Is It the Right Time to Upgrade Your Commercial Loan Origination System?

When it comes to significant software purchases like a commercial loan origination system, is there every really a perfect time to upgrade? You might be torn between waiting for a booming market when loan volume is high or waiting for loan production to be lower, hoping to capture a larger win share. Today we’ll look at each option in turn to determine what considerations a bank or credit union should make before investing in a new piece of software.

Upgrading your commercial loan origination system when originations are up:

Advantages:

The obvious answer is to invest in a commercial loan origination system when origination volume is up. Larger than normal loan production usually comes with a need to hire additional staff. Software that drives process efficiency is typically measured by doing more with less. By replicating credit policies and procedures in a commercial loan origination system, financial institutions can reduce time spent on administrative tasks like pulling together exposure, completing checklists, and building credit memos. A commercial loan origination system can create more capacity in an organization to complete more deals without the need for additional resources aggregating data, collecting documentation, and moving physical loan packages through the process. From there, each bank or credit union can create an ROI for the project just in terms of cost avoidance associated with supporting the increased volume.

Things to Consider (disadvantages):

Boom times don’t come without risk though. If we can be sure of anything it’s that the market will always turn down at some point. To mitigate this, avoid focusing your entire definition of “good” around that cost avoidance model. You need to make sure you account for the value of process consistency, compliance, transparency of the data, and all the other benefits of a digital lending process so that the decision to upgrade your commercial loan origination system isn’t questioned when you no longer have the loan volume to capture with the added capacity to work deals. A boom time can also be a risky time to start a commercial loan origination system upgrade project. Too often, organizations try to just replicate existing processes and procedures in new software to try and get to market quickly. This is a cardinal sin of implementing workflow-based platforms. If you don’t take the time to define the appropriate target operating model that considers process changes to fit the technology you’re adopting and maximizing the automation and tools it provides, you can end up losing out on the forecasted efficiencies that caused you to select the solution in the first place.

Upgrading your commercial loan origination system when originations are down:

Advantages:

It seems counter-intuitive to invest in a bear market but it’s when you can get the best returns from upgrading your commercial loan origination system. When loan volumes are down there is added competition for each individual deal as all the financial institutions in competition with each other all try to capture the same loan dollars they have in previous years. It’s imperative to the success of your organization to increase your win rates, deal sizes, and the number of opportunities you pursue if you don’t want to see a decline in revenues. That can be done by making the lending process simpler on your borrowers, shortening approval times, and maximizing your credit policies. All of those are empowered by digital approaches to commercial loan origination. Whether it’s providing a portal for online exchange of documents, leveraging auto decision rules for smaller credits freeing up your underwriters to focus on larger more complex deals, reducing back and forth movement in process stages due to incomplete data, or automation of administrative tasks; technology will put you in a position to win more deals when you desperately need them.

Things to Consider (disadvantages):

That’s not to say that you should always wait until volumes go down to rethink your processes and invest in upgrading your commercial loan origination system. You may find that you have already lagged your competition who invested when times were good. If they took advantage of the bull market to further their competitive advantage you may find it difficult, if not impossible, to catch back up. You may also not have sufficient volume of specific loan types, structures, or risk profiles to effectively test the solution you put in place. When you’re looking to digitize your process, procedures, and policies you need to have enough of a sample size to review with your solution provider to ensure that it accommodates the real life scenarios you will encounter.

Conclusion:

Why now is always the perfect time to upgrade your commercial loan origination system?

Maybe we should all look to the greatest investor of our time, Warren Buffet, as we think about whether it’s the right time to invest in your commercial loan origination system. When he is deciding where to invest next, he’s not looking to catch every dip in the market or buying into the major index funds. He’s not relying on insider tips or trying to find the next unicorn that could also just be a flash in the pan.

Rather, he’s constantly looking to invest in companies that are built to last. He does tireless research on all the companies in the market segments that he understands. Whenever he finds one, he invests (or buys it outright these days.) We should think the same way, constantly evaluating the technology options available to us and which one fits the needs of our organization and the increasing demands of our borrowers. When you find one that aligns with your lending approach and gives you the digital capabilities required in this day in age you should invest right away. Don’t miss out on the compounding effects to your loan growth, profitability, and win rates that technology provides waiting for the right time. It’s always the right time to upgrade your commercial loan origination system if you’ve done a thorough evaluation and identified that there’s a better, simpler way to lend.

At Baker Hill we believe lending should be simple. Reach out today and we can help you build the case that now is the time to transform your commercial lending approach with our commercial loan origination system.

You might also like:

Guide: 5 Reasons to Upgrade Your Commercial Loan Origination Software

Guide: 5 Steps to Choosing the Right Loan Origination System

Blog: Why Financial Institutions Switch to Baker Hill NextGen®

Author Bio

After graduating from the University of Cincinnati, Bryan began his career in banking as an Information Security Auditor and has spent most of his career helping financial institutions solve their largest problems through technology.