Guide

Loan Origination

Partner with Column on lending to provide a variety of credit products to your customers.

Overview

Column can partner with your company on building lending and credit products for your customers. Most commonly, we do this through a partnership where Column originates loans so you can offer these credit products. Offering credit to your customers can help supplement your current offering to increase the lifetime value of a relationship with your customer base. If you already offer credit products but want to work with a banking partner to expand your footprint or product set, we encourage you to explore this with Column. We work with companies looking to serve both consumer and commercial customer bases.

How it works

At Column, we work with you to align on the various responsibilities associated with providing credit products (whether a line of credit, credit card / charge card, etc) and build a partnership to operate an end to end loan origination and servicing program. Generally (but depending on many factors), only a bank or an entity with certain regulatory licenses can lend money. As a bank, Column can originate the loans associated with a credit product and separately, may either hold the loans on the balance sheet or sell them to third parties (including you!).

If you're already working with other vendors today, Column has experience with many companies across the ecosystem, and can work with you to create a customized program. Below are the key, lending-specific, activities that we will work with you on:

  1. Application processing: You collect information from your customers which will help us decide whether to approve a borrower.
  2. Credit decisioning: Work with Column to create a set of criteria to decide whether or not a borrower would be approved for a loan.
  3. Loan disbursement: Once a borrower is approved, Column will work with you to properly and promptly transfer the funds to the borrower.
  4. Loan payment processing: When you receive payments on the loan from borrowers, Column will make sure the funds go to the right place.
  5. Loan servicing and collections: If a borrower does not make loan payments on time, there needs to be a process to follow up on delinquencies.

Considerations & Risks

There are a number of key considerations and risks associated with offering credit products. Below are a few of these:

  • Credit Risk: Customers that borrow money might not pay back the lender, resulting in losses of capital.
  • Compliance risk: Companies that facilitate borrowing, lend money, or collect money on others' behalf must comply with various state and federal requirements designed to ensure proper treatment of borrowers. Failure to follow these requirements can result in fines, law suits, and in extreme cases, actions against management.
  • Liquidity Risk: Lenders need to ensure they have enough money on hand to actually originate loans that they have committed to.

Benefits of this use case

  • Offer credit and lending products to your customers. This can take many forms and is often a great way to increase your customer lifetime value.

Drawbacks of this use case

  • When offering credit products, the compliance and due diligence burden is heavier. We will work with you to address these.
  • Lending money requires capital. This can come from your balance sheet or it can come from a bank or another company that lends money to customers.
  • In order to ensure borrowers are performing as expected, lenders need infrastructure to track when payments from borrowers are due, route funds received, and reach out to borrowers who are delinquent on their contractual payments in order to try to get them to repay. If the loans are secured by physical collateral (for example, a car), then lenders also need to have a process in place to retrieve and sell that collateral if a borrower defaults. Companies often work with a third party for these aspects of lending.

Below you'll find a list of Compliance, Due Diligence and Legal requirements that we will work with you on in order to offer a lending product. This list is meant to be incremental to many of the standard Compliance items from our other use cases and should help outline the critical work we will complete, but is not an exhaustive or detailed list. Certain situations may necessitate additional requirements.

  • Organizational documents: we will need to understand the structure of your business, key legal entities, major owners (> 20% equity), and people who control the business.
  • Financial and Strategy information: we will need to review your historical and forecasted financial position, business lines, other liabilities, and capital raising history.
  • Governance: we will need to understand how you manage the business, who sits on your board, and the controls in place to ensure strong governance.
  • Internal controls: we will need to understand the role of compliance within your organization, how you audit your internal operations for errors, details on internal controls by activity, and your training program.
  • Loan lifecycle vendor management: you will need to provide us a list of all third party vendors you work with that will be involved in the loan life cycle, what they will be doing, and how you determine whether to work with a third party.
  • Audit: we will need details on third party audits that you have completed or plan to complete, including compliance audits, SSAE / SOC reports, BSA / AML audits, financial audits, or any others.
  • Marketing: help us understand your marketing approval process, the types of collateral you put out, platforms you market on, and any lead generation providers you use.
  • Origination process: We will work together to map out the entire process, from application through disbursement and ongoing monitoring. This will include a review of the application process, disclosures provided to the customer, and UI / UX that the customer goes through.
  • Underwriting: we will work together to implement an underwriting model and review the model development and monitoring. This includes variables proposed to be used in the model, data sources for variable, underwriting policies, and other related items.
  • Servicing and Collections: we will need to understand how you would like to manage customer service and collecting on delinquent accounts, including where any third parties fit into the flow.
  • Policies: we will need to review your existing policies and procedures to document how you are managing the various aspects of the program detailed above.
  • IT and Infosec: we will need to understand how your IT infrastructure and data safeguarding, including redundancy planning, third party cybersecurity audits or testing,

Program Management

In addition to many of the program management elements that you can find in the Card Programs use case, credit product require loan servicing and collections which we have described above.

Implementation steps

Create your data model

  • One Root Entity which has gone through KYC / KYB
  • Program Reserve and Overdraft reserve Bank Accounts (created automatically) which belong to the root entity. See here for more information on these accounts.
  • An entity for each end consumer/business which has gone through KYC / KYB
  • Create a bank account for each consumer/business entity
  • Create a loan object for each consumer/business entity

Flow of funds

Disbursement

Flow of funds

Payment

Flow of funds

Step-by-step flows for money movement

Switch your platform to live mode

To switch your platform to live mode, follow the instructions here.

Create non-root entities and accounts

You should create an entity and account for each customer for whom you are opening a demand deposit account. Non-root entities and accounts can be created both via the dashboard and with the API. Each entity you create needs to go through KYC/KYB.

Implement the flow of funds workflow

Disbursement

  • Create a disbursement from a loan to a Column bank account.
    • Principal of loan will increase
    • Balance of account receiving the disbursement will increase.
  • Account receiving the disbursement can be any Column bank account (either the customer entity or another entity)
  • Funds can be transferred out of Column through an ACH or Wire.
  • Column-owned reserve account will provide the funds for the loan (not pictured).

Payment

  • Create a payment from a Column bank account to the loan.
    • Balance of bank account will decrease
    • Principal of loan will decrease
  • Funds will need to be transferred to Column bank account before payment can be made.
  • Account which makes payment for the loan can be any Column bank account, does not necessarily be related to the entity.