No matter the size, scale, or scope, every organization will require financing to conduct a wide range of business purposes, not limited to expansion, product development, manufacturing, administrative processes, etc. One of the most popular methods to obtain credit for the activities mentioned earlier is through a loan.
Obtaining a loan, even for businesses, is not difficult. Financial institutions, banks, FinTech organizations, and other economic and industrial establishments play a vital role in ensuring credit is available for companies. Companies can borrow different types of loans, viz. term loans (short term, mid-term, long time), SBA loans (small business), Invoice Financing, Merchant cash advances, trade credit loans, and business lines of credit, credit cards. Now, for firms to be eligible for these kinds of loans, they have to fulfill certain conditions - credit history and relevant borrower reports, business collateral, the total time spent in the business, and strength of the underlying financials of the company (cash flow, interest on business assets, etc.).
The process of obtaining a loan for businesses after ratifying of data, as stated above, is called loan origination. Origination is the series of steps by which a borrower may obtain the funds required after approval. These usually constitute KYC procedures, ascertain creditworthiness, process application through necessary channels, and finally disburse the agreed amount. The entire loan origination process is of extreme importance as:
- It ensures creditworthy businesses obtain loans and not regular defaulters,
- Protects the lender from taking on bad debt
- It documents the borrower’s history thoroughly so that future requests and approvals for loan are easy to process.
- Creates a clear channel of communication between authorities and borrowers
As the number of businesses that require external financing grows, financial institutions are transferring the entire loan origination process online, automating several operations, and preparing for a growing case-load. It is possible thanks to loan origination software. This blog seeks to highlight the advantages, features, implementations, and some of the best free and open source loan origination software which businesses in the lending sphere can latch onto to improve profitability, the entire lending chain, and ensure a thriving business ecosystem.
Read on to understand more about loan origination software.
Explaining the Loan Origination Process (Stages)
Seven vital steps constitute the entire loan origination process. They are as follows:
- Pre-qualification process: The borrower has to submit a set of documents that prove their identity, income and tax history, and other relevant business information.
- Loan Application: The stage involves completing a form that creates an application for authority to process when attached to the document submitted. The application is platform-independent (mobile, desktop, cloud) and tailored to specific loan products.
- Loan Processing: All data cross-checking assures accuracy. The business loan origination system detects missing or incorrect fields, verified identities, etc., thereby helping originators process the application in a streamlined and efficient manner.
- Underwriting Process - Business loans require significant underwriting. The ratification of creditor history through integration with financial record-keeping databases is essential. Considering risk scores and other bespoke criteria for the disbursement of funds is significant in underwriting. Calculating business income, current financial reserves, making adjustments on business conditions in an industry, LTV and DTI ratios, estimating the repayment method best suitable for both parties, etc., are significant considerations made in the underwriting stage of loan origination. Nowadays, the process is automated, proof-checked by an originator when necessary.
- Credit Decision - Assuming the borrower’s integrity in data provision, the lender may reserve the loan application for further probes, approve or deny the applicant’s request.
- Quality Control - Considered the final stage before the loan approval, quality controls steps reverify and analyze data against in-house and external standards, looking for deviations in payment or incorrect information.
- Loan Funding - The applicant receives the agreed amount, adhering to guidelines and rules for payment.
Loan Origination vs. Mortgage Origination
Loan origination differs from mortgage origination in many ways. Firstly, the products serviced are vastly different. Loan origination software can help businesses issue loans faster. Loans help consumers in many ways (Purchasing a car, funding for college, paying off credit card bills, etc.). The stages that include vetting of a borrower’s credit history, financial analysis, and verification of identification details encompass the entire loan origination process.
On the other hand, mortgage origination includes the processes followed before letting off funds to consumers to buy a specific home, or in many cases, borrow money against the value of their pre-existing homes to pay off necessary dues. The mortgage and loan origination process also analyze different metrics before clearing an application. In loan origination, scrutiny of the borrower’s credit history through third-party applications occurs through presented financial data and documents. In mortgage origination, factors to consider include repayment modules and frequency, collateral attached, tenor pricing, etc.
The loan origination process involves no middlemen. The applicant fills up papers for a loan suited to their taste, and the banks vet the documents and creditworthiness before disbursing funds. However, mortgage origination requires a go-between, also known as the mortgage originator. Usually, these originators play an essential role in helping customers receive mortgage funds by submitting the necessary documents to the banks or financial institutes for funding.
Lending businesses tend to use loan origination software. On the other hand, mortgage businesses/originators use a mortgage origination system, usually packed with CRM features for business development. All mortgage origination software (which may also be loan origination solutions) have systems in place to communicate with banks, store documents, and manage clientele.
What is the Loan Origination Software?
