Easing the Transition to a New Loan Management Platform

You’re a lender.  Maybe a full-fledged lender where you actually provide money to your borrowers, or maybe in part where you finance the transactions for your business.  But you have debtors that owe you money that you need to track and collect.

You probably already have a system you’ve been using for years, but you’ve outgrown its capabilities.  Maybe it’s just a big, gnarly Excel spreadsheet, or an aging custom system, or you're just tired of the cost .  You find yourself spending more and more time to create letters or massaging the data it spits out into usable financials.  You know the numbers it gives you and how it works, so you feel comfortable with it, but the capabilities that are missing are a frustrating roadblock.  Managing your financing operations is becoming too painful to continue.  You must find a permanent solution to this problem if you’re going to remain in business and increase the number of loans you’re managing.

So now you’re searching the web and looking for the perfect new loan servicing system.  At this point, you have to make one very big decision – will you continue to manage the loans yourself, or do you want to just hand the whole thing to someone else and pay them to manage it all for you.  If you offload the whole process, you’re looking for a good loan servicer – a company that services the debt, takes a cut and sends you the proceeds.

But if you’re like me and all the folks already using Moneylender Professional, you want to keep the loan servicing in-house.  You see the value in investing a handful of your time to ensure your customers are being treated properly as their debt is repaid.  You want the authority to resolve situations with a customer decisively and appropriately.  You want to keep your customers and data private and under your direct control.  You want to talk to your customers with your own voice.  You want to be able to see your profits whenever curiosity strikes, and to cut your losses when you feel like it’s time.  You’re a hands-on kind of person and you need a hands-on solution – one that streamlines, solves and automates but never limits your options.

What you want is Moneylender Professional.  It’s a system that’s built exactly for you, and has been refined and enhanced for two decades with the input and advice of hundreds of lenders of all sizes.  No doubt you’ve seen a lot of other systems.  Price tags ranging into the six figures and down to $45 for systems that claim to solve your problems.  By price comparison only, you probably imagine Moneylender to be closer to the hobbyist / beginner end of the spectrum.  In truth, our prices are set so low because we never want to price out someone that has only a few loans.  We’d rather have everyone on our platform than put up a paywall that limits our users to only the biggest enterprises.  There are several lenders with loan counts well into five figures running their fast-paced lending businesses on our platform.  Many professional lenders see our system as the very core of their entire business.

Moneylender is a general purpose loan servicing system.  That means that you’ll have more knobs and dials than you’d get with a system built only for, let’s say, mortgages.  If your loans are extremely uniform, and you like bowling with the bumpers up, another platform might be able to give you a more streamlined experience.  Moneylender has the ability to handle the wacky requirements of a hundred different industries.  In addition to mortgages, Moneylender’s great at construction loans, short- and long-term unsecured debt, lines of credit, leases of all types, auto loans, retail and seller financing, and the broad expanse of bespoke arrangements that accompany business-to-business transactions.  When you choose Moneylender, there will be lots of settings that you can completely ignore – right up until the stormy evening when you discover that the extra options will perfectly suit how you want to handle some exotic borrower shenanigans.

To truly feel comfortable with something new, you need time and practice.  Replacing the old, familiar system with something new and unknown will require courage.  But with Moneylender Professional at least, you’ll have help along the way when you need it.  On top of the User’s Guide that details the behavior or the system’s various controls and the YouTube channel with videos to show you how to use the system and get comfy, we provide phone and email support, too.

Does Moneylender really have what you need?  Can you be confident moving to a new system even when you’re not comfortable moving?  Yes, you can.  Moneylender will run as a demo until you activate a license.  Download and run the demo, start playing with it.  Watch videos and read the User’s Guide to get to know the new system.  Plug in an actual loan or two, and add the first three payments (the demo limits you to three payments on a loan).  Compare what Moneylender gives with your old system.  You can look at the Ledger Transactions report on the Reports menu to see all the bits of math that Moneylender is generating.  There’s an account drop-down at the top left of that report, switch to the various accounts and click Refresh to see the individual balances Moneylender tracks concurrently for each loan.  Now you can see exactly how Moneylender’s calculator is working and you can personally audit every penny of every loan in the system.

