ORACLE CORPORATION

Oracle Loans
How to Process a Loan along its Lifecycle


01/22/2014





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Table of Contents

1. Introduction .......................................................................................................................................................3
2. Loan Creation .....................................................................................................................................................4
2.1 Create a direct loan .....................................................................................................................................4
2.2 Approve a direct loan ..................................................................................................................................7
2.3 Create and approve an Extended Repayment Schedule (ERS) loan ............................................................. 13
3. Fund a direct loan ............................................................................................................................................ 18
4. Bill a Loan ........................................................................................................................................................ 25
5. Possible loan scenarios ..................................................................................................................................... 33
5.1 The borrower pays on time ....................................................................................................................... 33
5.2 The borrower overpays ............................................................................................................................. 38
5.3 The borrower pays off the loan ................................................................................................................. 53
5.4 The borrower cannot pay and the loan will be written-off ......................................................................... 59
5.5 Loan Forgiveness functionality .................................................................................................................. 67
5.6 Multiple disbursement loan converted to a permanent loan after the final disbursement in AP .................. 75
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1. Introduction
The objective of this presentation is to provide the Oracle Loans users with a step by step guide on how to create a Loan
and process it along its lifecycle. It covers Loan Creation, Funding, Billing and the way to proceed with scenarios like on-
time payments, overpayments, loan payoffs, loan write-offs, loan forgiveness and multiple disbursement loan converted
to a permanent loan.
For pre-requisite Setup and for Data Model, please refer to:
E-Business Suite Financials Advisor Webcast Schedule and Archived Recordings (Doc ID 1455839.1)
Go to 'Archived 2013' tab
Pick 'Oracle Loans Overview - Features, Demonstration & Data Model' from November 13, 2013


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2. Loan Creation
There are two classes of loans: Direct loan and Extended Repayment Schedule (ERS) loan.
A Direct Loan is a direct payment to a customer handled through a check being sent from Accounts Payable. The
resulting bills from this loan create new invoices in Accounts Receivable.
An Extended Repayment Schedule (ERS) loan is converting existing invoice(s) in Accounts Receivable to a loan. An
example of this would be when the customer has trouble making payment on an invoice so you agree to convert it to a
Loan and charge him interest over a period of time.
This is explained in Doc ID 434103.1: What is the Difference Between a Direct Loan and an Extended Repayment
Schedule Loan (ERS)?

2.1 Create a direct loan

Loan Agent responsibility/ Loans Dashboard/ Press the 'Create Loan' button.


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Enter the required information in regions 'Loan General Information', 'Primary Borrower Details', 'Loan Details', 'Rates'.
Press the 'Save and Add details' button.



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You get confirmation:
Loan L43504 has been created successfully.
Note that at this stage, the loan status is 'Incomplete'.



You may review other tabs (Interest Rates, Fees, Conditions, Amortization, Related Loans, Notes) if any update is
needed, then press the Apply button. You get confirmation:
Loan has been updated successfully.


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2.2 Approve a direct loan

Re-query the Loan number
Origination > Approval > press the 'Submit for Approval' button.


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Enter a note if required and press the Apply button.


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Now login with the User who has the Loans Manager Role and search on the Loan Number.
You can see that the Loan status is now 'Pending Approval'.


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Click on the Loan Number.
There are 3 buttons: Approve, Reject, Request for Information.
Press the 'Approve' button, enter a note if required then Apply.



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You get confirmation:
Loan L43504 has been approved.



Notes:
- Once the loan is approved, its amortization schedule is generated.
- An approved loan will be recorded in Oracle Ledger, disbursed through Oracle Payables and billed through Oracle Receivables.

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2.3 Create and approve an Extended Repayment Schedule (ERS) loan

Loan Agent responsibility/ Loans Dashboard/ Press the 'Create Loan' button.
Choose a Loan Product for ERS.
Select the invoice or invoices to be converted to a loan by pressing the Add button.
Enter the required information and Apply.


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You get confirmation that loan has been created successfully.
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Click on the Loan Number and proceed to approve the loan.
You receive confirmation that loan L48501 has been approved and that the original invoice in Receivables will be
automatically adjusted with the approved loan amount.
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Search on the Loan Number again.
The loan is now in Active status.
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The AR invoice is as follows:

Note:
No funding is required for this type of loan.
As seen above, once the loan is created, the Adjustment API will adjust the original invoice in AR down to $0. The loan will then be billed out in installments according
to the loan setup. So the original invoice amount will be billed out in several invoices over time in AR and be charged interest.

