Loan Origination Systems: What You Need to Know Before Selecting an LOS

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The right lending software can replace your need for paper files, emails, phone calls, and spreadsheets. Learn how to streamline loan management, minimize risks, and attract more high-quality borrowers by implementing a secure, cloud-based loan origination system

The idea of a loan origination system (LOS) can mean different things to different people.

For some, it simply means automating pieces of the loan origination process. For others, it could mean multiple tools that are used together to help make credit decisions. However, the ideal loan origination system is a single platform for the entire lending cycle—from application through ongoing loan portfolio management.

An LOS typically starts by capturing borrower information and documentation, then uses this information to calculate the borrower's creditworthiness and determine whether the loan should be approved.

In addition to streamlining the loan application process, an LOS can also help lenders reduce their risk by providing them with a more accurate assessment of a borrower's creditworthiness. By automating the process of evaluating loan applications, an LOS can help lenders make more informed lending decisions, which can ultimately lead to fewer defaulted loans.

Overall, a loan origination system is a valuable tool for lenders as it helps them process loan applications more efficiently and make more informed lending decisions. It can also help borrowers by providing a more seamless and convenient loan application process.

This guide is designed to help you understand what a loan origination system is and learn about the key benefits of implementing loan origination software for your financial institution.

Table of contents

1

What Is a Loan Origination System? Definition

A loan origination system (LOS) is a piece of software that automates the end-to-end loan portfolio cycle.

Using lending software at a financial institution simplifies and improves both the application for and the approval of loans. Loans can be commercial (business loans to large companies), consumer (directly to a bank customer/private citizens), or small business (typically done through the Small Business Administration.)

A loan origination system ultimately helps financial institutions increase efficiency, mitigate risk, support compliance, and improve the consistency of their loan origination process.

Features that are typically found with a holistic loan origination system include:

  • Statement Spreading: Statement spreading is the core component for financial analysis, reporting, data collection, global cash flow, and covenants.

  • Exception Tracking: Exception tracking manages the administrative and relationship aspects of loan portfolio management that improves credit quality and compliance.

  • Credit Memo Automation: Credit memo automation updates your credit memo with dynamic data used throughout the loan origination process.

  • Portfolio Monitoring: Portfolio monitoring combines your data and scoring to save time, mitigate risk and provide a big picture view of your loan portfolio.

  • Loan Pricing: Loan pricing leverages the power of your data to provide details on factors such as cost of funds, risk premiums, and other overhead costs that make up commercial loan pricing.

Woman presenting definitions of loan origination system terms to man at a table.

The Efficiency Factor: New Loan Origination Tools for Easier Banking

Banks are not getting any more staff so consequently people have to do more work. That's why new loan origination software tools are critical for gaining efficiency in the lending process.

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Features & Functionality with Positive Impact.

Baker Hill delivers a holistic banking platform with intuitive interfaces for both bankers and clients. Our scalable features make it easy for financial institutions of all sizes to solve for common problems. With Baker Hill NextGen®, your financial institution can effectively generate growth, manage risk, and increase profitability.

View the key features of Baker Hill NextGen®

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2

What Are the Benefits of Using an LOS? Advantages

Banks and credits unions can get a holistic view of borrower transactions across all channels and products within a loan origination system.

Using a loan origination system can also improve your borrower’s experience with your financial institution, providing a positive return on investment. It can also help you to meet customer and member demands, keep up with regulatory compliance, and stay competitive with other financial institutions.

Consistent workflows and processes to serve the needs of business and consumer lenders while mitigating risk, supporting compliance, and improving consistency and efficiency in the origination process.

  • Manage, automate, and streamline commercial lending.

  • Streamline the small business lending process and manage business credit requests of all sizes with greater speed and consistency.

  • Process consumer loans consistently and accurately with a proven solution that conforms to your policies, mitigates credit risk, and ensures compliance.

  • Offer competitive loans to auto consumers while maintaining your own standards, workflows, and credit policies.

Meet the needs of today’s borrowers and maintain compliance with:

  • Online Loan Applications

  • Statement Spreading

  • Exception Tracking

  • Data Integration Web Services

  • Compliance Doc Prep

A group of people discuss the benefits of implementing a loan origination system.

Are You Digitally Ready For What’s Next in Banking?

A loan origination system is a critical piece of your digital lending strategy. The question is are you ready, set, go or more ready, set, oh no! when it comes to being digitally ready. Fortunately, there are a few things you can do right away to assess your current state.

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Cover of whitepaper that talks about digital lending strategy for banks and credit unions.

For many mid-size community banks and credit unions, the shift to technology has been slow.

While the COVID-19 pandemic forced the hands of many smaller financial institutions, there is a mindset of resistance when it comes to implementing financial technology practices. This often hinders the results that the technology can provide, since bankers try to make the tech fit to their processes rather than the other way around. Learning new methods to do something you’ve done your entire career can be daunting, but the results for your customers and your institution are worth tackling the learning curve.

Download the whitepaper

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3

When's the Right Time to Switch? Timeline

What happens if a bank doesn’t have a loan origination system?

When a bank or credit union doesn’t have a loan origination system implemented, everything is done manually. Borrowers might have to fill out paperwork by hand or return it to the office in person, causing delays. There also might be inconsistent decision practices, making for an unstable portfolio. 

Without a loan origination system, bank employees spend time on data entry and other clerical tasks rather than being able to help customers and grow the business.

Customer and employee expectations are becoming more and more demanding as personal technology continues to evolve and is becoming more widely adopted.

Without a modern loan origination system, your financial institution could lose out on new opportunities as well as the top talent needed to drive your bank or credit union forward.

An infographic showing the key benefits of Baker Hill's loan origination system.

