2023 Trends in Loan Origination and Management
Amidst high interest rates and steep costs of capital, loan management technology will play a significant role this year when it comes to helping commercial lenders maintain profits and establish a competitive edge.
In today’s market, lenders who implement end-to-end software with advanced data management features and AI-powered automations are sure to come out ahead. Let’s take a closer look at several key trends in digital loan management technology:
1. Data Centralization and Automation
Commercial and middle-market loans rely on a great deal of data, and this data must be effectively maintained and analyzed. Yet even as data takes on an ever larger role in commercial lending, many lenders today have not yet adopted value-generating practices.
Lenders who automate data handling and analysis are sure to enjoy more streamlined processes, improved efficiency, and reduced risk levels. Here are some robust data management features to look out for:
Fully-centralized data architecture
When data is maintained cohesively, lenders can easily tap into a single source of truth — rather than having to parse out data from multiple sources.
Automated analysis and actionable data insights
For lenders, value is generated not by data alone, but by the actionable insights deduced from the analysis of that data. And, these insights are greatly limited if an organization’s data has to be manually aggregated and analyzed. By implementing a loan management system with automated data handling and analytics, lenders can quickly gain the actionable insights they need at significantly reduced costs — in other words, lenders can get the gold without having to do the mining.
2. Digital Lending Transformation
Digital transformation — which refers to the large-scale implementation of advanced technologies to create meaningful change — is beginning to accelerate in the commercial lending space. For years, financial institutions have been lagging in the adoption of new digital solutions. Yet as adoption finally starts to pick up, commercial lenders must now adapt or risk falling behind.
What does this look like for lenders? Lenders that embrace digital transformation are increasingly relying on end-to-end loan management SaaS platforms that introduce machine learning and automation into every step of the loan lifecycle (see #4 below).
3. Seamless Underwriting Process
A streamlined application and underwriting process is key to generating traction with borrowers in this competitive environment. Some features to look out for when upgrading your underwriting process include:
Online applications and onboarding workflows
Eliminating physical paperwork and wet signatures speeds up account onboarding timelines while vastly improving the borrower’s experience.
Automated financial and banking data acquisition
This greatly reduces the burden on the borrower to continuously aggregate and submit information by email or by uploading it to the cloud.
Automated financial spreading, risk models, and scoring tools
These functionalities reduce manual decisioning, which is key to decreasing approval time while maintaining underwriting quality.
4. Generative AI Capabilities
Traditionally, loans have been managed entirely manually in more complex lending segments — such as SMB, middle-market, and structured finance. This is because existing software systems haven’t been able to effectively manage the complexity and variance of such structures. However, this is beginning to change — thanks to the latest generation of loan management solutions that can automate core processes.
Generative AI-powered solutions like AXIS by AIO Logic are able to pace conditional workflows and seamlessly optimize operational paths for users — similar to how a GPS optimizes your route while you are driving. As a result, lenders can:
- Originate loans more efficiently
- Improve risk level monitoring
- Aggregate and analyze diverse data
- Manage compliance, servicing, and reporting for complex and bespoke loan structures
5. ESG (Environmental, Social, and Governance) Data Tracking
As socially responsible investing becomes a higher priority for investors, the ability to effectively track and report on ESG data will stand out as a major differentiator among asset managers. AXIS by AIO Logic provides integrated ESG tracking tools to generate ESG data at the borrower level, which is then displayed on robust, easy-to-read dashboards.
6. Slimmer Tech Stacks to Reduce Overhead Costs
While interest rates may drop a bit in 2023, rates and costs of capital will continue to remain high. This will encourage lenders to pursue ways in which they can reduce costs of capital — such as by offering different loan structures, moving to variable rates instead of fixed rates, and replacing multiple software licenses with one end-to-end solution.
Digital transformation is the strategy that allows lenders to slim their tech stacks. Lenders who undertake this approach are realizing that complex, multi-platform integrations pose significant problems — most notably, steep upfront and ongoing costs as well as exceedingly long deployment times. Multi-system solutions also require ongoing maintenance, which means organizations must have in-house tech resources.
Switching out many software licenses for a single, end-to-end loan management solution greatly cuts down on overhead costs and maintenance needs, while also vastly improving operational efficiency.
