How to choose loan management software: a buyer's guide for lenders

Choosing loan software is a decision you live with for years. Your loan book, your staff habits and your reports all end up depending on it. The good news is that a careful, small process beats a long feature comparison. This guide sets out that process for money lenders, MFIs and SACCOs.

If you are new to the category, read what loan management software is first.

Step 1: describe your lending in one page

Before you look at any software, write down:

• Your loan products. For each: typical amount, term, interest method, fees, repayment frequency.
• Volumes. Active loans, new loans a month, number of borrowers.
• People. Staff who will use the system and what each does. Do you need approvals?
• Branches. How many, and do they need separate data?
• Reports you must produce. Portfolio at risk, aging, income, whatever your board, funder or regulator asks for.
• Money channels. Cash, bank transfer, mobile money: how do repayments arrive?
• Existing data. Where is your loan book today, and how clean is it?

This page is your requirements document. It also protects you from being sold features you do not need.

Step 2: separate must-haves from nice-to-haves

Use the loan management software features checklist and mark each feature as must have, should have or nice to have. Be strict. Typical must-haves for a small lender are correct schedules for your interest methods, receipts, a borrower record with documents, basic accounting and a portfolio-at-risk report. A borrower portal, for example, is often a nice-to-have.

Step 3: shortlist two or three products

Search, ask other lenders in your market, and read the vendors' own pages critically. Look for:

• Clear statements of what the product includes. Specific, testable descriptions are easier to trust than broad claims.
• Published pricing and a free trial.
• Evidence of use in your kind of lending, such as an MFI, SACCO or money lender. Be wary of logos and numbers you cannot verify.
• Documentation you can read before you buy.

Avoid long shortlists. Three products tested properly beat ten skimmed.

Step 4: run a demo with your own scenarios

A vendor demo shows the product at its best. Take control with a script. Ask the vendor, or do it yourself in a trial, to:

1. Create a loan product matching one of yours exactly (interest method, fees, frequency).
2. Create a loan and show the schedule before saving.
3. Record an on-time, a late and a partial payment, and show how each is allocated and what the balance becomes.
4. Show an overdue loan in the delinquency and aging reports.
5. Print a receipt and a statement.
6. Show the approval flow for a loan over a given amount.
7. Show the ledger entries produced by a disbursement and a payment.
8. Export a report to CSV or PDF.
9. Show what a cashier can and cannot do compared with an admin.
10. Import a small spreadsheet of loans.

Watch how long each takes, and whether anything requires "we'll set that up for you."

Step 5: test the arithmetic

Take three real loans, one on each of your main interest methods, and calculate their schedules yourself. Compare interest, principal and balance with the software's. If the software's numbers disagree with a careful hand calculation and cannot explain why, that is a serious red flag. See how to calculate loan interest for the formulas.

Step 6: ask the right questions

About the product

• What does it not do?
• What is on the roadmap, and what is actually available today? Ask for dates on anything you need.
• How are calculations tested?

About your data

• Where is it hosted, and who can access it?
• How are customers separated from each other?
• Can I export all my data, in a usable format, if I leave?
• What happens to my data when I cancel?

About money

• What is included in each plan, and what costs extra?
• What happens to the price at renewal?
• Is there a setup or migration fee?

About support

• How do I reach a person, and how fast do they reply?
• Is there written documentation for staff?
• Who helps with migration?

See loan management software pricing for the cost questions in detail.

Step 7: check the exit

The best time to plan how to leave is before you join. Confirm that you can export borrowers, loans, payments and the ledger, and that the export is complete enough to rebuild your book elsewhere. A vendor that makes leaving hard is telling you something.

Red flags

• Unverifiable claims. Rankings, user counts or customer logos with no names and no way to check them.
• No free trial and no way to see the real product.
• Prices that appear only after a sales call, with no ranges.
• Vague answers about security or hosting.
• Features that only exist "on request", with no description of scope.
• A demo that avoids your scenarios.
• Pressure to sign before a trial.
• No documentation.

Green flags

• The vendor describes what the product includes in specific, testable terms.
• Clear pricing and a real trial.
• Documentation you can read.
• The demo handles your awkward scenarios.
• Exports are easy and complete.

Common mistakes

• Choosing on price alone. The cheapest product that cannot handle your loan products costs more.
• Choosing on features alone. A long feature list with weak calculations is a liability.
• Skipping data clean-up. Import problems are usually data problems. See migrate loans from Excel.
• Not involving the people who will use it. Cashiers and officers notice what managers miss.
• Forgetting your market's rules. Check that the software lets you set products, fees and approval rules to match the rules where you lend.

How LoanTabs fits this process

LoanTabs is built for money lenders, MFIs and SACCOs. You can run steps 4 and 5 yourself in a 30-day free trial with no credit card, with a free Excel starter template to import a sample of your loans. Prices are published on the pricing page, and the documentation is public. Your team captures applications, applies penalties as recorded decisions and records each repayment against the loan with a receipt, so every step has a person and a record behind it.

FAQ

How long does it take to choose loan software?

A focused process takes one to three weeks: a day for requirements, a few days to shortlist, and a week or so of trials.

What should I look for in loan management software for a small business?

Correct schedules for your loan products, an easy small-team workflow, receipts and statements, basic accounting, portfolio reports and clear pricing. See loan software for small business.

Should I choose cloud-based or installed software?

Cloud-based suits most money lenders: no servers to maintain and every branch shares one record. Installed software suits lenders who cannot rely on internet access. See cloud-based loan management software.

How do I compare prices?

Compare the cost of the plan that fits your needs over a year, including setup and renewal, and compare it with the time you will save.