Best Practice » Reporting » Audit Committee Best Practices » Best Practices in the Lending and Loan Administration » Best Practices in the Lending and Loan Administration
Lending money is a high risk business. When a bank or lender loans money to a creditor, there are great chances of facing losses. This is because there are possibilities that the creditor will default in payment. Therefore, in order to mitigate losses and risk, there is need for best practices in documentation. At the same time, there are requirements for compliance with certain regulations. The NCUA Regulation 723 and MBL Policies are two most recommended guidelines to be followed.
Documentation of information related to the loan is very crucial. Therefore, financial institutions and banks lending money must ensure compliance with the following administrative documentation:
In addition to these best practices, there may be need for additional information. This can include:
The information requested helps lenders to keep track of the creditor. They issue coding, booking and servicing for best practices. The NAICS code and the Financial Statement Expiration date are recommended for in lending and loan administration.
Documentation must be organized and well maintained. Keeping separate filing systems for credits and collaterals documents is a recommended best practice. These ensure management of cases in the pipeline. Additionally, through documentation, lenders can anticipate loan problems and take necessary measures immediately.
Conclusively, best practices in lending and loan administration are very important. Lapses in documentation lead to great losses for lenders (banks and lending institutions).