Disbursing a Line of Credit

Overview

Disbursing refers to the accessing of part or all of a line of credit. The purpose of borrowing can be either for personal need or business-related. The advantage of a line of credit over a regular loan is that interest is usually not charged on the part of the line of credit that is unused, and the borrower can draw on the line of credit at any time. The loan disbursement can take place in multiple tranches (a portion or installment) for a line of credit.

All the loan disbursements must occur within the draw period, and at any point of time, the available funds do not exceed the current credit limit. 

If the disbursal date falls after the draw period expiry date, you receive an error message. 

In case of the first disbursal or when the first disbursal is for the full amount, any prepaid fees applicable on the contract are deducted from the disbursed amount. A non-editable disbursal distribution entry for the prepaid fee is auto created when you create the disbursal transaction. The first disbursal can also be for zero amount, in case you want to activate an LOC without disbursing any funds. In such a case, bills are generated for zero amount, if no non-zero disbursal happens before the billing date.

Multi Mode Disbursement in a Disbursal Distribution

Sometimes, a distribution amount in a disbursal may be required to be disbursed in multiple modes, or a borrower can request multiple modes of disbursement of the loan amount within a single disbursal. 

For example, out of the financed amount of $10,000, a borrower can request that $6,000 be transferred to the bank account automatically (ACH) and the remaining $4,000 by cash. For such requirements, you can select a payment mode for each disbursal distribution amount.

Disburse a Loan

Prerequisite

To create an LOC disbursal transaction, the following is a prerequisite:

• Loan is in an approved status.

Steps

To create a LOC disbursal transaction, perform the following steps:

1. Log in to your Salesforce account.

2. Click Contracts.

3. Select the required CL Contract ID.

4. Click Transactions.

5. In the Funding section, click New Loan Disbursal Transaction.  

   Note:

   Transaction amount defaults to the loan amount. 

6. Specify the details as described in the following table:

   Field Name	Purpose and Action
   Transaction Date	Specify the date on which the disbursal transaction is created.
   Transaction Amount	Specify the transaction amount. For a full or one time disbursal, this is the same as the loan amount.
   Reversed	The checkbox is auto selected if you reverse the disbursal transaction.
   Rejected	The checkbox is auto selected if the transaction is rejected by the system or the bank during the clearing process.
   Mode of Payment	Search for or specify the Mode of Payment. This is the mode through which the fund is disbursed to the borrower. For example, Cash, Check or ACH. You can set up payment modes as per your business requirements. Note: You can also click the look-up icon to look for the required mode of payment.
   Loan Amount	The total loan amount disbursed to the borrower. If any prepaid is set up on the loan contract, the borrower or lender may choose to add it to the loan amount. In such case, the interest accrues on the sum of the financed amount and the prepaid fee, while disbursed amount to borrower remains as the financed amount. If prepaid fee is not added to loan amount, the disbursed amount is less prepaid fee amount.
   Cleared	The checkbox is auto selected once the disbursal transaction gets cleared. That is, the amount is disbursed to the borrower.

7. In the Transaction Distribution section, specify the details described in the following table, and then click Save.

   Field Name	Purpose and Action
   Distribution Amount	To define how the disbursal amount is distributed under different payment heads, specify the distribution amount. This includes the amount paid to each borrower account, if this is a debt consolidation loan, and any amount paid towards prepaid fee. The sum of all distributions must sum up to the transaction amount. If the entire amount is to be routed to a single borrower account, this must be the same as the disbursal amount.  Note: Ensure that the sum of the distribution amounts is the same as the transaction amount. Otherwise, you receive the following error message: The sum of the distribution amounts must be equal to the disbursal transaction amount.
   Bank Account	Provide the bank account to which the distribution amount is to be disbursed.  For example, if the same loan has multiple borrowers, then you can give different bank accounts for each borrower.
   Payment Mode	To disburse the distribution amount in multiple modes, specify the payment mode for each distribution amount. For example, Cash, Check, or ACH. Note: If the payment mode is not specified then it considers the same mode as specified in the Mode of Payment of the main loan disbursal transaction.
   Reference Number	Specify a reference number.  For example, the loan contract ID in case this distribution is routed to another loan held by the borrower.

   You can click + to add multiple distributions of the disbursal amount.  If any prepaid fee is set up on the contract, a distribution is created for the fee amount, and the balance amount is available for disbursal to the borrower. 

   On clicking save, the loan contract status is changed to Active-Good Standing. If you click the Funding tab you can see that a new loan disbursal transaction has been created.

   Note:

   For a line of credit, disbursements are allowed up till the last bill date (last due date).

   You can also disburse a line of credit using a web service. For more information, refer to section Disbursement in the CL Loan Administration Guide.