When you are ready to write lending procedures and policy manuals, it’s a good idea to have input from other individuals both within and from outside the credit department. Sometimes the collection department can provide helpful insight concerning lending procedures. A policy manual, along with helpful lending procedures, provide an organization some useful guidelines, rules and regulations that make lending practices consistent and practical. Sometimes a decision has to made, which strays outside or ignores the lending procedures, but these are usually rare. In such a case an employee may have to get an override approved.
Establish an objective. Whenever you are writing up lending procedures along with a policy manual it’s a good idea to establish a statement outlining your objective. This statement should provide an overview of what you are trying to accomplish with your lending procedures and policy manuals. Companies try to make the best possible credit decisions to maximize their profits and reduce credit losses. If the guidelines are such that an organization does not have many losses the guidelines may be too strict; on the other hand, if a company is experiencing a substantial amount of losses the guidelines may be too lenient. A policy manual should outline the responsibility of employees within the organization. These manuals actually help the employees and the management staff to effectively guide and operate a corporation.
Write up parameters and guidelines. There should be guidelines in place that help a credit analyst, manager or other decision-maker determine if a loan is going to be approved or not. Any individual or company not meeting the criteria should be denied credit. There will almost always be some exceptions. A guideline may include what type of credit score an individual needs to have. For example, anyone with a credit score below 620 should be denied. Other guidelines should include a required debt-to-income ratio and the amount of time loan customers need to have been in their jobs. Some companies require you to be on your job for a certain period of time to get approved. Exceptions are made if your previous employment was in the same industry for the necessary time needed. Other qualifications could deal with judgments or collection accounts. Most credit departments also deny if customers have collections or judgments being carried out in their name.
Develop a pilot program. When the parameters and guidelines are in place, you may want to run a pilot program to see how effective or useful your guidelines are. As time goes on, you may need to make some needed adjustments and amendments to your policies and lending procedures. You may want to increase the requirements for receiving a $10,000 line of credit. Adjustments can be made that allow you to tinker with the credit score requirement as well as other areas. Eventually you will be able to streamline the lending procedures and guidelines to help your organization make decisions effectively and efficiently. You lending procedures should allow you to operate and function within the guidelines established by all government credit agencies, such as the Fair Credit Reporting Act. This allows you to avoid immoral practices such as predatory lending.
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