Covenant definition setup

Q2 Origination allows financial institutions to define the type and description of covenants, set up the frequency for evaluating individual covenants, and configure covenant templates based on the loan products that can be applied to loan opportunities. 

Once a covenant is applied to a loan opportunity, Q2 Origination notifies users when a covenant evaluation is required at the interval defined in the covenant frequency. 

Q2 Origination supports the following types of covenants:

• Credit: Credit covenant is related to the ongoing credit reporting and monitoring.

  Example: Quarterly evaluation of the borrower's credit score.

• Document: Document covenant is used to track the collection of documents required periodically after the loan is closed and funded.

  Example: Business and personal annual financial statements and interim financial statements.

• Financial: Financial covenant is used to measure how closely the business performs against the financial projections provided by the business owner, CFO, or management. Therefore, the closer to the targets, the more satisfied is the lender. Similarly, the farther from the actual projections, the more likely the borrower may default. Therefore, to be on the safe side, certain financial covenants may be used to restrict the amount of credit the business can access from its line of credit. 

  Example: Current ratio (Current Assets divided by Current Liabilities), and ETNW (Effective Tangible Net Worth).

• Other: Custom Covenant is used for creating any independent covenant on the application. This allows the financial institutions to configure any recurring loan agreement, numeric indicator, and operator to define and periodically evaluate some criteria. The Covenant Definition, named as Custom Covenant, gets automatically created on package installation.

  Example: Periodic monitoring of a borrower’s credit score.

• Affirmative: An affirmative or positive covenant is a clause in a loan contract that requires a borrower to perform specific actions.

  Example: Requirements to maintain adequate levels of insurance, requirements to furnish audited financial statements to the lender, compliance with applicable laws, and maintenance of proper accounting books and credit rating, if applicable.

• Negative: Negative or restrictive covenant is the limitation that prevents a borrower from doing certain actions.

  Example: The borrower is not allowed to dilute its stake or sell the deal.

• Reporting:

Define Covenant

Prerequisites

Before you proceed to define a covenant, ensure that the following prerequisites are met:

• At least one legal entity is set up.

• At least one party is set up.

• At least one product is set up.

• You must be a system administrator.

Steps

To define a covenant:

1. Log in to your Salesforce account.

2. Go to  (App Launcher) > Origination Configuration > Covenant Definition.

3. On the Covenant Definitions page, select New.

4. On the New Covenant Definition page, provide the details as described in the following table, and then select Save.

   

   Field Name	Action and Information
   Covenant Definition Name	Specify a name for the covenant. Note: If you are defining a custom covenant, the name of the covenant must be defined as Custom Covenant.
   Active	Select this check box to make the covenant active for tracking. This check box is selected by default.
   Covenant Description	Specify a description of the covenant.
   Type	Select the type of covenant from the following supported options: Financial Affirmative Negative Reporting Document Credit Other
   Sub Type	Select the subtype for the selected covenant type. Each covenant type has various subtypes associated with it.
   Product	Select the product with which you want to associate the covenant.
   Relationship Type	Select the Relationship Type such as Owner, Signer, Borrower.
   Legal Entity Type	Select the Legal Entity type such as Corporation, Individual, Trust.
   Frequency	Select the tracking frequency for the covenant from the following supported options: Monthly Quarterly Semi Annual Annual
   Notification Days	Specify the number of days to notify the reporting party about the approaching due date of the covenant. Note: This field is displayed as Number of Days Till Overdue in the UI.
   Owner Type	This field is used to decide the default owner type for the Covenant.
   Default Owner Queue Name	This field holds the user reference, which will be default owner for all the covenants created using this covenant definition. If the owner type is selected as User then Default Owner User must be provided. Similarly, if owner type is selected as Queue then Default Owner Queue should be provided during setup.
   Default Owner User	This field holds the Queue Name, which will be default owner for all the covenants created using this covenant definition.
   Default Owner Queue Id	This field holds the Queue Id, which will be default owner for all the covenants created using this covenant definition.
   Document Definition	This field indicates the reference of Document Definition, which will be used to create Document Categories for Covenants based on their evaluation frequency. For more information, see Document definition setup
   Accounting Period Type	This field identifies the type of accounting period for which the borrower must provide financial documents to the lender.
   Financial Statement Type	This field indicates the type of financial statement the reporting party is required to submit to the lender in a commercial loan transaction.
   Additional Comments
   Due Days from end of accounting period	Specify the number of days when the reporting party must submit the financial record to the lender after the close of the borrower's accounting period (e.g., fiscal or calendar year or filing due date). This identifies the type of accounting period for which the borrower must provide financial documents to the lender.
   Financial Statement Type	This is the type of financial statement the reporting party is required to submit to the lender in a commercial loan transaction from the following supported options: Audited Unaudited Reviewed Compiled Other
   Note: Fields (This section applies to only Financial type covenant.)
   Financial Operator	Select the financial operator: < > <= >= BETWEEN
   Financial Indicator	Specify a value for the subtype of the Financial covenant.
   Financial Indicator High Value	Specify the maximum value for the subtype of the Financial covenant. Note: The Financial Indicator High Value and the Financial Indicator Low-Value fields are required when the BETWEEN Financial Operator is selected.
   Financial Indicator Low Value	Specify the minimum value for the subtype of the Financial covenant.