A Cloud of Certainty for Loan Servicing

By: Andy Morrise
August 14, 2020

Loans are popping up everywhere. Whether it’s large lenders offering new products, tech companies looking for a new way to improve an old practice, new startups, or known-brands trying to monetize a user base, more and more companies are moving towards loans.

And lending is a great business model. A loan is more than a single transaction, it is a long-term revenue stream. As someone who has worked in the lending industry for over 10 years, I’ve seen lenders come and go. I’ve worked with companies that were a flash in the pan, raising a lot of capital and deploying it quickly, only to fail after a few years. I’ve also seen companies base their entire business on a lending strategy, but change their fundamentals as they learned through growth.

As a lender, it’s tempting to focus on the beginning of the lending process. If you ask most lenders, the thing that sets them apart from the others, their “secret sauce”, falls into the customer acquisition, underwriting, or decisioning steps of giving a loan. Don’t get me wrong, choosing and attracting the right borrowers is an important step of the process, but it’s far from the only step.

Companies downplay the importance of loan servicing. They put it on the back burner and decided they’ll “get to it when they get to it”. But, after the excitement of acquiring a customer has passed, the reality of collections, loan management, and customer service sets in. The reality I’ve seen is that giving a loan in a clever way, while important, can give a false sense of confidence. But, if your “secret sauce” is optimum loan servicing, your lending company will be perfectly scalable. A servicing focus will help you establish a linear relationship between the more money you put in and the more money you get out, turning your lending into a cash machine.

So, how can you increase transparency in loan tracking, streamline your lending processes, cut down on personnel costs, and increase your collections? One way that lenders are achieving these important results is through cloud-based loan servicing software.

Cloud-based software has the ability to make all loan information available anywhere the Internet can be accessed. Data can be consolidated and organized well. A loan account can show the borrowers on a loan, their references, credit score, payments, amortization, uploaded loan documents, communication history, downloadable forms, and more. A loan file should be a one-stop-shop for information about that loan. If loans are securitized and sold, all this data should go with them, making them more valuable to boot.

At its core, loan-servicing software should accurately calculate, record, and track loans. When done in the cloud, your software becomes a reliable source of truth. Input to the software can come from any employee or even borrowers themselves, without duplicating work or corrupting files. Because of this, cloud-based loan software tends to add transparency in lending.

One of the biggest questions lenders ask when looking at software is, “How will this fit into my current processes?” Traditional loan servicing, using a local system, can be difficult. Traditional software has to be installed on each computer where it’s used, or it has to be installed on the company network and accessed remotely. This makes it much harder to make loan servicing a collaborative effort. Instead, loans have to be worked on by one person at a time and coordination between coworkers requires a lot of effort and organization.

Cloud-based loan servicing has become recognized as a better solution because it’s easier for a company to keep existing processes while using software as an organized system of record for loans. A cloud-based system can be used out of the box, without the need to install software.

Most modern loan-management systems (LMS) have recognized that lending is a process, not an event. A good LMS will offer customization and workflow automation. If you’ve ever worried about how you would handle and SCRA interest rate adjustment, a bankruptcy, a write-off, or any of the other scenarios that deviate from the happy path of lending, a good cloud-based LMS could make a marked improvement to your servicing.

One of the biggest advantages of cloud-based servicing is that cloud-based software is connected software. Most cloud-based solutions make it easy to connect with payment processors, data providers, and communication services. Lenders appreciate the ability to take payments, look up bankruptcy status, or follow OFAC compliance rules in the same system where the rest of their servicing is done.

If your employees spend significant time sending email, SMS, or print communications to your borrowers, you should consider the advantage of automating these things using a cloud-based LMS. Most cloud-based servicing software connects to one or more of these services, and will perform tasks like sending loan statements automatically, without any user input.

I worked with a company a few years ago that decided to transition to a cloud-based solution. They had been using a desktop system that was first developed when personal computers had just started to gain traction in the market. This company had been operating for years on a system that provided little transparency. Notifications were routinely ignored because reconciling the work of multiple employees on a single loan often led to small errors that were considered unavoidable.

When this company extracted their data from this old system and imported it to their cloud-based software, they discovered $32,000 in outstanding principal, interest, and fees that they didn’t realize they had, and hadn’t been collecting on! Their old way of accepting payments, which had taken 20 hours of employee time each month, now took less than an hour. Everything became visible, and customers were regularly contacted with no ongoing effort.

If you are a lender trying to take your lending to the next level, consider using a modern, cloud-based, loan-servicing software platform. Let your vendor worry about uptime, data backups, and software improvements. Get the scalability, transparency, connectivity, and central source of truth that will elevate your servicing and make your business more profitable.
By: Andy Morrise with LoanPro Software.