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Line of Credit loans are not that much different from your normal loans. Because you may want to generate reports that include only your line of credit loans, you may wish to establish a new Status Code for these. This is done by selecting Codes, Status. Click on New. Assign the code number and description and then click on Save.
Next, you will need to set up your loan in the Loan Master file. If you set up a new line of credit status, be sure to use it when entering data on the Borrower tab. On the Loan Terms tab under Funds/Amts, enter the maximum amount this client may receive. Also, establish the loan as Daily interest. The Basic Payment is up to you to decide. You may choose to edit this Basic Payment each month to reflect a certain percentage of the balance, or you may choose to enter their minimum payment amount or maybe you’ll enter the maximum payment amount or some other variation. Another option is to let the software do the payment calculation for you via the Features, LOC Payment Recalculation menu. Whichever method you choose, keep in mind this amount will appear on Loan Coupons, Late Payment Notices, Loan Master File, Aging Report, Payment Status Report, and the supplements Loan Invoicing, Credit Bureau Report and Direct Deposit.
Loan Activity is your next step. As with any loan, your first entry will be the disbursement. This will be the amount you gave them in the initial check. As they request additional funds, you’ll enter these as they occur, paying particular attention to the Activity Date. Because the loan is established as Daily Interest, all interest is calculated based upon Days Elapsed between Activity Dates, therefore it is extremely important to enter Disbursements and Repayments with the Activity Date that the transaction took place on. As you enter additional Disbursements, you’ll see a positive dollar amount in Accrued Interest. This is interest due to you and is calculated on the current Principal Balance. As Repayments are then entered, you may see a negative amount appear in Accrued Interest. This is collecting the previously accrued interest. Do not remove Accrued Interest from either of these types of transactions. The software will never collect more interest than has been accrued.
If the interest rate varies depending upon loan balance see the article above titled Variable Interest Loans.