better digital lending procedures. A loan origination system gives financial organizations an edge over their competitors in customer or member experience.