Create a Line of Credit Product

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Create a Line of Credit Product

Line of Credit (LOC) is a flexible loan from a lending institution to an individual or business. It is an approval to use a fixed amount of money over time based on a borrower's need. This can involve a commitment fee, or interest payment on the borrowed amount. The borrower can draw the maximum loan balance, or up to the credit limit, and no interest is charged on the unused part of the credit line. 

The following are the key features of a Line of Credit:

  • A line of credit can be used multiple times.

  • You can obtain a line of credit amount before you actually require it. Unlike a loan, the line of credit is not for one specific purpose alone. It can be utilized for multiple purposes.

  • A borrower makes payments only for the amount of money actually borrowed. For example, if the outstanding balance is 0, monthly payment is 0 as well.

  • The line of credit has minimal or no closing costs.

CL Loan offers lenders the option to calculate interest on a line of credit account using either the simple interest or compounding interest method, as defined at the lending product level. 

For LOC based loans, lenders can choose to apply the payments received from the borrower in the order of the spread defined for the lending product, or apply the exact amounts as per the bill, to reduce the amount remaining under each head. This applies to payments received towards bills, and charges. In case of charges, if interest is capitalized, then interest component is paid towards Interest Remaining. Refer to the Field Reference section below for further details.

Prerequisites

The following is the prerequisite for creating a lending product:

  • CL Loan is installed.

Steps

Perform the following steps to create a new lending product for the record type Line of Credit:

  1. Log in to your Salesforce account.

  2. Click Servicing Configuration.

  3. Go to Product > Product Management.

  4. Click Create New Lending Product.

  5. Select the Record Type of new record as Line of Credit. 

  6. Click Continue. 

    The New Lending Product page is displayed with sections such as Information, Billing, Advance, Fee, Term, Interest, and Grace and Tolerance. Specify the information for each of these sections to create the lending product.

    Field Name Action and Information
    Information This section captures the basic information about the lending product. You can define details that govern the contracts for the lending product.
    Loan Product Name Specify the name of the LOC product. For example, Salary LOC.
    Product Type Select Line of Credit as the product type. 

    Payment Frequency

    Select the frequency at which the borrower pays back the loan amount. 

    Supported Options:

    • Daily

    • Weekly

    • Bi-weekly

    • Semi-Monthly

    • Bi-Monthly

    • Monthly

    • Quarterly

    • Semi-Annual

    • Annual

    • Single-Payment

    • Semi-Monthly-PD.
    Time Counting Method

    Select the method for computing the days in the year for calculating interest.

    Supported Options:

    • Month and Days — indicates 360 days per year.

    • Actual Days — indicates 365 days per year. This ignores February 29 in a leap years.

    • Actual Days 366 — indicates 366 days per year. This uses 366 days only for leap years and 365 for non-leap years.
    Payment Application Mode

    Select the Payment Application Mode to indicate if the extra amount paid by a borrower is used to satisfy future dues or current dues.

    Supported Options:

    • Future Dues
      By default, Future Dues is selected as the Payment Application Mode.

    • Current Dues. 

    This field indicates how any excess payment made by the borrower, beyond the current outstanding due is handled in CL Loan.

    Note:

    • For the LOC product, irrespective of the payment application mode, reversal of a payment reverses only those dues that are partially or fully satisfied through it.

    • The latest payment is reversed first.

    Payment Application Order

    Specify the Payment Application Order. This can be Spread, where dues are satisfied in the order of the spread, or Date, where dues are satisfied in chronological order and as per the amounts of the bills. By default, the defined spread for the product is used. 

    This field decides the basis for applying payments received from the borrower to satisfy dues relating to bills and charges.

    Spread The payments are applied to the components of the selected payment spread in the listed order. This option considers the principal, interest and fees remaining, if fees are part of the spread.
    Date The payments are satisfied as per the amounts listed in the oldest unpaid bill first and then in chronological order of the bills. This option considers the bill amounts for applying the payment.

    For example,

    Principal Remaining = 5000, Interest Remaining = 2000.

    Payment Spread = Interest, Principal, Fees.

    Bill 1 = 700 (Principal = 500, Interest = 200), and does not include fee amount.

    Payment Received = 700, and bill is satisfied.

    Now,

    If Spread option is selected:

    The entire 700 of Bill 1 is applied to Interest.

    Interest Remaining = 1300, Principal Remaining remains 5000. Once the entire interest is paid up similarly through future bills, the system starts to pay up the principal.

    If Date option is selected:

    The first bill, Bill 1 is satisfied first. Of the 700, 200 is applied to Interest, and 500 is applied to Principal.

    Interest Remaining = 1800, Principal Remaining = 4500.

    Subsequently, amounts as per Bill 2, Bill 3 and so on, are satisfied as per their respective amounts.
    Rounding Method

    Select the Rounding Method if rounding must apply to calculations of all the amounts related to the contract, such as disbursement schedule, payment schedule, any investor transactions, and interest computations. For more information, refer to section Rounding Off.

    This field indicates the method for rounding the amounts in transactions, accruals, bills, investor transactions, payoffs and interest calculations.

