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3 Inefficiencies in Loan Origination and How to Solve Them

December 8, 2016
Read Time: 0 min

Inefficiencies in loan origination make it difficult for many community banks and credit unions to grow small business lending or member business lending profitably. However, many of these institutions focus on business lending for loan portfolio growth. Here are some unique challenges that banks and credit unions will need to address in order to grow their business lending portfolios profitably.

1. Document collection: A crucial part of any loan origination process is collecting the necessary documents from the borrower. However, document collection is one of the main inefficiencies in business loan origination. With traditional loan processing software, the borrowers’ only options for submitting documentation are to either travel to the bank to submit documents in person or to mail the documents. Both of these options are expensive and inconvenient, and should the borrower forget some documentation in the first submission, they will have to repeat the process. In addition, lenders spend time tracking documents and following up with the borrower to request missing documents. By leveraging an online loan origination system (LOS), banks and credit unions can receive documentation from the borrower via a secure online upload. This saves time for the borrower and the lender and makes it easier to ensure complete loan documentation is submitted in a timely fashion.

2. Cumbersome data entry: The next step in the loan origination process is entering the data into the bank or credit union’s system for analysis and spreading. For small business lending especially this can be a slow, complex process, as there are often multiple years of complex tax returns, both for the business and the owners, business financial statements and other miscellaneous documentation. Entering all that data by hand, potentially multiple times, opens the lender up to errors that delay or derail the lending process. Loan origination software that automates data input saves time and minimizes keying errors. This eliminates one of the most-often cited obstacles to business lending.

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3. Borrower experience: A specific issue for community banks and credit unions that want to attract more small business loans is the current borrower experience for small business borrowers. While many business borrowers are satisfied with their ability to secure loans from banks and with the price of such loans, they are frustrated with the experience they have in the lending process. Business borrowers' biggest complaints are the ease, speed, and transparency of the lending process. Each of these challenges can be addressed through technology. Autodecisioning software and electronic signatures can speed up turnaround time while implementing loan origination software can allow borrowers to complete and submit their applications on their own schedule. A move that can help is even something as simple as posting clear information on the institution’s website about what to expect during the loan application process, including what documentation will be required and how long the process typically takes.

Small business lending is a great area of opportunity for community banks and credit unions with ambitious growth goals. By pinpointing where the loan origination process is inefficient for the institution or difficult for borrowers banks and credit unions can open themselves up to new, profitable opportunities in the small business lending portfolio.

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About the Author


Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

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Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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