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5 Common lending challenges and how lending software can help

April 20, 2022
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Credit and lending software overcome common lending problems

Banks and credit unions that leverage an integrated lending and credit platform reap the benefits of a consistent, efficient and defensible lending program.

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Lending and credit software

Leveraging software to gain efficiency.

An integrated lending and credit system can help overcome many roadblocks to a streamlined lending program. Below is a short list of the most important features you should look for in researching lending and credit software.

1. Improving transparency into business development.

Lenders track outstanding opportunities and sales activities in spreadsheets, calendars, and notebooks at most institutions. However, it’s challenging for management to measure progress or build predictable forecasts without a centralized system.

With an integrated solution, customer information from the core gives lenders a contact database to work with and creates a centralized place for logging conversations. The added transparency of an integrated relationship system means the institution can provide better service to customers, and management has a means by which it can hold lenders accountable for progress toward activity goals.

2. Optimizing the loan origination process.

For many financial institutions, the process of taking a loan from application to closing can take months. It involves numerous bank employees, including business development officers, analysts, credit committee members, loan administrators and outside closing agents. As the prospective loan advances from stage to stage, bottlenecks are common:

  • Back and forth with the borrower for required financial documents
  • Unbalanced credit analyst workload
  • Unresponsive third parties
  • Unclear loan-decisioning rules that require added discussion
  • Delay as the credit file is passed between parties
  • Hunting down the credit file when the bank must report to the borrower on progress

Absent a systematic and comprehensive way of defining and tracking the process, management is forced to rely on anecdotal information about the status of a credit request. But visibility into a process enables management to see the status of loan request tasks and have an audit trail to track what has been completed and by whom, leading to improved pipeline management and better forecasting.

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Robert Ashbaugh, Abrigo senior risk management consultant, notes: “It is challenging to manage your pipeline when you manually track it, so there needs to be a central source available to locate this information. In addition, managers are seeking status updates every week not only for their supervisor but also for the funding desk.”

The loan application process at financial institutions can often be slow and manual. Loan application software can speed up the process by creating a digital experience that makes document management and processing easier. Coupled with enhanced workflows and automation on the back end, institutions can turn around applications quickly. 

By eliminating the burden of handling and monitoring the progress of day-to-day activities, the management team can allocate more of its time to strategic decisions that similarly support the institution’s growth or profitability objectives.

In new-loan origination, integrated software solutions also empower management to identify and remedy bottlenecks, which, once addressed, can improve turnaround time for new loans and give the institution a competitive edge over others vying for a borrower’s business.

3. Tracking outstanding post-closing documents.

This stage of loan management starts immediately after loan closure and includes trailing critical documents. Absent a systematic, proactive process for identifying and tracking outstanding documents, the potential for documents “falling through the cracks” dramatically increases. This can lead to higher institutional risk concerning proper lien perfection, inadequately insured collateral, and regulatory scrutiny.

On the surface, documentation exceptions for loan tracking may seem minor or less critical than underwriting policy exceptions; however, that may not always be the case. As the OCC Comptroller’s Handbook on Loan Portfolio Management states, “exacerbate problem loans and seriously hamper work-out efforts.” Again, an automated, centralized system that allows for the creation of ticklers and exception reporting is invaluable. This workflow process also allows for identifying patterns that may single out a deficient closing agent or branch that needs to strengthen documentation compliance.

It is very difficult to manage your pipeline when you are manually tracking it, so there needs to be a central source available to locate this information. Managers are seeking status updates on a weekly basis not only for their supervisor but also for the funding desk.
Robert Ashbaugh, Abrigo senior risk management consultant

4. Collecting current financial information for annual reviews.

According to the Federal Reserve Bank of Atlanta, an effective loan review system should, at a minimum, promptly identify loans with potential credit weaknesses, identify trends affecting the collectability of the portfolio and assign risk grades based on quantitative data. To perform a periodic review of commercial borrowing relationships, the institution must be in receipt of current business and personal financial information. The collection process can be streamlined and documented using a software solution that outlines responsibilities, tracks activities, and records receipt dates. A borrower’s failure to provide updated financials may indicate that they are experiencing financial difficulties, so the opportunity to quickly assess which borrowers have overdue documents can serve as an early warning sign.

Ashbaugh describes a loan review challenge faced by many financial institutions: “We [the bankers] were responsible for getting updated financial information from our customers so that underwriting could perform annual reviews. Reviews were not always completed promptly since we were chasing down financials, then following up with underwriting on the status of reviews once the information was received while trying to keep track of everything to provide management with updates.” In conjunction with an effective financial tickler system, an annual workflow process provides the necessary building blocks for compliance with these regulatory directives. For example, loan administration’s diligence in tracking and uploading current financial data would trigger a notification to the next “owner” that the relationship is ready to be analyzed and risk graded. As each step is completed, the process will move forward until the analysis and risk grade assignment are approved. A systematic, centralized system can replace piecemeal communication. In addition, management can access status reports indicating which phase of the loan process an application is in and the percentage of overall completion.

5. Transfer of watch-list credits to special servicing.

Upon certain specified events, primarily a default or breach of covenant, the administration of a loan should be transferred from the banker to special servicing. For example, suppose the loan or relationship has been classified at or above a specific, defined risk level. In that case, the loan file, including collateral and credit documents, will be passed on to the special assets group. This process raises a few procedural questions:

  • Will the banker meet with the Special Assets Department to communicate the customer’s financial situation?
  • Should Loan Administration be advised to update ticklers requiring financial data quarterly or monthly instead of annually; will new covenants be agreed to and tracked?
  • Is a new appraisal being ordered?
  • Has the loan been evaluated for impairment?
  • Has Special Servicing developed its loss mitigation strategy?

An end-to-end solution can address these critical questions through a series of defined steps and approvals, with role-based routing and associated transfers. In other words, the benefits of an automated process do not end with underwriting or even servicing but continue into portfolio management.

About the Author


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. Make Big Things Happen.

Full Bio

About Abrigo

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.

Make Big Things Happen.