The rules of your loan are on the Settings tab at the right side of the main window.  Select a loan and the Settings tab will show all the rules that define how the loan will calculate.  Click on the Loan Settings button and check out the different settings in there.  You’ll want to use the defaults in most cases, but you have a lot of control to fine-tune how Moneylender operates.  Click on the different settings records on the Settings tab, and click the Edit pencil buttons to see more of the controls available to you. Principal settings define when and how much money is given to the borrower.  The Interest settings define the dates that interest begins to accrue and when earned interest is added to the balances.  You have several options for how Moneylender will do the math when calculating the earned interest.  More settings on the Settings tab control when Moneylender will expect payments, how to apply late fee rules, and quite a bit more.  Don’t get too worried about all the different settings, as the defaults are applicable probably 90% of the time.  You can change any setting at any time and Moneylender will happily recalculate the loan using the new settings.

Next, try out the various options on the Servicing menu (make sure you have at least one loan selected) to see the statements and letters that Moneylender can generate for you right out of the box.  Visit Servicing > Manage Templates.  Click on one of the templates and click the 4^th button (paper and pencil icon).  This is the template designer.  You can edit any of the default templates, and even create new ones by copying an existing template or starting from scratch.  The template system is robust enough to even create multi-page loan contracts and attach reports to them.

After that, you should probably check out more of the reports.  Try the Payment Distribution, Financial Activity, Aging, Profit/Loss reports.  All the reports can be modified, too.  Check out Reports > Customize.  Pick a report and click the Edit (pencil) button.  You can see the list of columns, edit a column and look at the drop-down for Record Values.  Those are all the numbers and pieces of data that Moneylender can compute for your use on the current report.  Different report types have different columns available.  On the User’s Guide, under Guides are pages for Record Values for Report Columns that describe how each value is computed.

So now you know how to adjust the way Moneylender does the math, how to set up letters and forms to send to your borrowers, how to get the numbers out of the system in whatever format you want.  You have your hands on the pulse of your loans now.  You can see how Moneylender can step in and replace your old system, but there’s still a few more things to nail down.

You might have hundreds or even thousands of loans in the old system.  Re-entering all that data is going to be a nightmare.  In most cases, you can hire Whitman Technological to build a throwaway import routine to pull your data into Moneylender.  We’ll hop on your computer with you, locate the data and move it to our system.  Then we’ll dig through the data and figure out how to convert it into records in a Moneylender portfolio.  After we do that, we’ll give you back the portfolio with all your loans in it.  If there’s something off about the import, we can adjust the code and rerun it to generate a fresh portfolio.  The cost for this service usually ranges between $500 and $1500, but might be higher if your loans are structured in a particularly odd way or if the data is especially opaque or stored in a challenging format.

That brings up another question, what if you want to leave for a different platform.  You can click File > Export Portfolio Data to create a raw dump of all the tables in your portfolio into excel files.  While the data Moneylender manages is pretty elaborate, you should be able to pick through the tables and columns to find everything you need.  Your data isn’t locked into Moneylender.  The portfolio files are super encrypted, but exporting like this will generate a fully decrypted copy of everything.

Moneylender’s sounding like a good solution now, isn’t it…  But can it grow with your business?  Yep, definitely.  There are teams of 8 and 10 people working in real-time together in the same portfolio with Moneylender’s built-in encrypted networking system.  Copies of Moneylender can talk to each other over a network connection (even across the internet).  The CFO can generate quarterly numbers while two loan officers create new loan applications, an underwriter can attach documents and approve applications, customer service can send off a payoff quote and monthly statements while two clerks record the checks from today’s mail.  Some enterprises have over 30,000 loans in their portfolio, some have close to a billion dollars.  Moneylender was designed to have virtually no limit to the amount of data in a portfolio.  Even these enormous enterprises run their Moneylenders on very modest computers – it’s very frugal with its use of resources.

Moneylender also has an API.  You can integrate and automate to your heart’s content as you decide to replace time consuming tasks with automation.  Whitman Technological can work with your developers at the point where their code will interface with Moneylender to drastically expedite the initial implementation of the API.

