4 Key Reasons Why LOS (Loan Origination System) Is Popular Among SMEs

by | Oct 29, 2021

Consumers since time immemorial have been made to believe that getting approved for a loan application is a tiresome process. Right from physically visiting the lender’s office and submitting hard copies of supporting documents to waiting weeks and even months for the underwriting to begin and the loan amount actually getting credited to the borrower’s bank account, several factors have had a negative impact on the loan origination process.

However, today with the advent of modern cloud based lending infrastructure, mainly in the form of loan origination systems, consumers are beginning to adopt to instant credit access, contributing to their increased popularity among both borrowers and lenders.

But what are the exact advantages of a cloud based loan origination system that makes it so popular among lenders and borrowers alike?

Let’s find out in today’s blog post.


Table of Contents

  1. What Is a Cloud Based Loan Origination System?
  2. Benefits of Cloud-Based Loan Origination Systems
  3. Conclusion: Built for Tomorrow’s Borrowers
  4. The Reference Shelf

What Is a Cloud Based Loan Origination System?

One of the first and most important aspects we need to understand is the meaning of a loan origination system. In simple terms, loan origination can be understood as the process through which a borrower applies for a loan; the lender checks the eligibility of the borrower for the loan and ultimately arrives at a decision of either granting or rejecting the application.

Thus, a loan origination system can be understood as a software solution, which helps you, the lender, to automate the entire loan origination process, right from lead generation and initial customer onboarding, all the way to credit assessment and handover to the loan management system.

Prior to the introduction of cloud-based loan origination systems, most lenders depended on legacy solutions to onboard borrowers, which significantly contributed to higher loss of leads and, thereby, revenue.

On the other hand, the loan origination systems of today come equipped with a full suite of automations and integrations, which not only allows the lender to take better control of the entire loan origination process but also increase their overall efficiency and profitability.

Additionally, since a cloud based loan origination system significantly reduces the turnaround time for delivering credit assessments, customers become more inclined to choose digital lending solutions, and research correlates this fact.

loan origination system
Source : Value of digital lending market in India from 2012 to 2018, with forecasts until 2023 by Statista 

Benefits of Cloud-Based Loan Origination Systems

As a lender, you stand to gain from several benefits of cloud based loan origination systems, and shared below are the 4 most significant.

loan origination software
Benefits of Cloud-Based Loan Origination Software
  1. Easy Data Entry

One of the first and most pertinent challenges every legacy lending institution faces is having to process manual applications submitted by potential borrowers.

Right from application forms to physical supporting documents, there is a lot of sensitive information which needs to be processed and, depending on legacy systems, increases the effort on the lender’s part.

For instance, a common thread binding every legacy lending institution is a high workforce and increased overhead costs. Since a lot of the processes in their legacy loan origination system requires manual and offline processing, it is imminent that they require all hands on deck and still suffer from human errors and inaccurate assessments.

On the other hand, by transitioning to a cloud based loan origination system, you can seamlessly leverage Web APIs to not only allow customers to apply for a credit instrument of their choice at their convenience but also cut your processing time in half.

Since the heavy lifting of data collection is majorly automated by these systems, you can expect an increase in productivity from your staff, as they will have more time on their hands to focus on pressing matters.

2. Accurate Decision Making

A dangerous pitfall of manual decision making is the inaccuracy and human error it is constantly vulnerable to.

Since an increased amount of sensitive information is being processed at scale, oftentimes, underwriters fail to accurately actualize the creditworthiness of a potential borrower. Along with this, legacy systems often fail at fetching the latest credit reports of borrowers from the concerned credit rating agencies, further contributing to potential wrong decisions.

On the other hand, modern cloud based loan origination systems come equipped with advanced credit engines which are able to instantaneously fetch up to date credit reports of borrowers from an agency of your choice.

Along with this, loan origination systems of today arrive with robust and dynamic rule engines, which you can leverage to not only automate a majority of the underwriting process but also decrease the workload on your key decision-makers.

Both of these features contribute to significantly higher customer satisfaction and thereby increased revenue for your business.

3. Customizable Workflows

Superficially every lending business appears to be the same but similar to the needs of your borrowers; your workflow is unique to your business. However, a legacy system does not allow to facilitate the same. In a legacy system, a majority of the workflow is informal and disorganized, which contributes to confusion, inefficiency and longer turnaround times.

In contrast, loan origination systems of today extend you limitless flexibility and freedom to design workflows which are best suited to your business.

Additionally, since the entire architecture is based on the cloud, it allows key stakeholders to participate in the workflow across multiple platforms and seamlessly complete their due diligence. On top of it all, these systems are designed to streamline your entire workflow leading to better productivity and faster turnaround in the long run.

4. State of the Art Security

As I iterated in an earlier point, throughout the loan origination process, you process a lot of sensitive information.

Right from the personal credentials of a borrower to their financial information, there is a lot of information the borrower trusts you to protect, making security an utmost priority for every lender.

However, one of the biggest pitfalls of legacy lending solutions is the fact that they are not equipped to restrict access and are designed for open access to each and every stakeholder. This can become a significant threat to your business, both from a reputation as well as financial perspective.

On the other hand, modern loan origination systems are designed to give access to stakeholders on a need to know or task basis.

For instance, if your credit risk team is not responsible for underwriting your loans, then they will not have access to that workflow. Along with this, most leading loan origination systems, arrive equipped with industry-standard AES-256 encryption, meaning that your organization’s and customer’s data is protected throughout its lifecycle.

Not only does a commitment towards guaranteeing the security and privacy of your borrower’s data reflect brightly on your reputation, but it also positively contributes to the borrower’s loyalty towards your organization.

Conclusion: Built for Tomorrow’s Borrowers

As internet penetration continues to increase among borrowers from all economic strata, the need of the hour is modern loan origination systems, and this goes on to explain why SMEs prefer modern LOS solutions over legacy systems.

Now that you know of the reasons, what are you waiting for? Switch to a modern LOS offering today by contacting us.

Thank you for reading, and I will see you in the next one.


The Reference Shelf

  1. Loan origination software: Why it is popular among SMEs? [Link]
  2. Value of digital lending market in India from 2012 to 2018, with forecasts until 2023 [Link]