Why would a prospective borrower choose a community bank with loan applications that still use paper forms, printed records and a branch visit to begin the application process, when they can select one that has an online loan application system that takes minutes? In today’s digital-first world, clients’ increasing expectations are putting pressure on banks to deliver a simple, clear and responsive experience.

Business loan automation can help with digital transformation efforts, allowing a bank to scale within its preferred risk. It can increase application growth, increase speed to funding, decrease decision time and lower default risk.

Automation puts a digital infrastructure around the loan origination process, where humans set the rules and the software handles the heavy lifting. Its ability to start small and expand means it can adapt to meet the unique needs of each financial institution.

At a high level, loan automation software works to:

  • Analyze customer-submitted data. The customer submits required information, such as files and documents necessary to the application process, via a secure digital portal.
  • Analyze third-party data. Through application programming interfaces, or APIs, the software communicates to third-party data sources, such as banks and credit bureaus, to obtain cash flow information, tax returns, verification of identity, business and personal credit scores and more.
  • Analyze risk with machine learning. The software analyzes and processes the gathered data and generates a risk score. This saves a bank employee from having to comb through mountains of data.
  • Make intelligent, rules-based decisions. The software passes all the data through a decision-making engine based on a bank-defined credit policy and credit risk appetite. The digital lending software makes credit decisions in real time.

Power and Scale
Automated loan origination is meant to operate based on the bank’s existing lending process – just as any bank employee would. But the software can process more data points, process applications faster, and do it at scale.

Community banks that don’t have the budget to hire a large workforce can augment their existing workforce with loan automation software, leveling the playing field with larger competitors. Automated, rules-based lending platforms can provide the following benefits for community banks:

  • Efficiency: Streamline every step of the process and eliminate manual processes. This allows banks to service a higher volume of borrowers without the need to hire additional staff.
  • Accuracy: Optimize the application processing for accuracy, since the software uses the specific rules set up by the bank. This reduces human error in the process.
  • Consistency: Loan decisions are consistent and predictable, based on the bank’s underwriting policies and risk appetite.
  • Compliance: The software can automatically collect and store necessary documents in accordance with the bank’s record retention policies.
  • Customer service: A digital platform gives both banks and borrowers a place to upload all necessary documents and communicate back and forth. Banks can leverage this platform for ongoing relationship management while allowing customers to complete their applications when and where they choose.
  • Customer experience: A digital application means customers don’t need to print anything out or make unnecessary trips to a local branch, and they receive a loan decision faster.

The bank has the power and scale to automate its business loan decisions without increasing risk – a true win-win for the bank and its customers.

Automation Versus Partial Automation
The reality is not all banks will opt to shift their traditional loan application process to a full digitization overnight. These things take time, buy-in and a lot of due diligence before selecting an appropriate banking platform for an institution.

Executives should keep in mind that they can still use loan automation software to facilitate a bank’s digital transformation at their own pace. For example, a bank can start by partially automating certain loan workflows before having them reviewed and approved by a human employee. Banks can get comfortable with the software, test it in a live environment and gather the necessary data to feel confident before automating additional parts of the loan origination workflow.

This piece was originally published in the second quarter 2023 issue of Bank Director magazine.


Darren Hecht