What is a Loan Management System for Banking and Financial Services?

Digital Loan Management System
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Providing a loan should be a simple process. One should check the client’s eligibility to get the loan and then approve or deny the loan. Once approved, the customer should receive the funds. 

However, in traditional lending systems, particularly in larger organizations, this process is often chaotic. That is why lenders use loan management software to streamline their process. 

As the customer base increases, servicing loans become complex. Every customer has different terms and payment dates. It is cumbersome to keep everything in order. 

A loan management system helps to sort out the repayments that are coming in. But it can do more. There are modular, scalable, and customizable components that organizations can use for complete automation. 

Top-of-the-line products can even use machine learning algorithms to reduce risks. Small business loans kept increasing and reached 28 billion USD in 2019. So, getting a digital platform in this competitive market is crucial for survival. 

What is a loan management system?

Loan management systems help automate the entire loan lifecycle. Depending on requirements, these programs can assist in part or whole. The software can help with processing customer information, create new loans, and more. They can also provide lenders with accurate statements and reports. Moreover, they can manage interest rates and provide the tools for collection automation.

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These automated loan management/lending systems outshine legacy systems in many ways. Being a digitized system, it also caters to the newer generation of customers. It also reduces manual errors and risks.

Features of a loan management system

Digital and cloud-based lending solutions are scalable. They can help you manage the loan lifecycle. Alternatively, you can also use the software for a single task such as tracking repayments. They can also be complete systems that can validate loan applications and determine eligibility. Here are some of the remarkable features of a loan management system. 

Loan Origination

Loan origination is the process where a borrower applies for a loan, and the lender processes it. Lending CRM can help evaluate the risk or make a decision.

Loan origination functionalities of a lending CRM can help lookup the credit history of an individual or an organization. They can also suggest what loans are suitable for the client. The loan origination system can analyze the application and provide insights to service the loan. A digital solution will take a few seconds to do the tasks, whereas a manual workflow may take days.

Loan Servicing

The loan servicing feature will help you manage loans. Every loan is different: they have different interest rates, payment dates, and more. You can track all these loans and ensure that you receive payments on time. It allows you to calculate interests, fees, and more. A loan management solution can also assist you in automatically collecting funds via wire transfers, credit cards, and more. (More on the types of loans that loan management software can handle in the subsequent section.)

Debt collection

Collecting back the payment is essential for lending businesses. A digital lending platform can notify you when accounts become delinquent. You can also get notified when the borrower pays back or when a repayment is due. The collection system can even calculate late fees for you.

Debt collection software keeps everyone in the team on the same page. You can track all the communication your employees are having with your clients. It becomes much easier to look up a debtor’s payment history and make modifications or arrange new terms of payment.

Collections CRM - collections funnel
EXPLORE COLLECTIONS CRM

Reporting and Analytics

An essential feature of loan management software is the reporting module. You can get comprehensive reports on the cash flow. You can create reports based on interactions with a single individual or business. Or you can look at how profitable offerings are for you. Reporting allows you to visualize and understand in which direction your business is moving.

Types of loans that you can easily manage through software

Automated lending solutions can manage a wide range of loans – from simple unsecured loans to business funding. Here are the different types of loans that you can streamline with loan management systems.

Personal Loans

These are loans that are for personal or non-commercial use. Organizations look up the credit history of the individual before giving out the loan. Loans can either be secured or unsecured. For instance, a car loan is a secured loan, whereas a student loan is an unsecured loan. Also, it is possible to co-sign such loans. In these cases, the borrower has another individual to sign the loan, who will pay the loan in case the borrower fails.

Commercial Loans

Commercial loans are for business use only. 

Financial organizations provide these loans to startups and businesses. The funding is for the expenses an organization cannot afford. Usually, companies/startups will use this funding for growth or expansion. They need to provide documents beforehand, showing that they can pay back the loan. Solutions such as lending CRM can automatically process and store the documents. 

Student Loans

Student loans are expenses related to attending any educational institution. The funding can be for tuition fees or accommodation. Both government and private organizations provide these loans. In the case of federal loans, the interest rate is government regulated.

