Government guaranteed loans help lenders enhance their credit. When the loan is guaranteed by a government agency, you can extend the credit knowing very well that it will not lose its money. It is true that government loan programs offer substantial benefits to lenders; however, they also come with rigorous application processes.
Federal agencies often ask the lender and the borrower to submit numerous documents. And this process can drag for months. Here are some tips to avoid common pitfalls in the loan application process:
Identify the purpose of the loan and select a suitable program
Agencies offer many different government guaranteed loan programs. Each of these programs has its own merits and is designed to benefit the society in a particular way. Some loans, for example, are aimed at ensuring economic development in the rural areas. Some loans are designed to assist small businesses. The 504 Loan program provides long-term financing at a fixed interest rate to acquire real estate for expansion of business.
When such a variety of programs are available, lenders should find a program suited to the specific loan they offer. Since these loan programs keep evolving, this might require some research.
Examine the specific requirements of the chosen loan program
After selecting a particular program, you should find out the specific documentation required for that loan program. You will have to review administrative notices and agency regulations regarding the loan application process. You can obtain information from local agency offices, but should not take everything on the face value. Remember that some information obtained from agency offices may be outdated. While this won’t prevent you from obtaining a final guarantee, it can delay the process.
Communicate with the agency and the borrower
You should stay in touch with the agency and the borrower throughout the loan guarantee application process. The loan application process has three steps.
First, you have to submit an application for a guarantee. Second, the loan agency will process this application and issue a conditional commitment of guarantee. In order to get the final guarantee, you have to meet certain specified conditions. The conditional commitment may require you and the borrower to submit various documents about the financial status of the borrower.
In fact, you should be thoroughly honest about the borrower’s financial condition and communicate it with the loan agency throughout the loan application process. This will avoid legal disputes in future.
Also, the lender must not disburse the loan amount until the agency issues the final guarantee. Remember that the conditional commitment comes with numerous conditions and hence the agency can find any number of reasons to reject the application for the final guarantee. In the case of real estate loans, the agency may not issue the final guarantee until the construction is completed. As a result, you will probably have to demand extra collateral from the real estate company seeking the loan.
Once the agency issues the final guarantee, then it cannot revoke it unless it can prove that the lender engaged in fraud. If the agency attempts to allege fraud, the lender can resort to the administrative appeal process.
Government guaranteed loan programs helps lenders in many ways. While the loan application process might seem to be a bit daunting, you can navigate it easily by paying attention to the details.
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