A men's finger pressing a computer keyboard blue button labeled 'lending'.

How to Choose the Right Lending Software

Based on decades of hands-on experience we’ve boiled the decision process down to these 8 key factors you’ll want to consider when choosing origination and servicing software. One that delivers long-term benefits to your operation.

  • Short and long-term business needs
  • Cloud-based, or on-premises
  • Comprehensive, integrated origination and servicing functionality
  • Smart automation, proprietary credit scoring
  • Easy to deploy, easy to learn
  • 24/7 technology and customer service support
  • Proven track record
  • Affordable investment

1. Short and Long-term Business Needs

Think of lending software as a tool to support your business strategy. Start the decision process by reviewing your short-term business goals, long-term business goals, your current software packages and current technologies. This review will act as the basis for a software and technology gap analysis.

Here are some of the top questions you’ll need to answer with your team:

  • Who will use the software system? Hands-on managers as they originate and service accounts? Financial directors as they pull ad hoc or monthly reports?
  • Does your current software support their current needs? Could another package or platform provide more automation, better credit scoring or better reporting?
  • Could a single comprehensive package or platform replace several pieces of software that you’ve cobbled together over the years?
  • Does your current software support your long-term business goals?
  • Which additional features and functionality could you add that would improve efficiencies and credit decisions?
  • Does your current infrastructure support the type of additional functionality you need?
  • Do you have a dedicated IT staff to manage an in-house lending software system?

The end result of your gap analysis is a concise list of lending software features and functionality tailored to your business. And this checklist will guide you to the right software for your business. It’s a good idea to work with a provider who acts like a strategic partner. One who can meet your current needs within your budget; can accommodate changes to your software requirements as your business evolves; and is constantly developing new features to ensure their state-of-the-art system stays out in front of industry trends.

2. Cloud-based, or On-Premises

As a small to mid-size lender you probably don’t have a dedicated IT department to develop and manage an advanced lending software program. That’s one of the reasons SaaS (Software-as-a-Service) has become so prevalent over the past few years. It’s easy to deploy, less expensive to launch than comparable on-premises programs, and it’s fully managed for you.

SaaS platforms are hosted from a remote, cloud location. The service package includes redundant back-up systems and high level cyber security.

These software systems deliver a variety of benefits to SMB lenders. As a subscriber you gain easy access to advanced features and functionality. You enjoy regular maintenance, software upgrades and new product releases, along with IT and customer service support. The program is fully managed at a platform level, so there’s no need to build and fund your own IT department. In addition SaaS options tend to have a lower set-up cost than a comparable on-premises program, because the platform development costs are spread across all the subscribers.

SaaS programs are a good choice for the lender who wants to outsource systems and technology, and focus on sustaining a competitive edge.

The other option is an on-premises program, which has the main advantage: control.

On-premise deployment tends to work best for three types of organizations. A larger lending group with a dedicated IT department that can manage cyber security and 24/7 uptime. A lender with databases that are complementary to the lending software. The type of integrated program where both systems need to be hosted on one server cluster. Or an organization that prefers to maintain their systems behind their own proprietary firewall.

3. Comprehensive, Integrated Origination and Servicing Functionality

Loan money handed over from the lending institution to the person borrowing with two hads doing the exchange.

In today’s lending environment the only constant is change, and your systems must keep pace.

The ideal software partner offers an integrated origination and servicing platform that’s comprehensive as well as flexible. A good choice for an SME is a program that offers a menu of individual modules. You choose the unit with the features and functionality you need today. And you retain the option to access additional features at a later date.

Here are some loan origination features and functionality to consider:

  • Automated decision-making and borrower evaluation cycle
  • Automated calculation of optimal loan parameters: loan amount, term of the loan, interest rate, etc.
  • Customer risk segmentation
  • Flexible management of the lender’s credit rules, credit policies and scoring models
  • Remote access for distributed sales points
  • Setting individual evaluation processes for different products, portfolio segments and business lines
  • Evaluating the efficiency and adequacy of the loan origination system’s performance and staff productivity
  • Ability to swiftly adjust credit policy (new lending rules, changes in lending rules, appropriate risk margin)
  • Customized tracking and reporting

4. Smart Automation, Proprietary Credit Scoring

A loan approved stamp isolated on a white background.

As an entrepreneur your end game isn’t a collection of features and functions. Your end game is to increase revenues and profits by milking the benefits of these technologies, primarily operational efficiencies and credit scoring.

