Get ahead in commercial lending with the right software tools. Learn about credit scoring software, loan management systems and more to stay competitive in the evolving market.
As lenders look for ways to increase their efficiency and hone their competitive edge in 2024, commercial lending software helps lenders accomplish more with less.
Lending software has already taken commercial lending by storm and is here to stay. The loan servicing software market is projected to grow from $3.1 billion in 2023 to $7.8 billion in 2030.
Today, lenders have access to a wide range of commercial lending software products, ranging from tools with specific use cases like credit scoring and risk assessment software, or tools that are involved with the entire lifecycle of the loan, such as loan management systems (LMS). In this guide, we’ll cover some of the major categories of tools, including loan origination systems, collateral management systems, loan servicing platforms, document management systems, and digital lending platforms.
Commercial lending software accomplishes many different tasks throughout the loan lifecycle, from origination to fulfillment to servicing. The tools available to accomplish those tasks often overlap, intersect, and sometimes complement each other.
Because of the overlap, most lenders use multiple pieces of commercial lending software to accomplish different tasks. Commercial lending software is integral to modern lending – it speeds up processing times, increases revenue, smooths over pain points, and reduces the employee workload. In 2023, bank spending on software increased by 13.5%. Because software is so central to lending, it’s vitally important that lenders choose the right software.
Ineffective software can make or break a commercial lender. Last year, a data breach originating from third-party software leaked millions of records, including 20,000 records from Bank of America and over 800,000 records from Flagstar Bank. It’s crucial that lenders use software that fits their needs — both productivity needs and security needs.
A loan origination system (LOS) helps lenders streamline the complex loan origination process.
For borrowers, a LOS facilitates their application process, automates some aspects of loan pricing, and improves their customer experience through a convenient point-of-sale (POS) interface.
For lenders, a LOS automates the early steps of the origination process by creating a repository for documents and performing many of the calculations involved in commercial loan origination. A LOS also helps lenders pre-qualify borrowers based on their preliminary information – it’s not a replacement for a full underwriting process, but a LOS helps lenders identify their most qualified applicants and reject applicants who don’t meet basic eligibility requirements.
In 2022, the LOS industry was valued at $4.8 billion, but because LOSs have such a vital impact on lending, the industry is projected to reach $12.2 billion by 2032.
As the name suggests, loan origination software is most helpful during the origination stage of the commercial loan lifecycle – from application to fulfillment.
Once loans are disbursed, a loan management system (LMS) helps lenders track and manage their outstanding loans. Lenders typically use an LMS in conjunction with an LOS – the LOS helps lenders facilitate the origination process, while the LMS follows the entire lifecycle of the loan, even after the loan originates.
Loan management systems help lenders service their outstanding loans in several ways:
While LOSs perform some preliminary risk assessments, their evaluations are based on limited data and don’t always reflect the full picture of a borrower’s creditworthiness. Credit scoring and risk assessment software take this a step further.
Credit scoring software collects information from various financial institutions. Namely, the three major credit reporting agencies: Equifax, Experian, and TransUnion. With this information, risk assessment software uses data analytics and predictive modeling to identify risk indicators – by monitoring various KPIs throughout the organization and analyzing credit history and financial statements to generate credit scores and evaluate credit risk.
Commercial mortgages typically collateralize the real estate itself, while other loan products may require additional collateral in the form of equipment, stock, inventory, or another form of collateral at the lender’s discretion. However, other commercial loans may not require collateral at all or may give borrowers the option to provide collateral in exchange for more favorable terms. Last year, lenders spent $1.7 billion on collateral management systems.
A collateral management system helps lenders manage collateral across their loan portfolio by tracking various collateral, including real estate, equity, and cash. The increased visibility helps lenders monitor for risk. Lenders may need to manage multiple types of collateral across multiple loan products, so a collateral management system is vital in helping lenders stay organized, informed, and effective. Collateral management software also automates default and foreclosure processes.
Many types of commercial lending software discussed so far focus on individual loans, improving the customer experience, or streamlining the lender workflow. Portfolio management software, on the other hand, looks at the bigger picture of an institution’s lending portfolio.
Portfolio management systems answer the question “Is the lender’s loan portfolio in line with its organizational goals?” For example, diverging interest rates, maturity dates, risk profiles, and repayment terms can make some loans significantly more favorable for lenders than others, depending on the short- and long-term goals. Portfolio management systems include tools for analyzing the composition and performance of collateral, which helps lenders make more informed decisions.
While compliance and regulatory software are available as standalone products, they’re also often integrated into other pieces of commercial lending software such as LOS and/or LMS.
Compliance and regulatory software tools help lenders keep track of important dates, reporting thresholds, and the variety of regulatory requirements they must comply with.
Lenders must stay in compliance with various regulations like the Bank Secrecy Act (BSA), Anti-Money Laundering (AML), and the Fair Credit Reporting Act (FCRA). Compliance and regulatory software are especially useful because these regulations (and others) have different requirements for commercial versus consumer loans. For instance, §1002.12 of the Code of Federal Regulations (CFR) requires lenders to keep consumer loan documents on file for a minimum of 25 months, while the requirement is only 12 months for commercial loans.
Loan servicing software helps lenders collect payments and gives borrowers an easy way to access information about their loans. Loan servicing platforms integrate with payment processors so borrowers can self-service their loan payments, which alleviates the workload for loan servicers.
If loan servicing platforms sound similar to loan management systems, it’s because they are – loan servicing software is frequently integrated directly into LMSs. After all, they share many of the same goals. The distinction between a loan servicing platform and an LMS is that while LMSs prioritize the lender experience, loan servicing software prioritizes the customer experience. However, many software tools combine those functions into a single platform.
Throughout the lifecycle of a commercial loan, a lot of documentation must change hands: borrowers must submit applications and supporting documents while lenders must provide disclosures and statements, and that’s just the tip of the iceberg. Processing and storing the various documents involved is a major undertaking for lenders and contributes to long processing times and arduous workloads.
Document management systems improve this process by creating a centralized repository for loan documents. Document management software greatly improves the experience for borrowers who can conveniently submit documents, and it also helps lenders keep track of essential loan documents, control who can access which documents, and keep track of changes over time.
A DMS also enhances security by encrypting documents to keep them away from prying eyes without compromising the customer experience.
Workflow automation seeks to replace time-consuming manual processes with more convenient (and in some cases, more reliable) automated workflows. Workflow automation software is not a distinct software product, but a category of software tools that help lenders automate tasks like generating leads, eliminating repetitive tasks, routing documents, coordinating between departments (think loan officers passing the baton to underwriters), and more.
One of the biggest changes to commercial lending in recent years is the growing popularity of digital-first lending. A digital lending platform allows borrowers to apply for loans, self-service their accounts, seamlessly connect to customer service, and upload documents through a digital interface.
While 27% of consumers primarily bank online on a laptop or PC, 45% access their bank accounts through mobile apps, making mobile devices by far the most popular method of accessing financial services. A digital lending platform can provide a seamless user experience across channels, so a borrower who applies for a loan through a web application can check the status through an API or make a payment through a mobile app.
Every area of commercial lending — from lead generation to underwriting to servicing — can be enhanced with automation. When determining which commercial lending software fits your needs, you should consider which tools (or combinations of tools) will create the biggest impact.
Commercial lending software comes in many shapes and sizes – some are standalone platforms while others integrate with each other, but they are all part of the commercial lending ecosystem. Lending software touches every step of the loan lifecycle, so choosing the right software can have a profound impact on an organization.
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