Funding Five: FAQs on Digital Lending
Digital lending with Funding can offer creditworthy borrowers a simple application process, fast decisions, quick access to funds, and flexible payment terms. If you’re a broker, we recommend polishing up on the ins and outs of Digital Lending so you can offer your clients secured, short-term finance solutions when the banks have otherwise said no.
One of the key elements of a successful digital lending deal is the initial application. To help you out, we’ve outlined five frequently asked questions about a digital lending deal below, alongside some tips on how to ensure your client’s application ticks all the necessary boxes to allow for a fast settlement.
1. What is the process of getting a digital lending deal from submission to approval?
The process can be quite simple, providing the credit team is met with a well thought out and thorough application. With this in mind, the process from submissions to approval is as follows:
- The borrower/ broker submits a scenario.
- The scenario is reviewed by the credit team, who then provide an indicative quote to confirm the feasibility of the deal for both the borrower and the lender.
- The broker/ borrower provides a complete and thorough application.
- Same day conditional approval for deals submitted prior to 12 pm AEST.
- Our credit team completes the underwriting process.
- Formal loan approval and signing of documents.
The speed of approval is often dictated by the quality of the initial application, which brings us to question two.
2. How do you best structure a digital lending deal?
It’s important to remember that Digital Lending isn’t your run of the mill mortgage, they are short-term facilities with terms from three to thirty-six months. With this in mind, preparing a loan application requires a slightly more in-depth conversation with your client around the purpose and repayment strategy.
This conversation should provide you with all of the relevant information for the application, and outline any outlying risks that need to be mitigated.
When having this conversion and preparing a digital lending loan application, be sure to outline the following:
- A clear and genuine loan purpose: What is the loan for? Is it a bridging loan, is the borrower looking to purchase a property or are they seeking an equity cash-out? Further to this, how long will the borrower realistically need to repay?
- Is the loan coded or non coded: Is it for an individual or company, and is the loan for residential, business, or investment purposes?
- Committed exits: Is the client happy to sell their security property as their exit strategy? Do they have an alternative strategy, such as other assets, either domestic or international, that can be sold to pay back the loan? A concrete explanation of both a primary and secondary exit strategy can assist with faster decisions.
- Registered owners on the title: Who is on the title for the property, is there joint tenants or tenants in common, and who will benefit from the loan? All tenants must be on the loan application, and there needs to be a clear outline of the transfer of benefit to the mortgagor.
- Show servicing: How does the borrower plan on servicing the loan? Have you tested their servicing capability, ascertained their income sources, and confirmed they are concrete?
- Address risk with mitigants: Have you considered all of the borrower’s risks and provided a corresponding mitigant? Be sure to consider low credit rating, bankruptcy, ATO arrears, property LVR, borrowers sector of employment, and the property location, among other things. At Funding, we take a common-sense approach to lending.
The quality of the conversation you have with your clients will ensure you uncover any potential setbacks and prevent unnecessary back and forth between you, the borrower, and our credit team. This will, in turn, give the borrower a better lending experience and help them fulfill their funding needs sooner.
3. How do you communicate a great exit strategy?
At Funding, we understand that things change over time; however, we also have a responsibility to our investors to ensure that all loans have a reliable and serviceable exit strategy. With this in mind, an exit strategy with a digital lender cannot be a ‘choose your own adventure’ type scenario. Realistically, the credit team is looking at either refinance, payout, or sale of security property as the key exit strategy.
In the short term lending space, there is a reasonable expectation that borrowers will commit to a minimum of two (primary and secondary) exit or repayment strategies and rank them accordingly. Be sure your client (or you as the borrower) clearly understands this and has two feasible strategies to bring to the table.
As with commercial lending, facilities have a set expiry date sometime in the future. As a result, we require a clear plan to outline how the loan will be repaid, and a strategy to achieve the plan. For example, the exit strategy of a six-month loan could be the sale of the security property currently listed for sale. Likewise, if the plan is to refinance out, this exit strategy needs to be tested to ensure its viability.
Finally, a pivotal element to communicating an excellent exit strategy to us (the lender) is to communicate with your client, the borrower. Ensure they are committed and on board with all of the proposed exit strategies and plans in place.
4. How fast can loans be approved?
As a general rule of thumb, scenarios can be conditionally approved the same day as the application is received.
Formal approval can take place within 24 hours of receiving the complete submission and property valuation. This can be prolonged if supporting information such as the valuation and inspection is delayed.
We generally advise that loans take between three and five days to settle; however, this relies on the fact that the borrower/ broker provides a well-structured and compliant application accompanied by quality exit strategies.
5. How do you put forward a compliant and regulated loan?
Before we highlight how to submit a compliant loan, let’s look at which loans are actually regulated. A loan is likely to be regulated if it meets the following conditions:
- The borrower is a natural person; and
- The credit is provided wholly or predominantly for personal, domestic or household purposes; or
- To purchase, renovate or improve residential property for investment purposes; or
- To refinance credit that’s been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes.
As you can see, most standard home loans are regulated under the NCCP Act. Further to this, the loan must meet the borrower’s requirements and objectives and cannot be unsuitable. As a lender and broker, we must provide a credit guide, make reasonable inquiries and actions to verify the information.
Reasonable inquiries include, but aren’t limited to:
- The borrower’s ability to repay without experiencing hardship.
- The loan application aligns with property ownership.
- The loan demonstrates a benefit to the borrower.
- The borrower’s ability to repay the loan.
- Has the exit strategy been tested?
- Is the loan responsible lending?
Quicker refresher: What is the NCCP Act?
The National Consumer Credit Protection Act 2009, or the NCCP Act, is legislation that’s designed to protect consumers and ensure ethical and professional standards in the finance industry. Lenders and mortgage brokers must hold a credit licence or be registered as an authorised credit representative and must adhere to the rules set out in the NCCP. The NCCP Act is regulated and enforced by ASIC in accordance with the National Credit Code (NCC).
Have more questions? Ask the team at email@example.com, or visit our social media to let us know. Our team of experts will be happy to answer any questions and provide more insight so that you, and your clients, feel more confident and educated about the digital lending space.
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