When it comes to operational efficiencies you’ll want a system that automates multiple mundane tasks, so your loan origination and servicing managers can focus their best efforts on evaluation, analysis and high level decisions. Your managers and directors are individuals with their own unique approach to their work. A good software choice starts with foundational pre-sets based on lending industry best practices, and then allows each manager to customize to their own style.

The system interface should be clean and clear to easily integrate with multiple outside vendors. You’ll want all your loan servicing tasks to be completed without exiting the loan servicing environment. Look for advanced vendor integration where numerous data fields can be auto-populated. This feature saves substantial time and energy as it speeds application submission, reduces human error, reduces the need for manual data re-entry, and increases first pass approvals.

When it comes to optimal credit scoring you’ll want lending software that helps you manage risk for both new and existing accounts. The best programs provide integration with all the established credit reporting agencies. They include proprietary score cards that enhance credit bureau data and analysis. And they offer non-traditional scoring methods for lenders who cater to borrowers with thin credit, or emerging markets with no established credit reporting agencies. The top programs incorporate artificial intelligence into their base system, using machine learning and data analysis to continually refine their credit scoring capabilities.

5. Easy to Deploy, Easy to Learn

It’s important to get your staff up-to-speed quickly in order to gain a fast return on your investment.

First, the software must be simple to install. One of the reasons we’re partial to a cloud-based platform is that it’s easy to complete the set-up process without IT expertise, including seamless integration with all your outside vendors.

Second, look for a system with a well-designed workflow that acts like a built-in training tool. You and your employees should be able to follow the process logically without cross referencing cumbersome manuals or stopping to read pop-up training screens.

Third, look for 24/7 technology support to ensure all your implementation and training questions get answered right away.

It’s a good idea to test-drive the program with a free trial before you make your final decision. If a service provider looks good on paper, but doesn’t offer a free trial period; then use the platform demo to gain an experiential overview. You’ll want to include everyone on your team who uses the lending software to perform day-to-day tasks or to generate reports: origination and loan servicing managers, IT managers, risk director and finance director. Prior to the demo prepare a list of test situations they’d like to see demonstrated on a live platform. These test scenarios should span the full user experience from access and set-up, to operational systems and workflows, to ad hoc reports and customization. Don’t rely on a prepackaged demo to address every area that impacts your business, and don’t let any question go unanswered.

6. 24/7 Technology and Customer Service Support

When you’re a small to mid-size lender with limited resources you need to stay focused on revenue generating activities, like expanding your target markets and deploying digital response channels. Every minute of system downtime means lost profits that won’t ever be recouped.

Make sure your employees will have 24/7 access to a team of technical experts, and your clients will have 24/7 access to customer service professionals. These support teams must be solution-oriented, and trained to resolve issues during the first contact. The software provider’s customer service team will become the face of your brand as they interact with your clients. Look for customer service support that’s both knowledgeable and professionally polished.

The best software providers offer a variety of communications channels: online chat, email, live help desk, and online Q&A. They work to accommodate your preferences, not what’s most efficient and least expensive for them to administer.

7. Proven Track Record

You’ll want to research the credentials of each potential service provider. Don’t just rely on advertising messages, or product and service claims made by a sales manager during a platform demo. Here are five ways you can verify a software service has a proven track record.

First, confirm that lending is their core business. Check out their website to make sure lending software isn’t just a new line extension that taps into a high growth market.

Second, look at the length of time they’ve been in business. More is better.

Third, search online for press releases announcing consistent new software upgrades and new product releases. This is a good indication their developers are researching consumer demand and regulatory compliance requirements to stay out in front of lending industry trends.

Fourth, check software review websites like Capterra to read how actual users describe their personal experience with the software and support services.

Fifth, search online to see if the technology has earned industry awards from organizations like MAS Fintech Award. We appreciate that this group rewards marketplace performance, not just think tank innovation

8. Affordable Investment

Choosing lending software is a major decision with long-term consequences, and of course price is a big factor. Think in terms of high value, instead of low price, and search for the best value within your budget.

One way to optimize value is to choose a provider who offers exactly the functionality you need without any waste. You don’t want to pay a premium price for bells-and-whistles you may never use. We recommend a provider who offers a modular or menu approach, where you access the functionality you need today with the option to upgrade as your needs change.

You may want to conduct a cost-benefit analysis before you say no to premium features that sound like a luxury. When you estimate the savings you gain from advanced automation features, or the improved net interest margin from non-traditional credit scoring, you may find the return will justify the cost.

And finally, it’s important to review the service agreement carefully before you make your decision. Take a close look at the addendum that lists all the features, functionality, support services and custom coding that are included in your package; as well as the features that are optional add-ons at an additional cost.