What is a loan management software?

A loan management software is the operating system for lenders, without which most modern and progressive lenders cannot succeed. But do you even know what it is? If you’ve been wondering what a loan management software is and how exactly it works. Allow us to do the honours of demystifying this for you.

A loan management software (LMS) is any software platform that helps to automate some or every stage of the loan lifecycle. It’s used to manage the lending process, from application till closing. However, not all LMS is born the same, and many factors must be considered before choosing one.

Types of loan management software

Spreadsheets

You could use a spreadsheet as a loan management software, keeping track of the money you’ve gotten from investors and the money you lend using simple formulas to calculate the money you lend and your profitability. Obviously, this doesn’t scale and is fraught with errors. You could also lose your files, and that’s not good enough in the long run. 

Installed software

You could also have a loan management software built for you alone. It may also be a legacy software bought and installed like a PC software. This software helps book and manage your loans, sends out invoices for repayment and all other lending processes.

Cloud software

The cloud loan management software is more sophisticated and leverages cloud computing technology to transform the lending process. Examples of cloud LMS providers include Loandisk, LendingPad, TurnKey Lender and lots more. 

Lending-as-a-service (LaaS) platform

This type of loan management software harnesses the lending process end-to-end. It operates on a Software as a Service (SaaS) model, providing lenders with core loan management functionalities and channels, integrations, capital, and advisory. Examples of LaaS providers include Lendsqr and Evolve Credit.

Now that we’ve tackled some of the types of LMS available, let’s take a closer look at the intricacies of some well-known categories of loan management software. 

Categories of loan management software

1. Standalone

Cost

Compared to other LMS, standalone options are often more expensive and less capable.

Capability

– Otherwise known as Independent loan management software.

– Standalone platforms are typically designed with a user-friendly interface, making them easier to learn and navigate, especially for smaller businesses or those new to loan management software. 

– They also offer greater customisation and flexibility, allowing customisation to your specific lending needs without modifying existing enterprise resource planning (ERP) systems. 

– Lenders focused on specific loan types, like microlenders or businesses that offer loans as a secondary service (An example would be offering loans to staff to cushion the effect of inflation), can benefit from the simple and focused feature of the Standalone LMS. 

– However, if you anticipate significant future growth or plan to scale further, the Standalone LMS is unlikely to cover scalability needs.

Channel

Web app

2. Cloud-based

Cost 

Cloud-based LMS typically follows a subscription-based pricing model, charging monthly or annual fees. Vendors who provide cloud-based LMS handle server maintenance and upgrades, allowing you to pay only for the resources you use.

Capability

– Unlike traditional lending software, which requires local installation and maintenance, cloud-based solutions reside on remote servers and are accessed through the Internet.

– Eliminates the need for expensive upfront infrastructure investments and ongoing IT maintenance costs associated with traditional loan management software.  

– Automates the loan application process, collects borrowers’ information, and streamlines document management. 

– Analyzes borrowers’ data and helps a lender make informed decisions about loan approvals. 

– Manages defaulting accounts and automates collection processes with payment integrations such as direct debit.  

– Before you opt for a cloud-based solution, consider factors such as the size and complexity of your loan portfolio, the types of loans you plan to offer, and the level of customisation required.

Channel

– Web app

– Mobile app

– Web SDK

3. Full-service

Cost

Subscription-based pricing model, charging monthly or annual fees.

Capability

– Also known as end-to-end loan management software(LMS).

– It simplifies application intake, data collection, and verification.

– Creation, modification and management of loan products and portfolios.

– Integrates with credit bureaus and decision engines to improve your credit decisions.

– Tracks late payments, triggers notifications, and facilitates payment collection.

– Generates reports on loan performance and overall loan business health.

– Multi-modal payment integration channels

– API integration

– Messaging system

– Room for external decisioning integration

– They are immediately ready to use, and you can start using them within 2-3 days of buying a subscription.

– Vendor-provided full-service LMS offers professional support, regular updates, and seamless integration with other financial systems.

Channel

– Web app

– Mobile app

– Web SDK

– API

– Buy-now-pay-later

Remember, the software you choose can make or break your loan business. It can be the defining factor in how well your loans will stand out in a crowded market. 

Now, let’s take a look at some of the core features of a proper loan management software you should watch out for

Core features of a loan management software

• Manage the entire credit lifecycle: A proper LMS must be able to manage the entire credit lifecycle, from application processing and credit decisions to disbursements, repayments, and collections.
• Loan products creation: You must also watch out for an LMS’ ability to design and configure a variety of loan products with customized terms and conditions to meet diverse borrower needs.
• Customer data management: Another core feature of a good LMS is its ability to securely store and manage your borrowers’ information, facilitating your informed decision-making during loan approvals.
• Decisioning tools: A good LMS must also provide you with decisioning tools and access to credit bureaus to aid you in assessing creditworthiness. 
• Accounting package: While Lendsqr is yet to offer the accounting package yet, it’s always an added advantage when a loan management software can provide the accounting feature for lenders.
• Multi channels: A major feature that a good LMS must offer is the multi channel option. It offers your borrowers multiple routes to interact and transact with your loan business, including web and mobile apps.
• API integration: This feature helps a lender get access to third-party platforms to improve their overall lending process. A good example is the Karma API Lendsqr provides lenders; an extensive private credit defaulter blacklist.
• Messaging system: This helps a lender to manage communication with their customers within the LMS. Communication channels include email, SMS, in-app notifications, and even RCS. For example, some LMS come with embedded chat. 

Beyond the basics, are you ready to set sail? 

A loan management software is a must have for any loan business that wants to succeed. They help to launch faster, automate processes, and reduce risks and errors.

Lendsqr is a full-service LaaS platform that incorporates most of the top-notch features you could ever want to have in a loan management software. Best of all, it’s free to start using it.