Loan origination software: Why it is popular among SMEs?

Loan origination is no longer the extended, laborious process we knew it as, a decade back. For years, traditional banking methods had us believe that loan sanctions were not an easy feat to achieve. Applicants needed to be present throughout the application process which could lead to weeks and in cases, months till they were approved and the amount was credited to the their account.

The tech and finance integration has helped revolutionize lending in various ways. Loan origination, approval, disbursal, and monitoring don’t have to be tiresome anymore. They can all be done on one platform, remotely, by giving stakeholders only the amount of access they need to get their job done. This helps in streamlining the entire process. By doing this, fintech has allowed loan origination to be completed  in hours for certain cases


The history behind this

SMEs have never had it easy when it came to acquiring loans from traditional banks. Start-ups too faced their own share of difficulties given their weak or non-existent credit scores and limited historical data to share as documents for loan application.

The rigid banking system did not allow any leeway to these small businesses to get quick loans which they often needed to ensure or business continuity. The financial meltdown during 2008 added to this issue. Traditional banks had to now adhere to strict compliance requirements. This made loan applications for smaller amounts less desirable for them. Instead, they started focusing on enterprises and the big fishes who applied for bigger loan amounts and in most cases fit into the compliance requirements as laid down by the central banks.

SMEs started looking for other sources and flitted towards unlisted and indigenous lenders who would lend money at higher than the prevailing rates of interest. The dichotomy between the formal and informal banking sectors was huge. And SMEs slowly found themselves caught up in the latter. The increasing rates of interest and piggybacking loans created further pressure on business owners. Slow markets, downtime, off-demand seasons would hurt their cash flows further, thus making it difficult to stay afloat comfortably, or at all.


The current situation

Fintech played a major role in changing this situation. And loan origination software is just the tip of the iceberg. Small business lending software democratized easy lending. It allowed everyone, right from traditional banks to credit unions, smaller players, and P2P lenders in the market dole out quick loans by slashing underwriting time and costs to half or sometimes more.

Easy financing options is no longer a worry for business owners. They know the market is ripe with lenders who are providing loans at competitive interest rates and that they can access the loans from the comfort of their homes/offices.

They no longer need to wait in long queues to apply or submit documents and visit again for verification. Everything can be taken care of digitally, online.

In short, small business lending software packs in a host of loan origination benefits that help streamline disjointed lending processes and automate them. A complete transformation that makes the lives of millions of SME and start-up owners easier.

The pandemic has also contributed to the sudden spurt in lending using loan origination software. Needs such as social distancing, virtual transactions and verification, instant funding to keep businesses afloat, have fuelled online lenders to add more features to their lending platforms. They are striving to make the lending process easier for their customers and capture market share using competitive pricing and easy to use apps and software.

Also read: How COVID-19 has changed the demand for SME lending?

Let us take a look at some of the benefits that small business lending platforms offer to SMEs.


Loan origination software benefits


Small business lending software help streamline and automate the entire process[1] thus reducing errors, misplaced documents, and overlaps. Right from application to funding, the entire process is digitized hence making loan origination easier than ever.

The best part about this software is that it can be easily customized by lenders to meet their specific requirements and match their individual lending processes. For example, a B2C fintech lender might need to set up different processes and timelines as compared to a B2B fintech lender. Easy configuration is one of the cornerstones of good loan origination software. It makes the loan journey a lot easier for both lenders and borrowers.

Easy data entry: Small business lending software allows for easy data entry. Extracting information from the application and entering them into the correct fields is a task that has been done manually all these years. Fintech has allowed the automation of this otherwise mundane task and also helped reduce errors in the process.

Easy decision making: Decision making has also been a manual task and often subjected to bias. Automation removes the possibility of bias and uses historical data, patterns, and machine learning to automate decision making. This also reduces origination time substantially because of lessened dependence on human intervention.

Easy underwriting: Underwriting is a critical part of the loan origination process. Automating processes like verification and decision making, underwriting becomes a cakewalk for lenders. They can thus, pass on the time and money benefit to their customers in the form of competitive interest rates to gain more market share. This makes loan origination software popular among both lenders and borrowers.

Easy verification: Assessing the creditworthiness of the applicant is key to ascertaining loan amount and interest rates. Small business software no longer just rely on traditional credit rating agencies. They allow the lender to access credit information from a host of third-party sources, agencies, bureaus, and valuation resources. With access to a host of data, lenders can make better lending decisions that fit the requirements of both parties well.



Traditional lending organizations have also recognized and acknowledged the benefits of small business lending software. A large number of them have integrated this software into their legacy solutions and smaller lenders have replaced their legacy software with new ones entirely.

The 2020 Paycheck Protection Program ushered in a quick and much-needed transformation in the banking sector when the federal government directed banks to dole out sums to help small businesses manage their business expenses and payrolls. These banks then had to bring about changes to their lending processes almost overnight to meet the mounting need for loans among small businesses in the country.

This shows the effectiveness of loan origination software and also the ease with which they can be integrated into both old and new lending systems. SME business owners are now aware of loan origination software benefits and prefer borrowing from lenders who use this software for quick and easy loan disbursal and management. The popularity of loan origination software among SME businesses is only going to grow manifold in the coming years.


  • July 8, 2021