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Oracle Loans User Guide
Release 12.1
Part Number E13646-04
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Setting Up Oracle Loans

This chapter provides an overview of Oracle Loans as well as the setup tasks that you need to perform in Oracle Applications for Oracle Loans.

This chapter covers the following topics:

Setting Up Oracle Loans

This section provides you with an overview of the setup steps for implementing Oracle Loans.

These setup steps span the following Oracle applications:

  1. Oracle HRMS

  2. Oracle System Administrator

  3. Oracle Resource Manager

  4. Oracle General Ledger

  5. Oracle Receivables

  6. Oracle Payables

  7. Oracle Workflow

  8. Oracle Loans

Oracle HRMS Setup

In Oracle HRMS:

  1. Use the People window to enter basic information for your employees.

See: Entering a New Person (People Window), Managing Your Workforce Using Oracle HRMS.

Oracle System Administrator Setup

In Oracle System Administrator:

Steps

  1. Run the Replicate Seed Data program for each operating unit in which you plan to use Loans.

    This step replicates the Loans batch source that you will use during Oracle Receivables setup as well as other data such as receivable activities and reason codes. You should complete this step before configuring the Loans credit memo batch source.

    See: Oracle Receivables Setup

  2. Set these profile options:

  3. In the Users window, define all Loans users, and attach the appropriate responsibilities, either:

  4. In the Descriptive Flexfields Segments window, define context field values, if needed. You can use these values to capture and report on information relevant to your organization.

    To add additional context values:

    1. Uncheck Freeze Flexfield Definition

    2. Select Segments to add additional values and select the Enabled check box.

    3. Compile. Then re-check Freeze Flexfield Definition.

  5. Clear the cache and bounce the middle-tier web server so that Loans reflects the changes made. This step is not required if you change profile option settings at the user level and do not set up descriptive flexfields

Oracle Resource Manager Setup

Using the CRM Resource Manager responsibility, complete these steps:

Steps

  1. In the Resource Manager, define your employees as resources.

  2. In the Resource Manager, query your resources and add one or more roles to each resource. Loans has two roles, Loan Manager and Loan Agent.

Related Topics

Overview of the Oracle Resource Manager, Oracle Trading Community Architecture User Guide.

Oracle General Ledger Setup

If your organization offers loans in currencies other than your ledger currency, then you must define those currencies in General Ledger.

See: Defining Currencies, Oracle General Ledger User's Guide.

The accounting periods need to be open when approving and billing the loans. For detailed information, see: Opening and Closing Accounting Periods, Oracle General Ledger Implementation Guide.

Oracle Receivables Setup

Steps

  1. Define an active credit memo transaction batch source for Oracle Loans for use during the credit, or credit and rebill, process.

    Ensure the Type is manual, and set Automatic Batch Numbering and Automatic Transaction Numbering to Yes.

    See: Transaction Batch Sources, Oracle Receivables Implementation Guide.

  2. Query the seeded Loans batch source in the Transaction Source window and, in the Credit Memo Batch Source field, enter the credit memo batch source that you created in the previous step.

  3. (Optional) Define three default transaction types for use when billing:

    When defining these transaction types, be sure to set:

    Note: You can use existing transaction types for principal, interest, and fees, provided that you set the Tax Calculation option on those transaction types to No. If you use existing transaction types, then skip this step. Each transaction type must have a Credit Memo Type of Credit Memo defined.

    Note: When defining transaction types for Loans, do not enter accounting information. Instead, enter default accounting in Loans. See: Setting Up Accounting.

    See: Transaction Types, Oracle Receivables Implementation Guide.

  4. Open GL periods so that you can successfully execute billing.

    Depending on your loan requirements, you might need to open GL periods for up to one year in advance.

    See: Opening and Closing Accounting Periods, Oracle Receivables User Guide.

  5. Confirm that you have no Revenue Policy system options defined.

    In the System Options window, all fields on the Revenue Policy tab must be blank.

    See: Defining Your Revenue Policy, Oracle Receivables Implementation Guide.

  6. Query the seeded Receivable activity, Loan Conversion, and enter the GL account for loan clearing to be used to automatically adjust an existing receivable when it is converted to a loan. This step is required if you create Extended Receivable Schedule loans and plan to automatically adjust the receivable balance to zero.

Oracle Payables Setup

Loans integrates with Oracle Payables to disburse funds for a direct loan and seeds Loans as a source for transactions imported to Payables through the interface tables.

See: System Setup for Multiple Currency, Oracle Payables Implementation Guide

Payables periods need to be open only for Direct loans. For detailed information, see: Controlling the Status of Payables Periods, Oracle Payables Implementation Guide

Oracle Workflow Setup

To be able to use notifications in Oracle Loans, set up Oracle Workflow.