Syndicated Loans

A syndicated loan is a loan where multiple lenders provide a loan to several borrowers under the same term. A group of lenders gives out this type of loan when the credit amount is too large for one lender to manage. Usually, larger organizations and banks give out such loans. These loans also have a middleman arranging the entire transaction.

Mortgage Loans

Lenders provide this type of loan to both individuals as well as businesses for purchasing real estate. These are secured loans. Moreover, these loans have longer-term. If the borrower stops paying, the lender can acquire the property. 

Also read – what is mortgage software?

Payday loans

These are short-term loans with high-interest rates. Payday loans are often availed by individuals to cover for certain expenses until the upcoming payday.

Benefits of a loan management system

Make lending easier

Borrowers may need to borrow money for once. It is particularly true in the case of mortgages – where you have only one chance to make a good impression. Therefore, you have to provide your customer with a good lending experience. 

You can impart a good borrowing experience by making the application procedure online. On the operations front, you can automate credibility checks, automate the offer generation system, and make disbursal faster. 

Customers with better experiences are more likely to recommend your business to others. Recommendations like these will create new opportunities. Digital lending platforms are customer-centric systems. With self-serve portals, you can simplify the borrower journey and impress customers, especially the newer generation. 

lending CRM - self-serve portals

Visualize your ROI

At its core, loan management software automates workflows. It streamlines your lending process from the beginning to the end. It creates this clear workflow that employees can easily follow. The analytics tools in loan management systems can help you understand how multiple revenue streams are operating. You can also figure out where you can cut costs and where to invest more.

Paperless processes

As loan processing becomes more digital, document management has also become automated. Lenders no longer need to store files in large cabinets as everything is now centrally and digitally managed. You can view any file with a few clicks, and nothing ever gets lost.

Understand how to execute paperless and contactless lending through this recently concluded webinar.

What does your business need?

Small businesses and startups

For businesses that have just started giving out a small number of loans, lending CRM software can be beneficial. The software will have basic loan management functionality along with features for borrower management, interaction history, team management, and analytics. They can also manage customer information, help track payments, and more. These are similar to most accounting software. It will not only be a cost-effective solution but will help the organization in getting its feet off the ground.

Mid-sized companies

A medium and a large-scale lending company will be providing more complex loans and will have a range of offerings. They will require more sophisticated software. Moreover, organizations may want to look into software that provides a better customer experience. Some loan management platforms come with their customer portals. Customers can log into these portals and make repayments. They can also interact with the company, update details, and even ask for help from there. Companies can also create payment schedules to encourage customers to pay on time. 

Large enterprises

Large lending institutions such as banks cater to millions of customers. The primary need for such organizations is security. Banks and other large financial services companies will want to reduce the risk to the credit of their clients. They will also want to deliver loans more efficiently. Another requirement is the streamlined workflow. Larger financial institutions will also desire better reporting to track the profitability of their operations. CRM integration with LOS (Loan Origination System), CIBIL, Experian Hunter, Perfios, NetBanking Connect, PDF Statement Analyzer, and others can provide a complete solution for end-to-end loan management.

Concluding Remarks

Online and digital lending is growing in popularity. Customer satisfaction with online lending has been increasing. Moreover, the online lending business has seen a 4% growth.

Therefore, organizations must switch to digital. Digital platforms are customer-centric. The new generation of customers is also more accustomed to the digital interface. It allows organizations to approach the next generation of clients. Digital platforms also enable businesses to get more information on how to optimize the workflow. The loan management systems come with state-of-the-art reporting and analysis techniques. These features help lenders to understand where they should invest more. 

Further reading


Loan Management System FAQs

What is the best loan management software?

The best loan management system for you would be the one that serves your needs and blends well with your existing process. One of the best solutions is LeadSquared Lending CRM. It helps to disburse loans faster, track recovery, and more. With this, you can also manage all your processes and teams – Sales, Call Center, Field Sales, Collections, and more.

How do I set up a loan management system?

If you’re using a cloud-based or SaaS system for loan management, your vendor will guide you through setting up and integration processes. Unless you’re using an on-premise loan management system, you need not worry about installation or setting it up. SaaS Lending solutions are ready-to-use, and you can start using them within 2-3 days of buying a subscription.

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