Running any business is challenging but running a lending firm may be especially hard. First of all, there’s the issue with operational efficiency (which is more or less common across all industries). Then, there are also safety risks and regulatory ones. Below are software solutions that can address all these challenges.
1. Loan Origination Systems (LOS)
Loan origination systems streamline the loan application process (submission, disbursement, and all that). What you basically do is reach out to a good financial software engineering company and ask them to develop a custom system that would manage:
- data collection
- credit scoring
- underwriting
- final decision
You thus address all three challenges with this software: efficiency (because data entry and collection are automated), safety (thanks to credit scoring models), and compliance (since the system will ensure loans meet legal regulations).
Such systems would be especially handy for small and medium lenders as these usually need to handle tons of loan applications. Decision-making should become a little more consistent after their implementation.
2. Lending Automation
The beauty of this software solution is that it handles very different tasks:
- Automatically validates and processes loan documents.
- Routes tasks like approvals and verifications to the appropriate staff based on predefined workflows.
- Sends automated updates to clients during the approval process.
As you see, it performs the job of several specialists. Thanks to its implementation, you can improve efficiency (loan processing is faster and with fewer errors) and lower costs (thanks to automation).
Of course, automation can miss nuances in complex cases. That is, you may still need human review for non-standard loan applications.
3. Merchant Cash Advance Software
This one is just brilliant and you’ll see why. This software simplifies advancing cash based on future sales. It collects a percentage of sales until the loan is repaid. So what it actually does for you is that it
- tracks sales and repayments so that cash flow stays healthy
- analyzes sales patterns and, based on those, adjusts future loan terms.
For small businesses that rely on short-term advances to manage cash flow, this software is a real find. It should make repayment integration far more seamless.
4. Loan Management Systems (LMS)
Now, think of a software solution with the following features:
- Repayment schedules
- Payment tracking
- Interest and fee calculation
- Delinquency tracking.
Sounds pretty useful, doesn’t it? As you may have already guessed, Loan Management Systems (LMS) are to help you with post-loan operations. They automate repayment schedules, interest calculation, and delinquency tracking — you, in turn, face fewer errors.
The overall borrower experience should benefit from them, too (at least, thanks to timely reminders and accurate payment tracking).
Some LMS platforms may not handle large-scale operations without additional customization or integration with other software. But that’s just another argument in favor of building a custom software solution from scratch.
5. Debt Collection Software
This software automates debt collection so that it’s easier for you to follow up with delinquent borrowers. To be really helpful, it should have features such as
- automated reminders (via email or SMS)
- account prioritization (this identifies which accounts are most critical to follow up on)
- skip tracing (this tracks borrowers who have changed their contact details).
The beauty of this solution is that it saves you money. It’s because, with it, you need fewer employees to track overdue payments and chase down delinquent accounts.
A lending business using such software can potentially see a 20% increase in successful recoveries (by just automating reminders and calls). This can be achieved because the system will prioritize overdue accounts so the business will focus on the most recoverable loans.
6. Credit Scoring & Risk Assessment Tools
And finally, these are cool tools that analyze borrower data to assess creditworthiness and predict loan risk. Here’s how it works:
- Data aggregation
The system pulls data from credit reports, social media, and transaction histories to offer a 360-degree view of the borrower.
- Real-time risk assessment
It, then, provides up-to-date scoring based on current financial conditions.
- Customizable models
These allow businesses to define risk thresholds tailored to their unique risk tolerance.
In a word, thanks to this software, loans are only granted to borrowers with appropriate risk profiles so the risks of default rates are much lower.
What’s important to keep in mind, here, is that credit scoring tools are only as good as the data they’re based on. So yes, you still need to see to it that the latter is relevant and accurate.
As you see, all major challenges lending businesses are facing can be addressed with relevant software. Of course, it’s best to consult a good financial software engineering agency before all else. They’ll help to choose and design the tool that’ll really make things cheaper and smoother for your business.
