How to Build a Digital Loan Origination Process in 10 Easy Steps

Blog Post

Today, the digital economy enables many different opportunities for lenders and the stakes are high as borrowers want to get their financing where they need it, when they need it and how they want it. At the same time, setting up the best possible digital processes for your borrowers from the first try is no easy task.  We put together a ten-step process to truly launch an automated digital loan origination process for your lending business.  

Step 1: Selecting your Loan Origination Automation System 

Digital lending is much easier and agile for customers than ever before.  Before you start putting together new business processes, look into what the technology is capable of doing for your business. For example, most banks still take up to nine business days to assess a loan application, make a decision, and disburse funds.  When switching to an automated system, such as, with a loan origination solution by TurnKey Lender, you’ll be able to complete the entire origination process (including disbursement) within minutes. 

The key steps to choosing the best loan origination and lending automation software for your business include a thorough analysis of the following:

  • Define your short and long-term business needs and what you need to accomplish with this new digital system
  • Consider the benefits of an all-in-one system with a modular structure
  • Research cloud-based vs on-premises software to see which is best for your business needs
  • Make sure to get comprehensive, integrated functionality for all parts
  • Check for smart automation with machine learning and proprietary credit scoring
  • Consider user-friendliness for your customers
  • Make sure there are country-specific editions of the platform
  • Review the ease of business logic customization
  • Make sure the time to market is fast and it is easy to deploy and easy to learn
  • Review the providers’ proven track record with businesses similar to your own

(we’ve made a sharable infographic so you can print it out, and put it on your fridge to know what your next step is)

If you are looking to learn more on this, you can read our in-depth guide devoted to choosing a lending automation solution for your business here.  There is also a free white paper at the end to further learn best practices on choosing the best digital loan origination system for your business.  

Step 2: Loan Origination Process Review

While you decide on your digital system selection, you’ll notice during your research what you’d like your digital lending process to look like.  But you have to put it on paper and analyze what your business needs. Next, consult with a specialist who knows your local regulations ins-and-outs.  Once the process is set from the compliance standpoint, review with your team the best system to go with for your organization. You want people from different parts of the lending process involved in the discussion because a hands-on servicing officer will be able to provide you with easy-to-miss details and you will come to a more well-rounded decision.

In the end, you want to have a detailed loan origination process for your operation.  Once you have solidified how your team will review the different providers, you can have discussions with the different lending automation software providers and select the right solution for your business needs.

Step 3: Loan Origination Solution Configuration

Depending on the loan origination solution you choose, the time-to-market and customization options will differ.  For example, with TurnKey Lender, you get flexible and scalable software that our team can adjust to any of your business needs. 

TurnKey Lender’s solution comes in multiple packages so you can choose which is best for your business:

  • Separate modules for loan origination, servicing, underwriting, collection, and more
  • An end-to-end boxed ready-to-use solution 
  • A customized end-to-end solution
  • An Enterprise solution to address your unique needs and meet the requirements of a large-scale institution

If you make the right choice with your software provider, you won’t need to do much other than control the quality and completeness of the customization and decide when you want to deploy.  If you’re a small- to mid-size retailer, alternative lender, or just looking to offer in-house financing, chances are your lending automation needs will be more or less typical for the industry. 

If that’s the case, the completely operational end-to-end solution by TurnKey Lender can be deployed for your business within a day of signing the contract. If you want to customize the solution it can take a little more time, however, Turnkey Lender has the fastest time-to-market solution currently in the world.  

You can email our team at [email protected] if you’d like to discuss your specific lending automation needs and see if we have what your business needs.

Step 4: The Role of Prequalification in the Digital Lending Process

As you probably know, the first point of contact lenders get with potential borrowers is prequalification.  Once your digital loan origination solution is up-and-running and you have received a lead you need to request the personal information you need for AML and KYC compliance or analyze the info the lead submitted from a form on your website. 

Some of the data points you may need to collect include:

  • Legal name (including maiden or middle names if applicable)
  • Permanent address
  • Telephone number and email
  • Date and place of birth
  • Sex, marital status
  • Nationality
  • Occupation
  • Position held and/or name of employer
  • An official personal identification number or other unique identifier contained in an official document with a photo (e.g. passport, identification card, residence permit, social security records, driving license)
  • Type of account and nature of the banking relationship
  • Signature

You can check our an in-depth article about borrower identification in digital lending here.

