How to Automate Document Collection for Lending Operations

Not sure where to start with automated document collection? This guide for private lenders explains how to adopt document collection software when offering multiple loan products.

Private lenders process millions of loan applications every year. Each application requires a different set of supporting documents from borrowers. For example, the documentation checklist for a business line of credit differs greatly from that for an SBA loan. Managing these diverse requirements manually can lead to inefficiencies, errors, and borrower frustration.

By automating document collection, lenders can reduce errors, save time, and improve the borrower experience with fewer delays and less back-and-forth. This guide explores how automated document collection works and how next-generation tools use cutting-edge large language model (LLM) technology to transform lending operations.

What is Automated Document Collection?

Automated document collection is a digital solution that systematically gathers and organizes required documentation for lending operation teams, ensuring they are readily available for review. These tools replace traditional manual methods of requesting and collecting documents, transforming a typically time-consuming process into an efficient, streamlined workflow.

By automating reminders and categorization, these tools reduce the administrative burden on processing teams while improving the borrower experience with fewer delays and less back-and-forth communication.

Some tools offer advanced features, such as document verification, but these often require extensive customization to work effectively. This can make them impractical for lenders managing a variety of loan products.

Next-generation, LLM-powered tools take automation a step further. These solutions not only collect documents but also identify and verify them in real-time, offering unmatched flexibility and scalability across diverse loan types. Unlike traditional approaches, LLM-powered tools adapt dynamically, eliminating the need for costly customizations and manual tagging. This ensures lenders can meet the unique requirements of every loan product.

How Does The Automated Document Collection Process Work?

Automated document collection software simplifies the manual process of gathering documents from loan applicants. These tools often use a platform approach, requiring borrowers to create an account and manually tag documents or match them to specific requirements. While this provides some level of automation, it leaves room for errors and creates additional work for borrowers and processing teams.

LLM-powered tools bring sophisticated intelligence to the document collection process. Once a loan application is initiated, these tools generate and send document requests to borrowers, track submission statuses in real time, and organize all received files in a secure document upload portal. These advanced tools analyze incoming documents, identify missing information, and dynamically request context-specific details from borrowers—eliminating manual tagging and reducing back-and-forth communication.

With a week’s worth of manual follow-up emails and phone calls adding up to over US $1,100 in overhead costs, adopting automated document collection likely makes sense for your business.

How to Secure Sensitive Documents During Collection

Document collection platforms use enterprise-grade security measures for email communications. They protect sensitive financial information through encrypted channels, secure file transfer protocols, secure document upload portals, and multi-factor authentication (MFA).

Some systems generate unique, time-limited secure links for document uploads and automatically encrypt stored documents to maintain compliance with financial regulations.

What is a Secure Document Upload Portal?

A secure document upload portal is a digital platform designed for safe document exchange between borrowers and lenders during the loan application process. It provides a centralized, encrypted environment where applicants can securely upload sensitive financial documents like tax returns, bank statements, and financial statements. The secure portal protects confidential information through enterprise-grade encryption, multi-factor authentication, and controlled access permissions.

Automated Document Collection Feature in Loan Origination Software

Most Loan Origination Systems (LOS) include basic document collection features, but these tools often require significant customization to handle document collection effectively. Manual intervention by borrowers and processors is still required for tasks like labeling and matching documents to specific requirements. 

These features are typically designed to work well for private lenders with few loan products, where document requirements are simpler and more manageable. This approach becomes insufficient for lenders with complex document requirements, who may not be able to afford high customization costs, or for those offering a wide range of loan products, each with unique document requirements. 

The need to manually adjust workflows, tag documents, and ensure compliance across different products creates inefficiencies that slow down processing times, increase costs, and frustrate borrowers.

The solution lies in specialized document collection tools. They integrate with LOS through APIs or pre-built connectors to enable automatic document collection and verification supporting multiple loan types. For instance, Arlo brings LLM-based intelligence to document collection, reducing the manual effort required to collect, validate, and follow up on documents.

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What Are The Top Challenges In Automated Document Collection?

Private lenders offering many loan products face several challenges when implementing automated document collection systems. Understanding these obstacles can help you find the right document collection software solution to address specific operational needs while improving efficiency and data accuracy.

1. Lack of Standardization in Documentation Requirements

The diverse nature of loan products presents a significant challenge for automated document verification. While document collection can be automated, verifying the wide range of possible documents—such as financial records, tax forms, contracts, or any other required documentation—is nearly impossible for most tools. 

This variation makes it difficult to establish uniform document verification procedures that work across all loan products while maintaining automation’s efficiency and accuracy benefits.

2. Resource and Implementation Constraints

Implementing automated document collection systems or LOS can be costly and complex, especially when offering multiple loan products. Each loan product has unique documentation requirements, often requiring expensive and time-consuming customizations for efficient automation of lending operations. 

Despite these investments, many implementations only support a limited number of loan products effectively, leaving lenders with gaps in coverage and continued reliance on manual processes for some of their loan products. 

3. Loan Volume and Customization Requirements

Lenders offering a wide variety of loan products often face challenges justifying the upfront customization costs required for efficient automation for each loan type. 

Without high loan volumes, the return on investment for these expensive implementations is hard to achieve. This makes it difficult for lenders to scale their automation efforts across multiple products efficiently.

4. User Adoption

Borrowers frequently resist digital submission platforms requiring them to create passwords or sign up for new upload portals. These extra steps can feel unnecessary or frustrating, especially for borrowers from traditional industries and smaller businesses. Many prefer to stick to familiar methods like email or physical document delivery. This resistance leads to inconsistent adoption of automated tools, reducing the overall efficiency and effectiveness of automation.

