Cost per Commercial Loan Origination

Cost per Commercial Loan Origination

KPI Details

Cost per Commercial Loan Origination measures the total commercial loan origination and fulfillment-related expense incurred by the lending institution divided by the number of commercial loans closed and funded over the same period of time. This is a crucial measure in understanding operational performance and the alignment with industry benchmarks for commercial lending costs. High values for this metric can be indicative of inefficient processing, which may be due to extended cycle times for loan origination (i.e. low-value processes, poor instructions concerning what is needed from the customer in order to process the loan, multiple touch points and customer follow-ups, etc.), sub-par loan officer performance, inconsistent training across lending teams for loan origination processing, and high overhead costs.

KPI Definition

The total commercial loan origination and fulfillment-related expense incurred by the lending institution divided by the number of commercial loans closed and funded over the same period of time. Total commercial loan origination and fulfillment expense should include fully-loaded labor costs (salary, benefits, bonuses, etc.), as well as other overhead costs such as occupancy, technology and vendor fees.

KPI Best Practices

• Properly staffed support functions to handle low value origination tasks without driving labor costs too high
• Develop a triage process for underwriting loans by sending more complex applications to experienced underwriters
• Create document checklists to reduce rework and minimize back-and-forth communications with borrowers
• Perform regular audits of origination process to identify potential reductions in rework, number of touchpoints, etc.

KPI Calculation Instructions Cost per Commercial Loan Origination?

Two numbers are used to calculate this KPI: (1) the total commercial loan origination and fulfillment-related expense incurred by the lending institution, and (2) the number of commercial loans closed and funded over the same period of time. Total commercial loan origination and fulfillment-related expense should include fully-loaded labor costs (salary, benefits, bonuses, etc.), as well as other overhead costs such as occupancy, technology and vendor fees. Include the volume of commercial loans that were funded (e.g., money was lent to the borrower by the financial institution) with all relevant paperwork having been agreed upon (by both the borrower and the financial institution) and finalized in the denominator.

KPI Formula :

Total Commercial Loan Origination Expense Incurred / Number of Commercial Loans Closed and Funded