 

If you followed along in Moneylender as you read this article, and took the time to play and poke around, you should be feeling a lot more confident about the system as a suitable replacement for whatever you were using before.  If you have any questions feel free to ask by email and phone.

Moneylender Loan Scam

Scammers are using the name Moneylender and our logo to make their fake loans seem more legitimate.  Moneylender Professional is software used by lenders, we DO NOT make loans to borrowers.  You are being scammed.

No lender will ever ask you to pay an application fee using gift cards.  Never reply to an email offering you a specific loan.  If you need a loan, search for a reputable lender in your area with lots of reasonable reviews, or visit a reliable website that can connect you with lenders.

CreditKarma.com is a well known website where you can request loans of all types and sized and they will match you with a real lender that will be willing to work with you.

If it seems to good to be true, it is.  Never give your financial or personal information to someone that emailed or called you with an offer that's too good to pass up.

Think about the loan.  Did you ask for the loan?  Why would you be borrowing that money?  Do you have any reasonable means to repay the loan?  If you're not thinking about the process of repaying the loan, don't take out a loan in the first place.  Debt will only make your financial hardship greater after a brief period of seeming good fortune.

If you've been scammed, call your bank, your credit cards, any place you have an account that might be affected by the information you provided to the scammers.  they will help you close your accounts or get replacement cards reissued.  Then call the police.  Sometimes you can use a non-emergency line, sometimes you have to call 911 to have an office come out.  Provide paper copies of any information you have to the officer: the original solicitation emails/letters, your call logs with the phone numbers used by the scammers and when, a description of the conversation you had with the scammer, the types of information they elicited from you (social security number, date of birth, bank accounts, etc.)  If you gave any money to the scammer, describe the amount and method of transmission.  There's practically nothing they can do to help because the scammers are likely to be outside your country.  Having the report on record will help law enforcement and government prioritize crime management strategies.

Monitor your credit for any new accounts being opened in your name.  Contact the credit bureaus and have them freeze your credit.  

In the future, apply for any new loans in person, or at least with a lender that has a verifiable physical location in your area.

Report the scam by following the directions on this website.  With enough victims reporting to the correct authorities, you might help get them caught:  https://www.usa.gov/stop-scams-frauds

Why Choose Moneylender Professional Instead of Other Loan Servicing Software?

 

It’s no secret that there are lots of options when it comes to the software that will calculate and manage your loans.  With so many choices out there, what makes Moneylender the right choice for you?

Value

First and foremost, Moneylender is an absolute bargain compared to most other solutions out there.  One of the few professional options with a one-time cost for a license, Moneylender asks only a reasonable up-front payment and doesn’t continue to drain your revenue over time.  We do offer companion services that integrate with Moneylender, but all of them are optional, and their rates are among the lowest in the industry.  Our pricing is set so that it’s pretty much impossible to pay less for so much.  There are less expensive solutions out there, of course, but you won’t be getting the feature-packed powerhouse you get with your license of Moneylender Professional.

Control

Moneylender is a tool that simplifies all the steps you’ll take when servicing your own loans.  Other solutions might have more streamlining, but it is usually at the expense of control over your loans.  Your loan data stays on your local computer (unless you subscribe to our optional portfolio hosting service) where you can guard the computer from theft and manage your backups.  No worries about a data breach compromising your lender and borrower details, or someone tampering with your records.  With Moneylender you decide what lives and dies in your loan records.

In the same token, Moneylender's calculation engines will handle virtually every scenario automatically to determine an accurate balance in accordance with the terms of your loan contract.  Nonetheless, if you decide to deviate from the terms for any reason, whether it’s to waive a late fee or forgive principal, Moneylender has all the mechanisms to let you indicate changes of all types to your loans.  Even the automation systems have all kinds of adjustable values to let you fine-tune the calculations that Moneylender performs.  It’s not just about the letter of the contract, but also about your style as a lender.