Loan origination software is a suite of digital tools that help Financial Institutions and other lending entities digitalize the entire lending process. The best loan origination software often enables related businesses to make better, credit-worthy decisions on borrowers, automate administrative workflows, enhance applicant experience, optimize time-consuming manual processes, and streamline organizational performance to achieve better productivity. A Loan origination tool will simplify the entire lending process and perform verification checks on the form to ensure accurate data entry. All loan origination solutions also come with multiple credit bureau integrations to shorten the time between application submission and loan disbursement.
Who can use a Loan Origination Software? There are multiple users of the software in different industries as follows:
- Banks
- Credit Cooperatives
- Microfinance institutions
- Non-Banking Finance Companies (NBFC)
- FinTech Ventures
- Independent Mortgage originators
- Housing Financing Corporations
Why is Loan Origination Software Important for Financial Institutions?
Loan origination software is in demand, given the many benefits, it brings to the buyers throughout the ecosystem. The biggest reasons why loan origination systems are necessary are as follows:
Upcoming Trends in Loan Origination Software
The loan origination software market is ever-evolving. The need to add newer features to the system to ensure timely funding while keeping oversight on creditor history is essential, like never before in the consumer era. As businesses and organizations look to scale up products and offering - especially in industries like FinTech and online microfinancing - some of the most critical trends to impact loan origination software systems are as follows:
Time-saving Features of Loan Origination Software
The critical features which make loan origination software irreplaceable for institutions and businesses alike are as follows:
- Audit Trail
- Compliance Management
- Customer Management
- Document Management
- Electronic Signature
- Loan Processing
- Native Integration
- Online Application
- Rapid Implementation
- Simplified Configuration
Critical Advantages of Loan Origination Software
Loan origination software helps understand the borrower’s creditworthiness and prevents dubious loans that could become Non-Performing (NPL) ones. The key advantages of Loan origination software are as follows:
Is there any Free and Open Source Loan Origination Software?
The loan origination software market is replete with options. Standardized free and open source loan origination software, paid open source loan origination software (open API), and free loan origination software are popular choices for organizations. Let us take a look at some of the best option below:
Best Free and Open Source Loan Origination Software
*-Free Version
**- Free Trial
#1 OpenCBS
Open CBS is a banking management platform with free and open source loan origination software. As a Loan origination solution, it helps institutions digitalize the entire loan origination process - collateral registration to automated decisions based on background verification from different trusted resources. Completely operational in the cloud, the Hong Kong-based loan origination system software promises a customizable, affordable interface. It is nested with incredible security features (User authentication, encryption, audit trail) and useful third-party POS integrations, besides enhanced approval workflow engines and intelligent task management tools. This loan origination system is platform-independent.
Source - OpenCBS
The critical features of OpenCBS are as follows:
- Audit Trail
- Compliance Management
- Customer Management
- Document Management
- Loan Processing
- Native Integration
- Online Application
- Rapid Implementation
- Simplified Configuration
#2 Apache Fineract
Apache Fineract is a free and open source loan origination software. Out of Apache’s trusted stables, the open source loan origination system offers a cloud-based and an on-premise software version. The loan origination tool is flexible enough to support any lending format, while its architecture makes it platform-independent. Accounting and document management, rule sets for business operations, and portfolio management are some of the core capabilities of the loan management system. There are two versions - Fineract 1.x and Fineract CN. CN has the robustness to support over 1000 transactions/second and combines well with other financial microservices to create newer lending and financial platforms. It comes equipped with a fully-licensed Apache User Interface.
Source - Apache Fineract
Apache Fineract has the following features:
- Audit Trail
- Compliance Management
- Customer Management
- Document Management
- Loan Processing
- Online Application
- Rapid Implementation
- Simplified Configuration
#3 TurnKey Lender
TurnKey Lender provides a trial-based free and open source Loan origination software. The loan origination system embeds the best Artificial Intelligence (AI) and Machine Learning (ML) to automate the entire credit scoring process, considering various risk data sets. The loan origination software is highly scalable and easily customizable, providing users with best-in-class security. The software also provides tools for lead generation and management, making it a robust CRM too. It also has dynamic form creation capabilities, besides Google Analytics Integrations, and easily flexible workflows.
Source - Turnkey Lender
The best features that make TurnKey Lender’s solution indispensable are as follows:
- Audit Trail
- Compliance Management
- Customer Management
- Document Management
- Electronic Signature
- Loan Processing
- Native Integration
- Online Application
- Rapid Implementation
- Simplified Configuration
#4 Digifi
Digifi is an open source loan origination software that is SOC2 compliant. The online loan origination system combines the company’s no code, rule-based engine to automate important underwriting decisions. Added to this, the machine learning processes multi-version scorecards and complex data to arrive at funding decisions, besides improving continuously. The open source loan origination system will help the buyer modify loan origination workflows while ensuring accurate reporting and analytics with the system data. It also doubles up as a CRM, with capabilities such as client and document management, task and activity management, and email marketing integrations.