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3. Fund a direct loan

Now that the loan is approved, this is time to disburse funds through Oracle Payables, that is to say give the money to the borrower.
This is a two steps process:
- you first generate the AP invoice,
- you then pay the invoice in full.
The loan status will change for 'Active: Fully Funded' and servicing agents will now manage their portfolio for the entire lifecycle of the loan.

Lets start with the first step.
Query the Loan Number and go to Funding tab.
Enter the Due Date and Payment Method then press the Apply button.




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It takes you to this screen. Click on the Loan Number.




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You are then directed to the following screen where you click on the Submit icon.



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The Loan is now in status 'In Funding' (at this stage, the AP invoice is generated).




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Lets continue with the second step.
Oracle Payables/Invoices/Entry/Invoices
Query the invoice generated in the first step, press the 'Actions' button to make the payment (choose option 'Pay in
Full'), enter the mandatory details then save the payment.



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Note:
On 12.1.3, if you get the following error when trying to pay the invoice in full:
APP-SQLAP-97473: The Payment Date is not in an open period
You need to upgrade to APXPAWKB.fmb, version 120.223.12010000.256 or higher.
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Now back to Loans Dashboard: the loan status is now 'Active: Fully Funded'.



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4. Bill a Loan

After Loan Creation and Loan Funding, Servicing activities start with Loan Billing.
Billing is the action to create the receivables invoices (due installments) by running 'LNS: Billing' program.
These invoices can be of three types:
Loan Interest,
Loan Principal,
Loan Fees (Note that we have no fees in this presentation).


Note:
Use the LNS: Allow to Bill and Pay from UI profile option to control user access to Bill and Pay transactions from the UI. The available values are:
No: Default value. This will restrict user access to the functionality.
Bill Only: User can only bill the transactions, if they are ready to be billed, from the UI without applying payments.
Bill and Pay: User can bill and pay for the transactions displayed on the UI.

Click on the Loan Number to go to the Servicing tab.
Click on the Dashboard link (at the top of the page) then click on 'Submit request'.


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Run 'LNS: Billing' program (note that it can be run with the Loan Number as parameter).


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Once the request is successfully completed, you may click on the Details icon then press the View Log button to view
the log file.


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Or you may click on the Output icon to open or save the output.



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Now go to Oracle Receivables to query the invoices generated.
Transactions/ Transactions Summary



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Back to the Loan Dashboard.
Servicing > Service Center > Overview > Payment Overview
See the amounts in 'Next Payment':
Principal due 995.84
Interest due 12.50



Note:
If a bill that you issued to a borrower is incorrect, then you must use the LNS: Reverse Last Bill concurrent program to credit the original bill.
You can optionally re-bill the loan at the same time. Alternatively, you can complete the credit, or credit and re-bill process from within the Servicing tab.



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5. Possible loan scenarios

5.1 The borrower pays on time

The borrower pays his first installment on time. To reflect this, you create a receipt for this first installment (1008.34) in Oracle Receivables and apply this receipt to
the invoices related to this loan installment.

Oracle Receivables/Receipts/Receipts
Press the Search and apply button and search on loan number L43504.


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Press the Preview button.


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Check the Apply checkbox for the invoices (Loan Principal and Loan Interest, Loan Fees if any) and save.


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Back to the Loans Dashboard.
Servicing > Servicing Center > Overview, Summary region
You can see that the first installment was paid.

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In Servicing > Payments > Current Amortization, Amortization Schedule region, you can view the remaining
installments to be paid.
Use the Amortization Schedule to view current unbilled payments for a loan. Throughout the life of a loan, this schedule dynamically reflects changes to principal,
interest, and fees due to events such as loan approval, interest rate changes, extra payments, short payments and late fees.



Note:

If you want the loan to be paid by credit memo, you need to bill the loan first to have the invoices created in Oracle Receivables then create a credit memo with reason
code= LOAN_PAYMENT against the invoice.
See FAQ Doc ID 1531137.1 : How Can You Use A Credit Memo To Pay Loan?