Capabilities

Moneylender’s letter and statement system lets you set up templates for every type of letter, notice, and statement you might want to send.  You have all the tools to build a template for virtually any document.  And once you have a template, you just select one or more loans and print the template to create the letter or statement instantly.  Some customers create templates for their loan contracts and use Moneylender for the origination side of their business, too.

The reporting engines are similarly flexible.  There are hundreds of fields that can be used for columns on reports.  You can modify the reports that come with Moneylender, and even create your own from scratch.  Each report can be molded into the perfect set of numbers and information to answer you questions without any meaningless columns wasting space.

Moneylender has many extension features to let you use the program to do more.  You can attach files of any type to individual loans for easy reference.  You can track per-loan expenses if desired.  You can track your current inventory, including cost basis.  You can export a report for submission to the major credit bureaus.  You can use our optional AutoPay service to give your borrowers online access to their balance info and accept ACH payments automatically.  Add notes and reminders to a loan.  Automate wraparound loans from investors and track discount earned on purchased loans.  Export a FIRE file for the 1098 submission tot he IRS for mortgages.  Import payments and loans from Excel.  There are so many amazing and convenient features.  And all of these features were added as a direct result of customer feedback, so everything great about the program exists because lenders told us what they needed!

Customer Support

I’m the author of the software, the author if this article, and the guy who answers when you call or email for help.  I’m the guy talking in all the videos in the User’s Guide (and the person who wrote the User’s Guide, too!).  If you have a question about Moneylender, you bet I can get you an answer.  My customers often tell me they really appreciate that I’m here to help if you need anything.  You can see for yourself on the reviews that some of them have posted on other sites.  Whether it’s a phone call with someone looking at buying a license, or a long-time customer with a question about how to deal with a bankruptcy, I’m happy to chat and point you to the right places in Moneylender to accomplish what you need.  And these are the conversations where I learn what people want so I know where to invest my time to make Moneylender even better.

 A Great Fit

Of course, Moneylender isn’t a perfect fit for everyone.  Some people might want a company to actually do the servicing on their loans, or they want to do the math themselves in Excel.  For them, Moneylender is either too little automation or too much.

But I believe we’ve really hit the sweet spot for any lender that wants to do their own servicing, and doesn’t want to do the math by hand.  Most of our customers have between 10 and 500 loans, but there are customers with just a single loan, and even enterprise customers with more than 10,000 loans.  There are billions of dollars being serviced by lenders using Moneylender Professional.  And the program works for any currency, so it is used in nearly all English-speaking countries around the world.

If you’re looking for great loan servicing software to help you track your loans, I think you may have just found your destination.  If you email or call, I look forward to talking with you.  Thanks for reading!

Is It Smart to Service My Own Loans?

What is loan servicing?

Loan servicing is the process of collecting the payments on a loan, including all the documents, accounting, and tax requirements.  To service a loan you’ll likely be sending our statements and late fee notices to your borrower, calculating the balance on the loan over time, and sending annual statements for tax purposes, such as the 1098 mortgage interest statement in the United States.  It can also involve collecting funds into an escrow account and paying associated bills like property taxes and insurance, and providing an accounting to the borrower of the escrowed funds.

 

Is it hard to do all that stuff?

If you’re doing it by hand, then yeah, it’s pretty tough.  Getting an accurate loan balance and valid interest calculations that match the terms in your loan contract is actually a lot more complex than slapping payment amounts into a generic Excel amortization template.  Borrowers almost always pay something different from the regularly scheduled amount at some point, and often the timing of the payments will not be precisely to the day of the original schedule.  When these deviations occur, an accurate balance calculation involves much more complex management than you’re likely to be able to set up in a spreadsheet cell formula.

Our loan servicing software, Moneylender Professional is built to account for loans with as much simplicity and automation as possible.  Getting an accurate balance calculation in Moneylender is virtually painless.  Once your loan is set up so the amortization schedule matches what’s desired, you can just plug in the payments you receive and Moneylender follows the calculation rules to determine an accurate, legally enforceable balance.

Sending out regular statements is pretty much impossible to automate with Excel, save for just sending the excel file itself to a very savvy borrower.  Software like Moneylender Professional is built to streamline the statements so they can be emailed or mailed with just a couple of clicks.  That convenience scales painlessly when you have more loans, you just do the same clicks and send out the statements for all your loans in one shot.  The same applies to other communications like Late Fee notices.