Tip: It is recommended that you set up the user e-mail addresses that Workflow uses to send notifications, in Oracle HRMS rather than in Oracle System Administrator.

In order for Oracle Loans to display notifications properly on the dashboard, in Preferences, set the Notification Email Style to HTML Mail for each user.

See: Overview of Required Setup Steps for the Version of Oracle Workflow Embedded in Oracle Applications, Oracle Workflow Administrator's Guide.

Oracle Loans Setup

Log on to Oracle Loans using the Loan Administration responsibility. Under Loan Administration, click Setup, and complete these steps:

Important: After you complete your Loans setup, clear the cache and bounce the middle-tier web server so that Loans reflects the setup changes.

Setting Up Rates

Set up the interest rate indexes for your loans.

When a loan agent selects an index for a loan application, the rate will default for the index date selected from the index rates you set up.

You can enter interest rates manually or upload a file from an external source.

Tip: Save the index name before adding rates or importing rate files.

To upload a rate file, create an Excel spreadsheet with three columns formatted as show in this table:

Start Date End Date Rate
dd-Mon-yy dd-Mon-yy xx.xx

Use two decimal points for rate percentage. For example, enter 6.25 if the rate percentage is 6.25%. Save the spreadsheet with a .csv file extension.

Defining Loan Conditions

Define the loan conditions that your agents can attach to a loan application. Condition names must be unique within an operating unit.

You can define conditions using the following types:

You can update conditions at any time.

Note: Do not delete a condition that is attached to an approved loan.

To attach a condition to a loan application, see: Conditions.

Enabling Notifications

Event notifications can be enabled or disabled for an entire loan class or for individual loan types within a class. The default is enabled. You may want to disable notifications for some events to minimize the number of notifications sent to loan agents and managers. You can determine the critical event notifications and disable others to minimize the number of notifications sent to loans users.

Note: If you add loan types, you must enable the workflow and business events by linking the new loan type to the seeded workflows. To do this, you add the new loan type to the corresponding LNS_EVENT_ACTIONS tables. See: Oracle Workflow Administrator's Guide.

Setting Up Loan Types

Loan Type is a structure to which Loan Products are associated. A Loan Type provides the mandatory characteristics to set boundaries while defining Loan Products. Loan Type defines accounting, reserving funds, critical calculations, ability to convert construction loan to permanent loans and requirement for collateral. Setting these parameters ensures all associated Loan Products adhere to same default settings as set up in the selected loan type. Before creating a new loan type, you can search for existing loan types that match your criteria and duplicate the loan type.

Creating a Loan Type

To create a new Loan Type, login using the Loan Administration responsibility, select Setup and click Loan Types under Global Setup. Click Create and perform the following steps:

  1. Enter the General Information for the loan type and select from Direct or ERS loan class.

    Direct Loan is a disbursement of funds under a contract that requires repayment of such funds with or without interest.

    Extended Repayment Schedule or ERS Loan is a loan converted from one or more receivables and assigned terms and conditions for repayment.

  2. Based on the Class selected, the parameters in the Details section vary. If you selected Direct Loan, all parameters will be available. In case of ERS, the following parameters are not used:

  3. Select Payment Application and assign order in the Terms of Payment section. You can add new or remove existing payment applications.

You can only create loan products for loan types with a status of Completed. If any required fields for a loan type are not filled in, then the status is Incomplete.

You can only delete a loan type if it is Incomplete or if it is Completed without any loan products assigned to it. Loan types with loan products assigned to it can only be end-dated and made unavailable.

Updating a Loan Type

If you are updating a Loan Type, the Class, Type, Description and Start Date will appear as read-only fields and cannot be edited. You can end-date existing Loan Types which will ensure your Loan Type is not assigned to new Loan Products.

Duplicating a Loan Type

You can create loan types that are similar to existing types. Search for the Loan Type you wish to duplicate and click Duplicate. Replace the "Copy of <Loan Type Name>" with a new name (if necessary). Enter a Description and Start Date. The Class defaults from the original Loan Type and cannot be changed. Mark it Completed to make it available for assignment to Loan Products.

Note: If you change the values of a Loan Type after marking it Completed, the new values will not affect existing loan products assigned to the loan type.

Setting Up System Options

Set the following system options.

Note: You must clear the cache and bounce the middle tier server whenever you change profile option settings at any level other than User level, or add or change values that appear in Loans pages.