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5.2 The borrower overpays

When the borrower remits an overpayment, you can create a manual bill and then apply the overpayment to this
manual bill. Loans will reduce the beginning balance for the next payment to be billed and recalculate the remaining
principal amounts (See Amortization tab).
Note that the loan needs to be in status Active: Fully Funded and you need to create the manual bill only after you
receive the payment.
As an example: Loan number L42283, loan amount 100,000.00 USD, status is Active: Fully Funded.
Oracle Receivables/ Receipts/ Receipts
The payment is recorded.

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Servicing > Payments > Current Amortization, Amortization Schedule region
Beginning Balance for the loan displays 100,000.00.

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Go to Servicing > Payments > Outstanding Bills
Press the Create Manual Bill button.


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It takes you to this screen. Press the Add New Manual Bill button.

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Select Purpose as Principal.

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You are directed to this screen where you can see that Loans defaults the current principal balance (100,000.00) in the
amount field.


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If your intent is not to pay off the loan but only to create a bill for the purpose to pay 5,000.00 on the Principal, then
update the Amount field with 5,000.00 and provide the Due date. Press the Submit button.

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You get confirmation: Loan L42283 has been updated successfully.


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This overpayment is reflected in the Amortization Schedule as Beginning Balance now displays 95,000.00

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and in Oracle Receivables where the Loan Principal invoice for the corresponding amount is automatically created.



Note:
By creating a manual bill, you are reducing a part of the Loan Principal by the amount of the overpayment received from the borrower. It will create an invoice of
type Loan Principal in Oracle Receivables.
This is different from billing by running 'LNS: Billing' program (section 4) which generates due installments (invoices for types Loan Interest, Loan Fees, Loan Principal
in Oracle Receivables).
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Re-query the loan then go to Servicing > Payments > Outstanding Bills
Click on the value (0) displayed in Payment Number field.

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It takes you back to this screen. Press the Apply Receipt button.

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Press the Add Receipts button. Select the receipt number and Submit.





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You get confirmation: Loan L42283 has been updated successfully.


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Go to Servicing > Payments > Current Amortization
Now that the payment is applied, Amount Paid displays 5,000.00.


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5.3 The borrower pays off the loan

Payoff process is when the borrower completely pays off all due loan amounts including fees and interest.

Servicing > Payments > Payoff
Enter a date in 'Payoff Date' field. Press the 'Calculate Payoff Amounts' button then press Save buttons.


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Go to Oracle Receivables to create a receipt on the customer for the Payoff. Do not apply this receipt.


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Back to the Loans Dashboard.
Servicing > Payments > Payoff
Enter once again the date in the 'Payoff Date' field and press the 'Calculate Payoff Amounts' button to retrieve the
installment to pay off. Press the 'Process Payoff' button.
Once on the following screen, press the 'Add Receipts' button then search and select your receipt in order to link it and
press the Submit button.


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Search on the Loan number. The loan status is now 'Paid Off'.



Notes:
- Creating of a manual bill for remaining principal and adjusting it in AR will not pay off the loan but will pay off only principal portion of the loan. Any
unpaid interest and fees will keep pending and it will prevent the loan from turning into payoff status. Only when the interest rate is 0% then creation of a
manual bill for remaining principal and adjusting it in Receivables would set the loan to Paid off.

- Loans Development has created a Loan Cancellation API that allow customers to cancel loans during servicing with variety of actions including ignoring
unbilled interest and fee portions, adjusting or crediting unpaid loan portions. Also for ERS loans it allows you to adjust back original AR invoices. The
Loans Cancellation API is part of the latest 12.1 standalone Patch:12318025:R12.LNS.B - IMPORTANT FIXES ON THE TOP OF LNS 12.1.3 RELEASE - MAR
2011
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5.4 The borrower cannot pay and the loan will be written-off

In the case the borrower cannot pay off his loan, the lender needs to write-off the loan amount in the form of Invoice-Adjustment.
In order to demonstrate the write-off functionality, let us take loan number L44501 in status Active: Fully Funded. This loan has 1 single installment.


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Create the invoices in Oracle receivables (see section 4. Bill a Loan).
Then press the Adjust button to adjust the AR Invoices to 0.00 (activity name: Loan Conversion) to reflect the loss.




