Banks live or die on the quality of the loans they make. For that reason, it’s important to ensure the process of approving bank loan applications is as efficient as possible.

For years, banks processed paper bank loans the same way.  After somebody applied for a loan, the paper loan application was filed in a folder.  A bank employee who wanted to review some aspect of the application — say, retrieve the Social Security number to do a credit check — pulled the file and took it to their desk.

Meanwhile, another employee might need the same file folder to do some interest calculations.  They would spend some minutes hunting for it — files often are misfiled — before giving up.

A third employee might need to call the applicant about a few items missing from the application.  They, too, would spend some minutes looking for the folder before quitting.

All that misdirection stops when a financial institution moves to electronic document management because the same application can be available to multiple employees simultaneously. They also can find it by doing a simple search, so there’s no more guessing where an application may have been misfiled. And the number of lost applications dwindles down to near zero.

Moving to an electronic workflow has helped Long Beach, Calif.-based Farmers & Merchants Bank retrieve needed loan application paperwork in a few clicks. As a result, customers can do their banking at any one of its more than twenty branches across Southern California and the loan documents will follow electronically. In the old days, documents had to be bundled up and transported — losing both money and time. “Using electronic imaging throughout loan processing speeds up the process and saves us money, too,” said Ken Nagel, chief information officer at Farmers and Merchants. “It is very hard to imagine what it would be like if we had to go back to paper.”

The electronic loan process is usually configured so that the system populates much of the loan application, eliminating data entry errors.  The system also routes the application through the many steps of the process, helping to ensure the application does not get sidetracked at any point and making sure that all the necessary steps are in fact completed.

One caveat offered by Nagel is that California and some other states require paper versions of home mortgage loan paperwork. He stressed that this does not preclude using electronic images in the process. But, at day’s end, there has to be paperwork “with wet signatures,” that is, genuine ink signatures.

It’s important to check state laws before implementing any electronic document process.  The trend, across the country, is to embrace electronic documents. But not every state will approve every type of transaction.

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