Woman checking loan progress from her financial institution's loan origination software on her phone.

Meeting the On-Demand, Digital Expectations of Today’s Borrowers

These days, consumers can accomplish just about anything thanks to connected devices, whether a smartphone, tablet or smartwatch. Smart assistants have taken this idea even further, allowing consumers to complete certain activities, such as purchasing household items like laundry detergent, by a simple voice request. As a result, consumers have expectations that are higher than ever, including when it comes to managing their finances and even when applying for a loan. However, the lending process for many financial institutions is still wrought with friction, which negatively impacts the borrower experience.

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Cover of case study with Western Alliance Bank that discusses why they use Baker Hill's loan origination system.

As Western Alliance experienced this rapid growth, the bank recognized the importance of streamlining and automating the business loan origination lifecycle. This would help the bank manage increased loan volume maximizing efficient staffing. Instead of managing a manual underwriting process, Western Alliance sought a more efficient solution for responding to business loan applications. This would enable the bank’s loan officers and relationship managers to focus more time on business development efforts and pursue larger loan opportunities, rather than spending time processing smaller credit requests.

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4

How Do You Choose the Best Solution? Features

When it comes to implementing technology into the branches, many choose to try and piece meal different products and systems together. 

While you might think you’re saving money by only buying certain products from certain vendors, you’re most likely losing key integrations that come from having a single solution. What’s more, trying to do some pieces manually and other pieces through a software is often clunky at best, leading to missed opportunities or wasted resources.

Multiple, disjointed systems don’t enable collaboration throughout the lending workflow. This can lead to inefficiencies in the loan origination process as well as data silos, multiple systems to manage and higher costs of ownership.

Choosing one provider for streamlining loan origination processes will maximize convenience and ease of use while boosting productivity of your employees as well as profitability.

Tips for Selecting a Loan Origination System

Selecting a loan origination system is one of the most important decisions your financial institution will make. When you upgrade to a state-of-the-art commercial loan origination solution, you can expect:

  • Boost your operational efficiency and make faster, more reliable credit assessments.

  • Added flexibility and customization. Take the headache out of software integration. Modern loan origination systems are scalable and configurable around your needs.

  • Increased collaboration and usability. Ditch the silos and keep everyone in the loop with powerful reporting dashboards.

  • Maximized profitability. Stay competitive and get better results by leveraging analytics to manage costs.

  • Simplified compliance. Say goodbye to regulatory pressures with increased security.

Man looks at loan origination system features available on a tablet.

Are You Ready to Consolidate Your Systems?

Financial institutions today often use a combination of multiple, disjointed systems for loan origination and portfolio management, limiting their ability to compete effectively with the largest institutions and maximize profitability all the way down to the account level. Increasingly, more institutions are looking to replace multiple systems with one, single common loan origination system as a way to up their ante and become more competitive.

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Selecting a commercial loan origination system is one of the most important decisions your financial institution will make.

With the right advice and robust tools, you’ll increase efficiency, manage costs, and meet regulatory challenges. When you upgrade to a state-of-the-art commercial loan origination solution, you can expect:

  • Improved accuracy and speed. Boost your operational efficiency and make faster, more reliable credit assessments.
  • Added flexibility and customization. Take the headache out of software integration. Modern LOS platforms are scalable and configurable around your needs.
  • Increased collaboration and usability. Ditch the silos, and keep everyone in the loop with powerful reporting dashboards.
  • Maximized profitability. Stay competitive, and get better results by leveraging analytics to manage costs.
  • Simplified compliance. Say goodbye to regulatory pressures with increased security.

Visit the guide to learn more  

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5

Why Choose Baker Hill's LOS Conclusion

Why do financial institutions choose Baker Hill’s loan origination system?

Baker Hill NextGen® is engineered to adapt to the evolving needs of financial institutions. The end-to-end platform incorporates all features of lending, risk management, and analytics into one powerhouse lending software solution. Baker Hill delivers a holistic banking platform with intuitive interfaces for both bankers and clients.

Our scalable features make it easy for financial institutions of all sizes to solve for common problems. With Baker Hill NextGen, your financial institution can effectively generate growth, manage risk, and increase profitability with features and functionality that provide a positive impact.

Gain Efficiency

Designed to automate processes and eliminate re-keying of information, Baker Hill NextGen has built-in features that create more efficiency and streamline your lending workflow.

Reduce Risk

Redefine the way you manage loan portfolios and improve the quality of your portfolio by turning reactive, manual account review into an automated, continuous process. Save time, mitigate risk, and gain a full view of your loan portfolio.

Drive Growth and Profitability

Make decisions based on data, not guesswork. Attract and retain valuable clientele with a solution that combines business processes and customer information into your loan origination system.

Additional Resources

Guide: 5 Steps to Choosing the Right Loan Origination System

Podcast: Can You Be Great Bank Without the Right Tools and People?

Podcast: Banking Digital Transformation - Product vs. Ecosystem

Blog: The Efficiency Factor: New Loan Origination Tools for Easier Banking

Blog: Are You Digitally Ready For What’s Next in Banking?

An infographic showing why financial institutions choose Baker Hill for their loan origination system.

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Ready to transform your institution with a Loan Origination System? We can help. Let's Talk

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Baker Hill is in the business of evolving loan origination by combining expertise in technology with expertise in banking. Baker Hill NextGen® is built on decades of walking alongside banks and credit unions as they provide vital resources to their communities. A configurable, single platform SaaS solution for commercial, small business, consumer loan origination and risk management that grows along with you as your business needs change, Baker Hill is lending evolved.

Selecting a loan origination system is one of the most important decisions your financial institution will make.

Learn how to Choose the Right Loan Origination System