When it’s tax time, reading the law and filling in your own tax forms is pretty tricky.  For example, the reported interest on a Form 1098 should include the collected late fees, but not other fees.  Also, the balance is the principal balance at the beginning of the year, not at the end of the year.  People are always calling in to ask why the numbers are wrong because they don’t know about these requirements.  A system like Moneylender Professional is built to follow the rules carefully and make everything as automatic as possible.  When it’s time to generate your 1098 forms, you can do it in about three minutes in Moneylender, including using our built-in service to file electronically with the IRS.  That’s three minutes whether you have one loan or 500 loans.

 

Should I pay someone else to service my loans then?

That’s really up to you.  Moneylender is a system for lenders that want to service their own loans.  It does all the math and reporting and accounting and even has a lot of extra features like managing attached files and reminder notes and tracking per-loan expenses.  People who use Moneylender are servicing their own loans, and Moneylender makes that process a lot easier to manage.

The alternative is to hire another company to service your loans.  This third party would send statements to borrowers, track payments and calculate balances on your behalf.  They would charge a recurring fee and forward the proceeds of the payments on your loan to you.  In fact, there are a few servicing companies that use Moneylender as the core of their business.

If you really want to be hands-off with your loans, hiring someone else to do the servicing is probably a smart move.  The people that choose to use Moneylender want to keep their loans in-house.  The hour or two each month to keep on top of their loans with Moneylender is easily worthwhile for the confidence of knowing exactly how your assets are performing.

Anyone who is reading about whether or not to self-service probably only has a few dozen loans or less, but Moneylender will happily grow into the thousands of loans with you if you are planning to grow your portfolio.

 

So self-servicing is cool?

It’s really cool.  But it sucks unless you have a solid structure to work with.  Trying to do it well with just spreadsheets is going to be a nightmare.  But a more specialized loan servicing program like Moneylender Professional can make servicing your own loans very manageable.  And it helps if the company that makes the software has really great customer service, too.  Give us a call or email, I bet you’ll be surprised how helpful we are.

 

Happy lending!

Josh Whitman, CEO
Whitman Technological
Author of Moneylender Professional

July 2021 – What’s Happening with Moneylender?

 Things that are in the works for our loan servicing software, Moneylender Professional.

 AutoPay Production Release is Delayed

Issues with the backing bank has held up development on the production release of AutoPay.  Development is stuck until the bank situation is resolved, so the AutoPay Production release is on pause for now.  Lots of cool features are already at least partially developed, so it’ll be awesome to get rolling again once the bank stuff is sorted.

 

Accounting Mechanism

A new feature set will be created for Moneylender that will allow users to create demarcation points for accounting purposes.  There has been a long-standing problem when it comes for balancing the books against Moneylender’s reports.  The accountants need the numbers to stay the same from month-to-month or quarter-to-quarter.  The servicers need to be able to retroactively adjust things like waiving late fees or correcting payments or settings.  These two needs are in conflict with each other.

A new system is going to be added that will allow users to set an accounting checkpoint for a specific date and Moneylender will record the balances and totals since the previous checkpoint.  Each checkpoint will also include an adjustment factor that represents the differences in amounts cause by retroactive changes to a loan.  This permanently formalizes and resolves the relationship between concrete numbers for accounting and retroactive edits for servicing.  CPAs rejoice!

 

Portfolio Hosting Service

A version of Moneylender that runs as a faceless Windows service has been in the works for a couple years.  An extension of this will be a new service where you can choose to host your portfolio on our servers.  Instead of housing your data on your own computer, we’ll house your data and ensure ongoing, off-site backups.

This service will be especially appealing to lenders that might need to travel and use different computers.  Especially so if there are multiple people working together.

 

Moneylender Academy

We’re planning on producing a series of videos structured like a Moneylender school.  This should really help with training new Moneylender users to get up and running quickly, and to make the most of what the system can do.  We’re thinking about having four level of topics, starting with the introductory and basics in the “Associates” level, and describing really niche and enterprise features in the “Doctorate” level.

