Stages in Loan Origination : Financing is a multi-staged process, not an event. Different projects present unique financing needs and challenges; therefore the processes and procedures used in loan origination should be tailored specifically for them. With some advanced planning and preparation, loan origination can become less stressful and more productive.
Reducing delays and complications during loan origination will help speed things along more quickly and smoothly. Typically, loan origination is broken into six steps: prep work, application, underwriting, funding, closing and audit. Let’s examine each stage so we can gain a greater understanding of their interactions.
Stages in Loan Origination
1) Prep Work
The first step of loan origination is preparation. In this stage, you’ll gather information about your project and organization that loan officers can use when making lending decisions about you or not lending you money. Think of it as due diligence. Project information – including its location, type, size and details of lenders or equity partners involved.
Project Documents Your legal, financial and commercial documents, such as your business plan, lease agreements and financial statements will all comprise project information. Documenting Your Project And Financial Data This category covers documentation about both the organization’s operational data as well as project financial data pertaining to operational cash flow forecasts, long-term forecasts and projections.
2) Application
Once loan officers have all of the information needed, they’ll submit an application. This formal request to lenders for loan is comprised of details including amount borrowed, interest rate and repayment terms as well as financial details for your project’s finances as well as information on any equity partners or loan applicants such as income, assets, credit scores or any outstanding debts that they owe.
3) Underwriting
Underwriting This stage in the loan origination process is when lenders make their final decision on whether to approve your loan application or not. If everything checks out as planned, loan officers will move onto the next step; otherwise they must address any outstanding issues first before continuing with underwriting. A lender’s underwriting process has two main goals: Assessing risk and identifying whether this investment makes good financial sense for them.
4) Funding
At this stage of loan origination, the lender will place the money in an escrow account ready to disburse as soon as all loan terms have been agreed upon and finalized. Before receiving your funds it’s important to remember that they don’t belong to you yet until all details of your loan agreement have been finalized; you must ensure you have everything needed for completion and repayment before using them.
5) Closing
At this point, the lender will call a loan closing. This is when the loan agreement is finalized and the money is transferred from the escrow account to your account. The lender will close the loan as soon as they can after they’ve approved your application. But they won’t do it until they’ve received the signed and executed loan documents and all the money is in their account.
6) Audit
At this stage, lenders typically organize what’s known as a loan closing. At this time, all the necessary loan documents and money have been received in the escrow account and your money transferred over. Lenders generally try to close loans as quickly as they can after having approved your application; however they won’t do it until all signatures and documents have been signed and money received in their account.
Summing up
By properly doing your due diligence and being prepared, loan origination processes will go more quickly and smoothly, helping get your project underway more quickly as a result. When starting any project, set aside enough time for prepping it properly as this will ensure all documentation required for lender decisions is in order.