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Then run the LNS: Billing program with the loan number as parameter.
Re-query the loan in the Loan Dashboard.
You can see that the loan status is now Paid Off and the Principal Balance is zero.


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Note:
If you create a loan with fees, you should run LNS: Fee Assessment program daily and before LNS: Billing program to determine the fees for the billing program to bill.
As Loans Agent, you can also run the LNS: Loans Maintenance and Billing request set from a Forms application such as Receivables. This request set runs both the LNS:
Fee Assessment and the LNS: Billing programs. This request set is not available from the Loans application.
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5.5 Loan Forgiveness functionality

'Loan Forgiveness' functionality is the ability to specify a percentage of the loan that is to be automatically written off
(forgiven) each month. When the loan is billed, the installments are automatically adjusted by this percentage.

Loan Administration responsibility/ Setup/ Loan Product, Loan Forgiveness Program region
Set Enable Forgiveness Program to Yes on the loan product that will be used to create the loan.
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Oracle Receivables > Setup > Receipts -> Receivable Activities
Setup an AR Receivables Activity of type Adjustment to be used by loan forgiveness program.

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Loan Administration responsibility > Setup > System Options > Loans Forgiveness Adjustment region > Activity Name
field
Assign the AR Receivables activity to Loans Forgiveness Activity Name.

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To enable the Loans Forgiveness Program for a loan, go to Origination > Overview > General tab > Loans Forgiveness
Program region and set Enable Forgiveness Program to Yes. Also set Percent of Installment (%) to a value from 0 to
100 (this is the % to be forgiven).
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After approving the Loan, the amortization schedule will be generated per the details of the loan. This will look like the
normal amortization.
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After the loan is billed, the normal installments are created. But they are automatically adjusted using the receivables
activity defined.
Example:
Loan L47502 = 7,000.00 USD
Term = 3 months
Forgiveness Percentage = 10%
When running the billing, it creates an AR invoice for 2,314.00 USD and automatically adjusts it by 10%. So the invoice
has a balance of 2,082.60 USD.
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Note:
Loans Forgiveness Program can be enabled /disabled at any time during loan's servicing. Any changes to Loans Forgiveness Program parameters are recorded in the
Loans History under Servicing > Servicing Center > Loan History.
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5.6 Multiple disbursement loan converted to a permanent loan after the final disbursement in AP

First create the loan.
Note that this is required to create a loan with a Loan Product tied to a Loan Type which provides the ability to convert a construction loan to a permanent loan.
See Loan Details region.



At this stage, if you try to approve the loan you get an error message:
You cannot submit this loan for approval until the disbursement schedule is valid.
Create a disbursement schedule.
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Origination > Disbursement
Create the disbursement schedule for loans disbursed in multiple payments.
For this, click on the Loan Number and go to the Disbursement tab.
The disbursement schedule is populated with the Activity Name(s) defaulting from the Loan Product. You can add additional payments or modify information in the
existing rows.
Specify a target date of disbursement of the part payment and the loan percent to be disbursed.
Add payees if the repayment is made by a party other than the borrower. The borrower is the default payee.
You can associate conditions to each disbursement activity.
You can associate fees to be paid with each disbursement, in addition to those that may have defaulted from the Loan Product.

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Now you can approve the loan.
Once approved, fund it.
As you can see below, only one row can be submitted for funding.


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The invoice is created in Oracle Payables, pay it in full.


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Back to Loan Dashboard, the loan is now in status Active: Partially Funded.


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Click on the Loan number and go back to the Funding tab.
The second AP invoice can now be generated by funding the other row.



Upon submitting the second row, you get:
Warning
Conversion to Permanent Loan occurs with this disbursement. Please verify interest rate range and lock in information is
confirmed.

Click on YES.
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You are directed to this screen where you can see that the second row is now In Funding.


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The invoice is created in Oracle Payables, pay it in full.


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In Loan Dashboard, the loan is now Fully Funded.


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Now bill the loan by running the LNS: Billing program. This will create the Loan Interest invoice in Oracle Receivables.
As you can see, only the loan interest invoice is created. No invoice for principal is created since the principal is now converted to a permanent loan.


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See the loan converted to a permanent loan.