8 commercial LOS capabilities for C&I and CRE lending
C&I and CRE loans share steps such as application intake, analysis, approval, documentation, and monitoring. The information needed for underwriting and collateral review can differ by loan type. A commercial loan origination system (LOS) should account for both common workflow needs and the institution’s C&I and CRE policies.
1. Business development and pipeline management
A commercial LOS can help a financial institution identify lending opportunities and manage its loan pipeline. This gives staff a way to track prospective relationships and requests as they move toward an application. A business development component can support this early stage of the lending process.
2. Application intake
A commercial LOS can provide an online application that customers or members complete at their convenience, either on their own or with staff assistance. The application can collect borrower and guarantor information, loan request details, and initial supporting documents. For CRE requests, staff can also capture property details needed to begin the review. A dynamic application can guide applicants through the fields and files required for their request.
3. Workflow and document collection
Lending process management is key to timely decisions. An LOS can notify staff when an application is complete or required documents have been submitted. These notifications can reduce back-and-forth emails or calls to check a loan’s status.
During due diligence, the system can send requests for required documents and provide a secure link for uploading them. Storing documents in a relationship library can make them easier to track, while notifications can alert the lending team when documents arrive.
4. Underwriting, financial spreading, and risk analysis
An LOS can automate the spreading of financial information from tax returns and financial statements to support underwriting. Credit analysis may incorporate institution-defined metrics, imported credit scores, and global debt-service coverage analysis when needed.
For C&I loans, the institution’s analysis may consider borrower repayment capacity, guarantor strength, and business financial information. For CRE loans, it may consider property cash flow, debt-service coverage, loan-to-value measures, and collateral information. Based on borrower information and the institution’s standardized loan rating system, including customized factors and weightings, the LOS can generate a risk rating and related documentation.
5. Loan pricing
Loan pricing tools can reflect the institution’s credit policies and profitability targets, including the cost of administering the loan, borrower risk, and the overall relationship. The institution can also determine how authorized staff review or adjust pricing when a request requires an exception. Abrigo’s loan pricing software is one example of a tool used for this function.
6. Decisioning and approvals
Automated decisioning templates configured to the institution’s credit policies can help process less complex and small-dollar loans more quickly and consistently. Lenders and underwriters can then focus on larger deals or those with added complexity that require additional analysis.
An LOS can also generate a credit memo from a template populated with information already in the system. This can reduce rekeying and give the loan committee consistent, presentation-ready credit memos. Templates should allow for customization by the institution. Abrigo’s lending and credit automation resource discusses automation across the loan process.
7. Document preparation and closing
After loan committee approval, a commercial LOS may transfer loan information into legal documents using the institution’s required formats and disclosures. Depending on the institution’s process, documents may also be made available for electronic signature. Using information already collected during origination can reduce duplicate data entry.
8. Portfolio monitoring and covenants
After closing, an LOS can help staff track covenant compliance and document-filing requirements. Automated requests for required documents can be scheduled based on loan terms, such as annually, for a customer relationship rather than for each document. The system may also generate annual loan reviews and help staff identify upcoming covenant tests or track exceptions.
What should lenders evaluate in an LOS provider?
LOS features are one part of the evaluation. Lenders should also consider how the provider will support the institution during implementation and throughout the relationship. For banks, the Interagency Guidance on Third-Party Relationships: Risk Management describes a lifecycle that includes planning, due diligence and provider selection, contract negotiation, ongoing monitoring, and termination. The level of review should reflect the relationship’s risk and importance to the bank.
When evaluating a provider, ask:
- Fit: Can the system be configured to reflect the institution’s loan products, policies, approval requirements, and workflows?
- Integration and implementation: Which existing systems can connect with the LOS? How will data conversion, testing, implementation, and staff training be handled?
- Provider due diligence: What information can the provider share about its experience, financial condition, compliance practices, risk controls, and operational resilience?
- Support after launch: What training and ongoing support are available? How does the provider handle system updates, service issues, and escalation?
- Contract and ongoing oversight: What does the agreement say about service expectations, access to information, monitoring, and ending or transitioning the relationship?
A demonstration using representative C&I and CRE lending workflows can help lenders assess how the system and provider fit the institution’s needs. Banks and credit unions should also apply the third-party risk guidance relevant to their charter and regulator.
Choose LOS functions that support the lending process
An LOS should support the institution’s lending process from application through closing and ongoing monitoring. Before selecting or upgrading a system, identify which basic functions matter most for C&I and CRE lending and confirm that its workflows, analysis, documentation, and reporting align with institutional policies.
Editor's note: This blog was originally published on May 20, 2021 and has since been updated for current best practices and accuracy.
