The 4 Stages of the Loan Origination Process: A CRE Lender’s Comprehensive Guide

Commercial real estate lenders—those who get deals done—spend an estimated staggering 300 hours of their time on tedious, time-consuming tasks like data entry. That’s time that could be spent making strategic lending decisions. 

In an industry where speed can differentiate between winning and losing a deal, the loan origination process is surprisingly inefficient for many lenders.

Commercial real estate loan origination covers the entire journey from application to funding. That journey requires attention to detail, robust risk assessment, and compliance with ever-changing regulations. For CRE lenders who want to stay ahead of the competition, mastering each stage of that origination process is no longer optional.

In this article, we’ll walk you through the four stages of the loan origination process that every CRE lender should optimize for efficiency and accuracy. We’ll explore how digital loan origination systems are revolutionizing each phase and helping lenders ditch those clunky paper workflows for streamlined digital experiences.

Stage 1: Loan Application and Pre-Screening

The foundation for the entire lending process is laid during this initial stage. Lenders collect borrower information and do some initial risk assessments to see if the application is worth moving forward with.

The loan application process begins with gathering essential documentation, including:

• Financial documents such as tax returns and bank statements
• Property details and valuation estimates
• Employment details and business structure information
• Credit history from credit bureaus
• Debt-to-income ratio calculations

This pre-qualification process lets lenders quickly assess risk and determine the borrower’s creditworthiness before investing too much in full underwriting. Commercial lending software can speed up this initial stage by automating data collection and verification. 

Many lenders still rely on paper forms and manual data entry, which makes this phase unnecessarily time-consuming. Advanced loan origination systems can electronically capture and validate borrower data, reducing loan processing time while improving accuracy. They can also automatically pull credit scores and other relevant information from credit bureaus.

The pre-qualification process acts as a filter, allowing lenders to focus on viable loan applications while giving borrowers quick feedback on their eligibility. That early engagement contributes to overall satisfaction throughout the loan journey.

Stage 2: Underwriting and Due Diligence

Once an application passes the initial screening, it moves on to the underwriting stage, the most complex and resource-intensive part of the commercial loan origination process. Underwriting involves a deep dive into both the borrower and the property serving as collateral.

The credit department looks at:

• The borrower’s credit score and payment history
• Financial details and statements
• Property valuation and market analysis
• Environmental assessments and regulatory compliance

That’s where the real work begins and where having the right technology can make a difference.

For CRE lending, this stage is particularly complex due to the nature of commercial properties and deal structures. Lenders assess multiple risk factors at once, often requiring specialized expertise across multiple domains, such as real estate valuation, financial analysis, and regulatory compliance.

CRE software with automated underwriting systems can speed up this process by:

• Centralizing all financial documents in a digital repository
• Applying standardized risk assessment models
• Flagging potential compliance issues
• Generating detailed reports

The underwriting fee many lenders charge reflects the work involved in this stage. However, robust loan origination software can reduce the labor costs of manual underwriting while improving accuracy and consistency in credit decisions.

By digitizing the underwriting stage, lenders can create efficient processes from application to approval faster, a critical advantage in the fast-paced CRE market. Commercial real estate software lets underwriters focus on applying their expertise rather than paperwork.

Stage 3: Loan Approval and Documentation

After underwriting, business loans move to the approval stage, where lenders finalize terms and prepare documentation. During this stage, the loan product details are locked in, including:

• Specific loan amount approval
• Interest rates and repayment schedules
• Loan agreement terms and conditions
• Required documentation for closing

The approval process involves multiple stakeholders from various departments who must review and sign off on the final loan terms. Without digital systems, this can become a bottleneck, delaying approvals and potentially killing deals.

Mortgage lending software streamlines this stage by facilitating team collaboration and automating document generation. The technology ensures all loan terms are reflected in the necessary documentation, reducing errors and improving compliance.

Quality control is also critical in this stage, as documentation errors can lead to legal issues or compliance problems down the line. Digital loan origination systems have built-in compliance checks and verification processes that reduce those risks.

The loan agreement is the formal contract between the lender and borrower outlining all conditions and obligations. Creating these agreements manually is error-prone and inefficient. 

Modern loan origination software can generate standardized yet customizable agreements that ensure all necessary protections are in place while speeding up the documentation process.

Stage 4: Loan Closing and Funding

The final stage of the origination process is executing all approved documentation, transferring funds, and transitioning the loan to servicing. This loan funding stage requires careful coordination to ensure all regulatory requirements are met, and all parties fulfill their obligations.

Key components of the closing and funding stage include:

• Document execution and notarization
• Fund disbursement procedures
• Recording of security instruments
• Transfer to loan servicing systems

The loan closing is where all that hard work pays off or can come undone. Complications at this stage can delay funding or even derail a transaction. That’s where a digital loan origination platform can make a difference.

Blooma’s platform streamlines the onboarding process for new loans into servicing systems. This keeps data continuity and accountability in check. Our loan management system maintains data integrity from origination through servicing. 

That means you don’t have to worry about redundant data entry or information getting lost between systems.

Key Challenges for CRE Lenders in Each Stage

When CRE lenders proceed throughout the entire loan origination process, they face a host of challenges that can impact efficiency and profitability. Here are just a few:

• Data Silos and Manual Workflows: Disconnected systems require duplicate data entry and impede information sharing across departments.
• Regulatory Compliance Complexity: Constantly evolving regulations make compliance a moving target that requires continuous monitoring and adaptation.
• Risk Assessment Accuracy: Traditional methods may not fully capture the nuanced risk profiles of complex commercial properties.
• Process Visibility: Tracking applications through various stages becomes difficult without centralized systems.
• Customer Experience: Borrowers increasingly expect digital convenience and transparency throughout their loan journey.

These challenges are particularly tough for lenders relying on legacy systems or paper-based processes. That’s where technology can really help.

How Technology Enhances the Loan Origination Process

Digital loan origination has revolutionized how lenders approach each stage of the process. Technology solutions provide a range of advantages and enable lenders with the following:

• Automated Data Collection: Systems can automatically gather and verify information from multiple sources, reducing manual input requirements.
• Centralized Information Management: All loan data resides in a single platform accessible to all relevant stakeholders.
• Standardized Workflow Management: Predefined processes ensure consistency and compliance at every step.
• Enhanced Risk Analytics: Advanced algorithms can identify potential issues that might be missed in manual review processes.
• Improved Communication: Digital platforms facilitate clear communication between lenders, borrowers, and other stakeholders, improving customer engagement overall while boosting internal communication among the relevant departments. 

These technological advantages translate to real business benefits: faster processing times, reduced costs, improved decision quality, and enhanced customer experiences.

Power Up Your CRE Lending with Blooma

The four stages of loan origination—application, underwriting, approval, and closing—are critical points where efficiency and accuracy really matter. By embracing digital transformation, CRE lenders can overcome traditional challenges and gain a competitive edge.

Our platform was designed specifically for commercial real estate lenders. We address the unique needs of lenders throughout the origination process. Blooma offers:

• Automated data capture and validation to streamline the application process
• Advanced analytics tools to enhance the underwriting process
• Collaborative workflows to expedite loan approval
• Seamless integration capabilities to facilitate loan closing and servicing

By letting us handle the administrative tasks, you can focus on what matters: building relationships and making strategic decisions.

That’s the kind of loan origination experience both lenders and borrowers deserve.

Ready to revolutionize your loan origination process and gain a competitive edge in the CRE lending market? 

Discover how Blooma’s platform can help you approve more quality loans in less time while reducing operational costs and enhancing risk management capabilities.