At the moment, we only have one video up on our new Moneylender YouTube channel, but this is where we'll publish the academy videos when they become available.

Buttons and Levers for Lenders and Debtors

One Thursday afternoon, I told my son that I didn’t want to get anymore emails home from his teacher telling me that “he didn’t finish his classwork at school today.”  I further stated that if an email was sent that he wouldn’t be allowed to play computer games at all that weekend.

Near the end of the school day on Friday, my boy was close to finishing his work, but not quite done.  He and his teacher were having their daily argument about completing classwork.  That’s when my son asked his teacher not to write an email to me because he would lose computer.

Surprise, surprise, I got an email from his teacher that afternoon.  My son told me about what happened during the day, and I had to chuckle a little bit.  Here’s the approximate conversation that ensued.

Dad: If I give you a box with a huge red button on it.  What do you want to do with that button? 

Son: Push it.

Dad: It feels good to be in control of things, doesn’t it?  Like holding the TV remote or being the moderator on a multiplayer game.

Son: Yeah.

Dad: Being out of control is a scary feeling for people.  We all really want to feel like we are the masters of our circumstances.  It feels good to feel like we’re controlling the outcome of things.

Son: Ok

Dad: Your teacher’s job is to make sure that each of her students learns a body of knowledge during their time in fourth grade.  How do you think she feels when a student isn’t showing their understanding of that knowledge?

Son: Bad.

Dad: And do you think she might be scared that she’s not doing a good job if the student isn’t showing that they know all the stuff they’re supposed to know?

Son: Yeah.

Dad: When you told her that she could control your weekend access to video games by writing me an email, you put a big red button in front of her.  You showed her a way that she could have more control over you.  You hadn’t been getting your work done, and here is a big bright button that will make you want to do whatever she wants you to do.  And what happened?

Son: She pushed the button.

Dad: Yep.  That’s what’s happening when someone complains that someone else is pushing their buttons.  A person is using knowledge about some else to manipulate and control them.  I do that with you all the time.  I’m doing it to try to help you make good choices and develop into a person that will be able to thrive in the world.  Sometimes, people will push your buttons for their own selfish reasons.  Sometimes people will push your buttons for good reasons.  Why did your teacher push your button?

Son: She wants me to get my work done.

Dad: Is that a good thing or a bad thing?

Son: A good thing.  She wants me to learn.

Dad: That’s right.  She doesn’t want to hurt you in the long run.  She needs you to be able to get work done at school and she’s trying everything she can think of to guide you to make that decision for yourself.

Son: Yeah.  That makes sense.

Dad: Now what was your mistake here?

Son: Not doing my work at school.

Dad: Well, obviously that’s a problem, but I’m talking about the button.

Son: I showed her the button?

Dad: Bingo.  If you reveal ways that someone can manipulate your situation, chances are that someone will use those buttons to make you act or think the way they want you to.  We don’t need to fear people, or to keep secrets or hide things.  But we also don’t want to enter an interaction with someone by revealing ways that person can exert control over our choices.

 

We learn what our buttons are when people push them and we don’t like it.  And then we learn to limit peoples’ access to our buttons, so that people don’t just push them to manipulate and control us.  But that doesn’t mean our buttons are weaknesses or that pushing our buttons is wrong.

The glue to any negotiation between people, whether it’s an agreement to finish a worksheet before the bell rings or an agreement to repay a million-dollar loan over thirty years, is to communicate clearly and directly.

Herb Cohen’s You Can Negotiate Anything describes the process of communicating effectively when trying to construct an agreement with someone else.  Stephen Covey’s 7 Habits of Highly Effective People describes the painstaking process of uncovering a person’s true desires and motivations, or more accurately positioning yourself so they feel safe enough to reveal those desires to you.  Both authors are concerned with generating the most mutual success from any interaction.  And in both books, finding the path of greatest benefit comes from carefully understanding each other’s goals and motivations and balancing them with equal weight against our own.  Finding ways to make accommodations rather than concessions.