Similarly, the transition to automated document collection often faces resistance from staff at lenders. Team members accustomed to existing manual methods and borrower communication tools may struggle to adapt to digital workflows and automated processes. This can stem from comfort with existing procedures or concerns about job security as manual tasks become automated.

5. Security and Compliance Management

Maintaining robust security measures while ensuring regulatory compliance presents implementation challenges. Financial institutions must implement methods to secure files and protect data within automated workflows. This requires constant vigilance in updating security measures and ensuring automated processes align with regulatory requirements.

Why PHD Financial Adopted Automation Document Collection

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How To Automate Document Collection

To successfully automate document collection, start by understanding your specific needs based on the loan types you offer. Tailoring automation to your operations requires a clear picture of how many loan products you manage, the volume of applications for each, and the unique documentation requirements they involve. 

Use the following steps to guide your implementation process.

1. Assess Your Loan Product Portfolio

The foundation of automating document collection begins with evaluating your loan offerings. Start by identifying all the loan types your organization provides—such as working capital loans, real estate financing, or asset-based loans—and analyzing the following key areas:

• Loan type variety: Determine how many loan products you offer and whether their document requirements overlap. For example, while most loans may require financial statements or tax returns, specialized loans like real estate financing may also need appraisals or environmental reports.

• Application volume: Track the number of applications received for each loan type. High-volume lending operations may benefit the most from automation to reduce repetitive tasks, while niche products may require more adaptable solutions.

• Document Complexity: Assess the level of documentation required for each loan type. Categorizing loans by document complexity helps determine which processes are easiest to automate and which may require more tailored solutions.

  • Low document complexity: Loans with straightforward requirements, such as working capital loans, may only need basic financial statements and identification.

  • High document complexity: Loans that require extensive documentation, such as real estate financing, may involve property deeds, environmental reports, and detailed financial disclosures.

    
    

2. Define Your Document Collection Requirements for Lending Operations

Once you’ve assessed your loan portfolio and gathered insights on loan type variety, application volume, and document complexity, the next step is to define your document collection requirements. 

Each of the following factors—individually or in combination—shapes the type of automation solution best suited to your needs.

• Loan type variety

  A low loan type variety means your lending operations focus on a few loan products with similar document requirements. In this case, automation can prioritize efficiency for a smaller set of standardized workflows, such as auto-generating document requests and verifying submissions. A high loan type variety involves managing multiple loan products with unique documentation needs. Automation systems for this scenario must offer flexibility to adapt to diverse requirements without requiring costly customizations for each loan type. Here, tools that dynamically adjust document requests and verification processes are essential for scalability.

• Application volume

  A low application volume typically requires a cost-effective automation solution, as fewer transactions may not justify the expense of extensive customizations. In these cases, systems that minimize upfront costs and simplify document submission and tracking can significantly reduce burdens on lending operations. Conversely, high application volume demands robust, scalable solutions capable of managing repetitive workflows efficiently. In such cases, tools that support bulk processing, real-time validation, and automated reminders can save time and improve accuracy. With high volumes, even solutions requiring customization may be cost-effective due to the faster return on investment.

• Document complexity

  Low document complexity means borrowers submit a narrow range of straightforward, standardized documents. For these situations, automation can focus on improving speed and reducing manual follow-up through features like tracking and status updates. On the other hand, high document complexity involves handling a variety of document types, such as specialized reports, legal agreements, or detailed financial statements. Automation solutions for this scenario must excel at identifying, classifying, and verifying diverse document types, while also being flexible enough to accommodate custom requirements without adding friction for borrowers.

  
  

3. Choose the Right Automated Document Collection Software

After assessing your loan portfolio and defining your document collection requirements, the final step is selecting the software solution that aligns with your needs. 

Here is a comparison of the benefits and limitations between Loan Origination Systems (LOS), traditional document collection tools, and emerging LLM-based solutions like Arlo, to help you make the right decision.

Loan Origination Systems (LOS)

LOS platforms often include basic document collection features in their broader loan processing capabilities. These features can centralize workflows, but they have significant limitations for lenders with many loan products.

Traditional Document Collection Tools

Standalone tools improve document submission workflows by introducing features like secure document upload portals, automated reminders, and submission tracking. However, these tools are limited in scope and can create friction for borrowers.

LLM-Based Document Collection Solutions

LLM-based tools represent the next generation of document collection, using large language models (LLMs) and AI to deliver intelligent, flexible, and highly automated workflows.

	Best For	Pros	Cons
Loan Origination Systems	Low loan type variety High application volume Low document complexity	Fully integrates with existing loan processing software Supports centralized document storage and tracking	Requires costly and time-intensive customization to support multiple loan types and diverse documentation needs May not scale efficiently for lenders with a high volume of complex or specialized loan products
Traditional Document Collection Tools	Low loan type variety Medium application volume Medium document complexity	Improves document organization with secure document portals and tracking capabilities Automates basic tasks like reminders and submission monitoring	Typically requires borrowers to sign up for a secure portal, which can deter adoption and slow down document collection Minimal document validation and classification capabilities leading to more manual verification work
LLM-Based Document Collection Solutions	High loan type variety High application volume High document complexity	Dynamically adapts to different loan types without requiring costly customization Removes borrower friction by simplifying document submissions without portal sign-ups Automates key processes, including document identification, classification, real-time validation, and borrower follow-ups	Lenders may need to adjust existing workflows to fully leverage the system's capabilities Limited to document collection; not the solution for lenders wanting to automate underwriting

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