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SEASONAL LOANS

Seasonal loans require a bit of special attention.  In general, “seasonal” means the borrower is responsible for making regular payments (ex: monthly) with several payments being waived each year.  An example would be a business that operates during the school year, but cash flow problems arise during the summer months when business is slow.  So the loan agreement may be written to require no payments during June, July, and August.

The first step is recording information correctly within the Loan Master file.  The field titled “payment frequency” is used to determine the frequency of payments.  Thus, if most payments are expected on a monthly basis, the correct entry would be monthly.  It might be a good idea to establish an optional field in which information to help monitor the seasonal nature of the loan can be recorded.

Establishing the loan as Daily interest or Amortized will greatly impact the principal/interest calculations when payments are posted.  If interest is to accrue during the time payments are waived, select Daily interest.  If Daily is chosen, be prepared for the majority of the next payment to go toward interest, since interest will then be due for several months.  If the loan agreement dictates that interest not accrue and when payments resume each will be charged one month’s interest, select Amortized as the interest calculation.

Whether the loan is considered delinquent is determined by the “next payment due” field when loan activity is recorded.  If a loan repayment is being posted, and you are aware that no further payment is expected for several months, advance the “next payment due” date accordingly.  Using the above example of a seasonal loan, let’s assume payment is due on the 1st of the month.  When May’s payment is received, the routine paid-thru date would be May 1st.  If the next payment is not due until September 1st, enter a “next payment due” of September 1st.  By doing this, the system recognizes that no further payments are expected until September 1st, and it will not then be considered delinquent until September 2nd.
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If you post an activity and then realize the loan is seasonal and you wish to change the next payment due date that was recorded, you may alter the date by using Build History, found under the Tools option.