Source - Digifi
The attractive features of Digifi are as follows:
- Audit Trail
- Customer Management
- Document Management
- Loan Processing
- Native Integration
- Online Application
- Rapid Implementation
- Simplified Configuration
#5 Encompass
Ellie May’s Encompass is one of the best loan origination software in the market, offering a free demo as well. The Loan Origination business solution promises to optimize loan origination and support functions so that the users save upto 23.5 hours in the process - translating to an ROI increase of approximately 698%. Furthermore, the entire ecosystem is URLA-ready, making it one of the first loan origination software solutions. Third-party integrations are undoubtedly important, and Encompass delivers - integrating a Loan Product Advisor by Freddie Mac and Fannie Mae’s Day 1 Certainty programs. Encompass is a Loan origination system software encoded with AI-driven decision-making rule sets while offering industry-grade security.
Source - Encompass
The best features of Encompass are as follows:
- Compliance Management
- Document Management
- Loan Processing
- Native Integration
- Online Application
- Rapid Implementation
- Simplified Configuration
#6 HES Fintech
HES Fintech’s loan origination software promises to help users make credit decisions in two minutes, with its vast improvements in AI and ML decision models and third-party integrations for the same. The loan origination system also comes equipped with product lending technologies such as merchant cash advances, asset-based financing, and secured or unsecured loans. The loan management system helps efficiently onboard clients, stores all necessary documents, and ensures the highest standard data security.
The loan origination business software allows for easy import and export of data and customizable solution sets for business decisions. The loan origination solution promises a 90 percent reduction in costs, 87 percent lower human error possibilities, and a 43 percent increase in business efficiency.
Source - HES Fintech
The best features of HES Fintech are as follows:
- Audit Trail
- Compliance Management
- Customer Management
- Document Management
- Loan Processing
- Native Integration
- Online Application
- Rapid Implementation
#7 CloudBankIN
CloudbankIN is a loan origination software from Habile Technologies offering a free trial to prospective clients. The online loan origination software offers integrations to cross-selling platforms for customer-specific marketing, besides the more standard functions such as workflow orientation, authorization overrides, and application-based reminders. The loan origination system also provides custom-rule based engines to determine creditworthiness through credit bureau application integration, and e-KYC platform, and a mobile application for easy access to data. Keep track of the client's financial health, and adjust for loan funds accordingly. The software also comes with an interest rate management system and enhanced data security.
Source - CloudBankIN
The best features of CloudBankIN are as follows:
- Audit Trail
- Compliance Management
- Customer Management
- Electronic Signature
- Document Management
- Loan Processing
- Native Integration
- Online Application
The loan origination software market is replete with a bouquet of attractive options to organizations’ price needs and performs all the necessary functions. Besides the free and open source loan origination software in the market, Lendstream, Nortridge, and Calyx offer exceptional service to customers and are distinct with their software integrations. One such software’s growth story, Fiserv, resulted in it being termed ‘industry standard’ in terms of operability and functionality. Let’s take a look at the popular loan origination software solution below.
Fiserv Lending
Fiserv provides a host of financial services, but its loan origination software is one of the most popular offerings. The company promises an increase in customer relationships, a reduction in risk or exposure to unsafe loans, and businesses’ opportunity to develop new lending products, with the software’s underlying access to 18000 data sources. Customers can pay via digital payments, and flexible client-centric components make Fiserv meet all business demands effectively. The business loan origination system helps users open loan accounts hasslefree while ensuring document free processing.
Source - Fiserv
The most advantageous features of Fiserv are:
- Audit Trail
- Compliance Management
- Customer Management
- Electronic Signature
- Document Management
- Loan Processing
- Online Application
Conclusion
A recent study by Accenture indicated that the execution of nearly 50 percent of all banking tasks, including loan origination, is manual. With the surge in AI and ML capabilities, especially within loan origination systems, the productivity gains at the employee level translate to 14 percent. In comparison, financial institutions can improve revenues by nearly 34 percent. Furthermore, the Loan origination software market will grow to be worth closer to $3.5 billion by 2020, growing at an annualized five-year CAGR of 10.2 percent.
Another study in document management, a prime feature of loan origination tools, states that 50 percent of the time losses occur in manual document handling. In contrast, businesses lose close to $20,000 in document issues alone, including lending houses. In industries like loan origination, document handling capabilities of online loan origination software will reduce errors on forms by 30 percent while reducing cost by upto 40 percent.
All these statistics point to the importance of loan origination software captures in the minds of prospective users of the software. These impervious gains make loan origination software a must-have for lending businesses of all sizes and shapes.
Enjoyed our article? Let us know what you thought of it in the Comments section below. If you already used any of the free and open source loan origination software mentioned above, leave us your feedback on the loan origination tool. If you plan to purchase a loan origination system for your business, check out our exceptional Buyers Guide of free and open source loan origination software on GoodFirms. Interestingly, you could also check out GoodFirms’ impressive Software Directory to find software that meets all your needs.