    If you change the rounding method for an existing product, then the values of different financial amounts of attached loan contracts start rounding but the error introduced before and after rounding enablement is not adjusted.

    Bill amounts for contracts with rounding method are calculated with rounding precision and rounding error is captured for future calculations.
    Digits After Decimal

    Specify the Digits After Decimal if you have selected the rounding method in the Rounding Method field, to define the rounding precision. The default value is 2. 
    Business Hours

    Select the Business Hours from the list of Business Hours that are created in the Business Hours setup at the org level to apply the business holidays on the product.

    If Business Hours are not defined at product level, then the product assumes the default Business Hours.
    Billing This section allows you to define the billing method and billing amount generation options. Based on the billing method, you can select simple or compound interest for computing the interest.
    Draw Billing Method

    Select the Draw Billing Method to generate dues during the draw period. For example, Interest Only, where borrower is billed only on the accrued interest. 

    This method is used for generating bills during the draw period.

    None means that no dues are generated during the draw period. The regular principal plus interest payment starts from first payment date.

    For details on the billing methods, refer to Billing methods.
    Draw Period Interest Calculation

    Select the method for calculating interest during the draw period. The options are made available based on the draw billing method you select. For example, if draw billing method is Percentage of Remaining Balance, only Simple Interest calculation is allowed.

    If Draw Billing Method is Interest Calculation can be
    Interest only Simple Interest, or Compounding Interest
    Percentage of Remaining Balance Simple Interest
    Principal plus Interest Simple Interest, or Compounding Interest
    Draw Term Payment %

    If you select the Draw Billing Method as Percentage of Remaining Balance or Principal Plus Interest, Draw Term Payment % is used to derive the principal bill amount.
    Pre Bill Days The number of days before a payment is due that the bill must be generated. For example, if a payment is due on the 5th of every month, and pre bill days are 4, the bill is generated on the 1st of every month.
    Payment Due Days

    This is the number of days from the installment date, or bill generation date for LOC loans, within which a payment is due. This value is used to calculate the payment due date for a bill.

    Note:

    • You can specify either none, or only one of the two - Pre Bill Days and Payment Due Days, for the same lending product.

    • The values specified at the product level may be overridden at the contract level.
    Repayment Billing Method

    Select the required Repayment Billing Method. The Repayment Billing Method is effective once the draw period is completed.

    The options are same as for the Draw Billing Method. For more details, refer to Billing methods.
    Repayment Period Interest Calculation

    Select the Repayment Period Interest Calculation. This depends on the Repayment Billing Method.

    Based on the Repayment Billing Method you select, these options become available. This field behaves similar to the Draw Period Interest Calculation.
    Repayment Term Payment % Specify the Repayment Term Payment %.
    Pre Bill Days Specify the number of days prior to the due date that a bill must be generated.
    Minimum Bill Amount

    Specify the minimum amount for which bills are generated, irrespective of the outstanding amount. However, if the total outstanding on the contract is lesser than the minimum bill amount, then the former takes precedence.
    Advance This section captures details of the amount financed in the LOC.
    Min Financed Amount

    Specify the minimum credit limit to be disbursed for this loan product.
    Max Financed Amount Specify the maximum credit limit to be disbursed for this loan product.
    Minimum Draw Amount Specify the minimum advance amount that can be drawn by the borrower.
    Maximum Draw Amount Specify the maximum draw amount that can be disbursed to the borrower, and cannot exceed the credit limit. This cannot exceed the financed amount specified for the contract.
    Fee This section allows you to attach a fee set to the LOC product. You can apply any or all of the fees of the fee set, to an LOC contract based on this lending product. For information on defining fees and fee sets, refer to section Fee Setup.
    Fee Set Select the required Fee Set that is associated with this lending product. You can apply fees from the attached fee set to the LOC contracts for this lending product.
    Term This section enables you to define the term or duration of the LOC. The term for an LOC is considered in conjunction with the payment frequency.
    Min Term Specify the minimum duration for which an LOC contract may be extended for this lending product.
    Default Term Specify the default duration for which an LOC contract may be extended for this lending product, if no term is specified explicitly by the user.
    Max Term Specify the minimum duration for which an LOC contract may be extended for this lending product.
    Interest
    Min Interest Rate Specify the minimum rate of interest that must be charged on a contract for this lending product.
    Default Interest Rate Specify the default rate of interest applicable on a contract for this lending product.
    Max Interest Rate Specify the maximum rate of interest that can be charged on a contract for this lending product.
    Grace and tolerance This section defines the grace days beyond the payment due date within which a borrower can  make the payment, without moving the loan contract to delinquent status. You can also specify the loan amount balance that you are willing to ignore while writing off loans that are long overdue or delinquent.
    Late Charge Grace days Specify the number of days the system waits before charging the penalty on any charge that is due.
    Delinquency Grace days Specify the number of days the system waits before categorizing the account as a delinquent account.
    Write off Tolerance Amount.  Specify the maximum amount that the system can write off.
    Payment Due Days Specify the Payment Due Days.

  7. Click Save. 

    The lending product is created for the record type Line of Credit and is displayed on the lending product detail page, with some additional fields and lists that you can specify at the product or contract level.