 

I’m in the process of slowly piecing together a chart that shows all the leverage between borrower, lender, myself and my bank for my AutoPay service.  Being able to clearly communicate the ways that the risk is controlled, mitigated, overseen and monitored for every payment that runs through my AutoPay service is an important step in ensuring the payment system is able to run effectively.  Illustrating all the buttons that a borrower can press on the lender, a lender can press on the borrower, the lender and borrower can press on me, and I can press back.  Even the buttons my bank is exposing by making this arrangement and my buttons that can be pressed by the bank.  All of these complex relationships require trust and disclosure to work well.  And also to account for the fact that sometimes people are going to be in a difficult situation, and will make some choices that don’t take into account the best interest of other affected parties.  It’s critical that the right set of buttons and levers are exposed so that someone making a bad decision doesn’t have the chance to create great harm to anyone else.

 

So where am I going with all this?  It comes down to the buttons and levers that we spell out in our agreements with our customers, borrowers, tenants… everyone we interact with from day to day.  In our loan contracts, we spell out which levers will be pulled and which buttons will be pressed under what circumstances. 

Banks make standard mortgages that have a well-defined set of button presses and lever pulls.  Many of Moneylender’s customers are making loans that are not required to follow the same terms.  It is often the case that a deal is struck between lender and borrower as the result of discussion about the unique situation to be financed and finding creative ways to put buttons and levers in the deal where the lender can use them to protect their capital.

 

The buttons and levers must be used with balance, and that balance must be integral to the agreement between borrower and lender.  Virtually every author I’ve read believes in the idea of cooperation, mutual benefit, collaboration, synergy.  The best victory is not where there’s a winner and a loser.  The best victory is where everyone wins.  Not through compromise, but through a deep mutual understanding of each other’s values and needs.

 

The practical application of this point is to communicate the essence of every button and lever with the borrower when exploring and formalizing the deal. 

If the borrower can’t pay right now, here’s how the lender will address that deviation from the ideal path.  Perhaps the missed payment can be overlooked.  Perhaps a fee is charged or interest is capitalized.  Perhaps the lender will immediately take possession of property or assume responsibilities from the borrower.  Is it more desirable for the borrower to bounce a payment or simply not make a payment?  Does the lender want the borrower to reach out by phone or email when a payment is going to be missed, or is there no desire for communication? 

If the borrower can’t pay for a long time, how will both parties address the situation.  Will collateral be collected?  Property taken over or sold?  How desirable or undesirable is a certain outcome to the lender?  Is the lender quite comfortable selling the borrowers house to cover the debt?  Does the borrower know that?  Rather than dragging out a bad situation for a long time, the borrower might have chosen to surrender property if they knew the lender really wouldn’t mind that outcome.  Conversely, the borrower might put more effort into avoiding an outcome if the lender has been clear that selling a house would be a major inconvenience.

What if the collateral doesn’t cover the balance of the loan?  How will borrower and lender handle that situation?  Are both parties in a kind of partnership where a failed deal doesn’t mean there won’t be future deals, or does a failure mean that lender will never work with borrower again?

And for the borrower, how risky does the borrower really think this deal is going to be?  Is there a strong chance the deal might lose money, and the borrower expects the lender to take some of the risk of failure?  Can the lender share in the benefits if a deal is better than the borrower expects?  Does the borrower have instability in their job or income sources that might affect their ability to make consistent payments?  Would it be better if the lender could expect more sporadic payments?

How devastating would a property surrender be to the borrower?  Would giving up a house or a car be traumatic, or does the borrower have only minor attachment to the collateral property?  Will the borrower happily do the legwork to liquidate the property for the lender if the lender deems it necessary?

These lines of inquisition, tailored to the nature of your deal with a borrower, can uncover the real motivations and values for borrower and lender, and help identify unexpected options and opportunities.

 

Communication is so important to any relationship, when business of personal.  Take the time to understand and be understood beforehand.  Reveal your buttons when you’ve established mutual trust.  I suspect you’ll be pleasantly surprised with the outcome.

 

Happy lending!

Josh Whitman, CEO
Whitman Technological Corporation

Moneylender Professional - Loan Servicing Software
My awesome program for managing loans, used by lenders all over the Earth.

