Perfecting a loan file is not a one-time event. It’s an ongoing endeavor that involves careful planning, reliable tracking, and scalable information management. As more credit unions venture into commercial lending, loan file perfection is bound to become an increasingly important topic of conversation.
Here are tips for perfecting your credit union’s approach to loan file perfection.
Loan File Perfection: The Basics
Perfecting loan files is a key step for protecting the enforceability of a financial institution’s security interest on its loans. It’s also important for ensuring regulatory compliance and delivering outstanding member satisfaction.
So, what does a “perfected” loan file actually look like? Loan file contents vary depending on the credit union and its relationships but, generally speaking, an ideal process ensures loan files:
- Contain the right information, such as collateral documents, UCC filings, insurance, loan agreements, borrower credit documents, and other loan-specific records.
- Are stored securely and organized in a way that makes information accessible while controlling access to those who do not require it.
- Receive timely updates, such as replacing a member’s expired driver’s license or the continuation for a UCC financing statement.
- Adhere to retention requirements that govern how long information should be kept by the financial institution.
Perfecting Loan Files Isn’t Always Easy
Keeping loan files perfected can be incredibly complex and time-consuming due to a variety of situations, such as:
- Rapid loan portfolio growth.
- Document overload.
- Expired member documents.
- Interoffice mail and courier delays.
- Misplaced and/or lost documents.
- Outdated document management systems.
- Ongoing tracking obligations.
- Exception reporting challenges.
- Oversights by staff.
Adding to this complexity is the fact that consumer and commercial loan files must both be perfected, albeit in different ways.
Consumer Loan Files
Perfecting a member’s auto loan file, for example, might involve ensuring the upfront loan and collateral documentation have been collected, added to the loan file, and properly reviewed for quality control. Minimal loan file maintenance might be necessary until the loan is eventually paid off.
Commercial Loan Files
By contrast, commercial loan files tend to require considerably more tracking and management throughout the life of the loan in addition to upfront perfection tasks. Consider, for example, a small business loan that is collateralized by multiple pieces of untitled equipment. Filing continuations prior to each UCC filing’s expiration date is critical. To mitigate the chance of an unexpected default, the financial institution must also monitor the commercial member’s business health by requesting ongoing financial documentation.
Strategies And Tools For Loan File Perfection
What steps can credit unions take to develop healthier loan file perfection processes? There’s no one-size-fits-all solution, but maintaining the right approach to document management, exception tracking, reporting, and retention are vital components for mitigating risk, ensuring compliance, and avoiding inefficiency.
At Alogent, we provide technology that helps financial institutions perfect their loan files. Our FASTdocs software delivers an intuitive, flexible environment for digitizing, storing, organizing, and enabling access to loan documentation — especially for personal loans. Automated retention rules ensure records are purged in accordance with the institution’s requirements. We also offer AccuAccount, a powerful system that’s optimized for the unique needs of commercial lending. Collateral tracking and exception reporting capabilities reduce administrative work and provide transparency, helping staff to stay focused on perfecting loan files.
Contact Alogent to learn about its ECM solutions for financial institutions.