The important thing to note here is that prequalification can and should be mostly automated.

Step 5: Online Application and Application Processing

To transition to an e-lending crediting model you may want to consider to keeping both doors open to your customers at first: let them fill out a paper form (you can have your employees type the info into the solution directly) and also give them the option to apply online without even coming to the company or branch. 

Based on the extensive experience TurnKey Lender’s customers have with this approach, it’s the optimal way that doesn’t create stress for the more traditional customers and meets the needs of customers who prefer to do things digitally. The only part that really matters here is that you collect the data needed to pass to processing and underwriting.

With the right loan origination solution, you won’t have trouble processing many more loans than before.  The problem is that all loan origination solutions don’t apply intelligent approaches using machine learning and sufficiently provided a thorough analysis of borrower evaluation and risk management. This is why the provider you select is of critical importance.

TurnKey Lender uses deep neural networks to get as much insight from the customer data as possible and help you approve more of the right loans in a matter of seconds

Step 6: Underwriting

Once all the automatic or manual processes of data collection and application processing are complete, you can get to the fun part.  And by fun, we mean the hardest thing lenders deal with in the world of digital loan origination.

Usually, underwriting consists of multiple levels of borrower’s data analysis, risk scoring, and evaluations.  To this day, some banks and organizations do it manually which can take days. Yet this same credit bureau request and factoring in the response into the scoring will take TurnKey Lender software less than 5 seconds. 

Step 7: Credit Decisioning with Machine Learning

TurnKey Lender applies artificial intelligence to carry out risk evaluation for your business.  You can customize the credit scorecard and watch your rules take seconds to be executed in a borrower’s evaluation.  What’s even more useful is that TurnKey Lender’s proprietary algorithms study the applications which are more successful and tweak the evaluation algorithms to grant you even higher decision accuracy. 

With the rise of big data, credit decisioning get a lot more granular and accurate.  So the lack of data for analysis is not the problem. The hard part is to get a solution sophisticated enough to get all the needed insights from this data in a matter of seconds. 

A human would take days to run all the checks on this data and a traditional machine isn’t much faster, but proprietary self-learning machine learning algorithms created by TurnKey Lender does this in seconds.  The interest rate assigned to each application depends on the risk factors connected to each borrower, taking into account not just data about their past but understanding their psychological portrait and likelihood to pay back what they owe. 

Step 8: Quality Control 

If you want to grow your lending operation, you have to eliminate as much human touch as you can.  And even though you may not feel comfortable delegating credit decisions and risk evaluation to machines at first, what you may want to do is do it semi-automatically at first, then switch to checking only the declined application and when you see that the errors evaporated, simply make ad-hoc checks from time to time. 

The goal of the lender at this stage of loan origination is to involve as little human resources as possible.  There should be people who analyze the applications from time to time, but it’s extremely important that the process is at least semi-automatic, because the time to funding is most important to your success.  An important thing to keep in mind is that on the stage of quality control, you take on responsibility for each borrower in the eyes of the regulators. 

Step 9: Funds Disbursement

If you’ve made it this far, disbursement is the easy part.  All digital lending automation system should integrate with payment systems that will automatically send the money to the borrower once all the checks on your end are completed.  The same goes for debt collection. And the most important part here is to make sure that the system has collected all the data that will, later on, help you prove you did your due diligence. 

Step 10: Tracking and Reporting

Once the funds are out of the lender’s pocket, loan origination ends.  However, it is of utmost importance that all the data and borrower information is formatted, stored safely, and passed into a shared reporting software.  This will help with regulatory compliance, cut operational costs and eliminate human error. In order to achieve this, the tracking and reporting modules should be fully integrated into the loan origination software. 

In Conclusion

If you don’t hit the mark during the loan origination, a good borrower isn’t likely to come back but the bad ones will come in mass.  Credit scoring, automation, evaluation, integrations all takes time and resources. TurnKey Lender provides lenders with bank-grade technology that automates every step of the lending process at a fraction of the price and time-to-market.  The loan origination module of the TurnKey Lender solution covers every one of the 10 steps listed above and can also be used as a part of the end-to-end solution. Contact TurnKey Lender today and unlock your lending potential!

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