Observations on Lending as COVID-19 Spreads Globally

 I hope you’re all safe and healthy out there.  I’m seeing a couple little ripples in lending amongst Moneylender users, and I though you might find the observations interesting.

The story told by Moneylender sales…

Sales slowed for the first several months of the pandemic, and then sort of adjusted back to regular levels.  The collections freezes and proffered forbearances in March and April of 2020 made the lending industry hold its breath.  Once the job situation began to stabilize, we could see who would be losing their jobs and who would remain employed.

We saw a surge in Moneylender sales as people adopted our software to help with their workload as refinances and reinstatements were officially structured into debts around May.  In spite of the surge, the overall sales numbers were depressed throughout 2020, alongside an apparent slump in new debts among Moneylender users, and I would speculate that uncertainty for the future is causing people to avoid new purchases, debts, projects and ventures.  We’re all hunkering down and it’s slowing the use of debt.

While personal, short-term loans still seem to be slower than typical, the very low interest rates available are partially propping up real-estate backed mortgages and other debts that can be refinanced.  New debts are being eschewed while existing debt is generating some churn to keep the industry idling.

The story told by AutoPay payments…

While Moneylender sales are an interesting bellwether for how willing people are to take their chances, the payments through AutoPay have begun to sing the song of how faithfully those chances are being fulfilled.  AutoPay is only in use by a statistically miniscule number of lenders (eighteen at the time of this writing), but patterns are emerging nonetheless.  The lenders using AutoPay are quite varied, and their loans represent a fairly continuous spectrum of the lending industry as a whole.

An important caveat: AutoPay is only able to process payments in the USA, so any meta-analysis of those payments is limited to that single country.  It’s quite likely that the global pandemic is having similar effects in other countries, however.

In the last week of August, it seemed like many borrowers’ bank accounts had simultaneously run dry.  The rate of returns for insufficient funds tripled, and has stayed higher than normal.  Even more stable debts like mortgages saw higher rates of bounced payments.  These higher rates of failed payments are only very slowly tapering off.

Because AutoPay only processes payments and knows nothing of the status of the underlying loans, I could only guess at how loans are performing overall.  What I can tell for sure is that people were taken by surprise by their sudden lack of funds.  Instead of recognizing there would not be enough money and cancelling the payments to avoid NSF and overdraft fees, the payments were allowed to process and fail.  This spanned loans and lenders of all types.

In conclusion…

What useful takeaway might we get from looking into the payments and sales figures?  Certainly that people don’t know what to expect right now, that funds are scarcer than normal, that core income has been affected noticeably, and that many borrowers did not have a contingency plan to fall back on.

You, my savvy lender friends, might offer a contingency plan to your borrowers that allows them to save face and save money in the short term, while ultimately garnering for yourself some additional profit, stability, and loyalty.

Consider your borrowers, consider how you might address unexpected partial or total income loss.  Reach out to your struggling borrowers with a reasonable escape path for them.  If you are careful when you help them out of their difficult situation, you will likely be putting yourself higher on their priorities list.

My standard advice applies even more so when “doing someone a favor.”  Posture yourself as the absolute authority.  The seriousness of the debt, and your credibility must remain fully intact.  If they start to see you like a buddy or a rich aunt/uncle, you will be facing an uphill battle to make a profit from their debt.

Carefully review any letters or conversations you plan to make, ensure your position will confirm in the borrower’s mind that their dutiful repayment is not optional.  Speak calmly and directly, avoid blame or criticism.  State clearly the borrower’s situation and how your propose to allow them to proceed.  Never do this for free.  As soon as you cut them some slack, cutting slack is how you’ll be known.  If you cut some slack, for example, in allowing them to skip a missed payment, you must pick up the slack elsewhere, such as capitalizing the accrued interest.

 

With some though and effort, you can help to relieve your borrower’s immediate worries, enhance their opinion of the debt you hold over them, and make for yourself a little extra coin down the road.  Good luck and happy lending!

-Josh

 If you're in the market for loan servicing software to track and mange your loans, consider using my system - Moneylender Professional.