Stages in Loan : Financing is a process, not an event. Different types of projects have different financing needs and challenges, so the processes and procedures that loan origination use are tailored to their specific needs.With a little planning and preparation, the loan origination process can be less stressful and more productive.
It’ll also help you get through it faster and with fewer hiccups.The loan origination process is usually broken up into 6 stages: prep work, application, underwriting, funding, closing, and audit. Let’s take a closer look at each stage in loan origination so you can understand how they fit together.
1) Prep Work
The very first step in the loan origination process is preparation. During this stage, you’ll put together information about your project and your organization that the loan officers will use to decide whether to lend to you. Think of it as a set of due diligence for yourself. Project information – This includes the location, type and size of the project, and details about the lenders and equity partners involved.
Project documents Your legal, financial, and commercial documents, such as your business plan, lease agreements, and financial statements will also be part of the project information. Project and financial documentation – This includes documentation of the project’s and the organization’s operational and financial data, including operating cash flow forecasts, long-term financial forecasts, and financial projections.
2) Application
After the loan officers have all the information they need, they’ll put together an application. This is the formal request to the lender for the loan, along with all the information they’ve collected. The application will include things like the amount of the loan, the interest rate, repayment terms, and the project’s financial details. The application will also include the personal financial information of all equity partners and loan applicants. This includes their income, assets, credit scores, and any outstanding debt.
3) Underwriting
This stage in the loan origination process is when the lender decides whether to make the loan. If everything is in order, the loan officers will move on to the next stage. But if there are any problems with your application, they’ll need to correct the issues before moving forward. A lender’s underwriting process has two main goals: To assess the risk of the loan. To determine if the loan is a good investment for the lender.
4) Funding
During this stage of loan origination, the lender will put the money in an escrow account and make it available for disbursement. It’s important to understand that the money isn’t officially yours until the terms of the loan are completely finalized. You’ll need to make sure you have everything you need to get the project completed and repay the loan.
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
After you’ve closed the loan, the lender might do an audit to make sure you’ve properly accounted for all the money. This is also when they’ll confirm that the project is complete and that you’ve repaid the loan on time.
Summing up
If you’ve done your due diligence and prepared properly, you’ll be able to move through the loan origination process more smoothly and quickly. And that means you’ll be able to get your project off the ground more quickly, too. So if you have a project in the works, make sure you put time aside to do the prep work. It’ll help you make sure your application is complete and correct and that you have all the documentation the lender needs to make their decision.