General

  1. Day Count Method

    Determines the number of days in a period when calculating interest. Select the Day Count method appropriate for your organization. The Actual/Actual and 30/360 day count methods have been verified using industry standard tools.

  2. Batch Source

    Select Loans. You identify Loans bills in Oracle Receivables by this batch source.

    Note: In Oracle General Ledger, the batch source for journal entries that are created for loans transactions is Oracle Loans.

Billing

  1. Default Transaction Type

    Select the Receivables transaction type for use when billing loan principal amounts. See: Oracle Receivables Setup.

  2. Default Interest Transaction Type

    Select the Receivables transaction type for use when billing loan interest amounts.

  3. Default Fee Transaction Type

    Select the Receivables transaction type for use when billing loan fee amounts.

  4. Invoice Generation Timing

    To indicate when you want Loans to generate bills for all active loans, enter the number of days before the installment due date.

    Note: When submitting the LNS: Billing program, this system option populates the To Number of Days to Due Date parameter of the billing program.

  5. GL Due Date

    Enter the number of days after the payment due date to indicate the GL date for Loans transactions.

    The GL date is the payment due date plus this number of days.

Original Receivable Adjustment

  1. Activity Name

    Select the Receivables activity name for the automatic receivable adjustment created when an existing receivable is converted to a loan. This system option is required only if your organization creates loans from receivables (loan class is ERS).

    The activity name must have the following parameters:

    Loans recommends that you use the seeded activity name, Loan Conversion, for audit tracking purposes.

Fee Accounting

  1. Enter the default debit accounting flexfield for Fee Receivable. You can enter only one account. All fees automatically generated by Loans use this debit account.

Setting Up Accounting

For each combination of loan class and loan type that your organization creates loans for, you must define GL accounts. You must set up accounting whether you create Direct loans or Extended Repayment Schedule (ERS) loans.

A loan manager can update the default accounting when working with a specific loan in Origination up until the loan becomes active. After a loan is active, no accounting changes can be made. See: Viewing Accounting.

Oracle Loans uptakes subledger accounting to generate accounting entries for the business events associated with the loan process. Accounting events are created when an ERS loan is approved and when a Direct loan is approved, disbursed or canceled. Accounting entries are also created when loan payments are billed. See: Accounting for Loan Payments.

See: Accounting Derivation Rules.

Note that when payments are received for a loan, Oracle Receivables generates the accounting distributions through the receipt application process.

To review the default accounting for a loan, use the Accounting area on the Origination tab. See: Viewing Loan Accounting.

Note: You must be familiar with your organization's chart of accounts in order to set up accounting for loans correctly. If you inadvertently select a non-postable or parent account when setting up accounting, journal posting will fail.

To Create Loan Accounting Setup for Direct loans

  1. Select Direct Loan class and a loan type for the accounting setup and click Create.

  2. Enter GL accounts and distribution percentage for Loan Approval.

  3. Enter GL accounts and distribution percentage for Principal and Interest Billing.

To Create Loan Accounting Setup for Extended Repayment Schedule (ERS) loans

  1. Select ERS class and a loan type for the accounting setup and click Create.

  2. Enter the Replacement Natural Account for loan booking.

  3. Enter a GL accounts and distribution percentage for principal and Interest Billing.

Related Topics

Validation for Loan Accounting

Validation for Loan Accounting

To properly account for a loan, you must set up GL accounts according to the following validation rules, before you can approve a loan.

Accounting Derivation Rules

Loans uses accounting derivation rules to establish accounting distributions when a loan is created.

  1. If a loan application is created for existing receivables from a public sector installation of Receivables that is multi-fund enabled, then Loans:

Accounting Events

Loans generates accounting information for events that occur during the lifecycle of a loan. The distributions are based on the accounting set up for the loan class/loan type combination associated with the loan. Loans generates an accounting event for each loan event and stores the accounting information that will be used by Oracle Subledger Accounting to create a journal entry for that event.

Accounting for Loan Approval

Important: Accounting distributions that a manager enters in the Accounting area on the Origination tab always take precedence over the accounting defaults that you enter in Setup. Loans re-derives the accounting distributions for accuracy when you approve a loan . For example, the original receivable amount may have changed since the application process began.

When you approve a loan application, Oracle Loans uses the Loan Creation accounts that you defined for the particular loan's combination of loan class and type to create the following accounting events:

Loan Approval for Direct Loans

Debit     Loan Receivable
Credit     Loan Payable

Loan Approval for ERS Loans

Debit     Loan Receivable
Credit     Loan Clearing

Accounting for Loan Funding

When you fund a direct loan, Loans uses the Loan Funding accounts that you defined for the particular loan's combination of loan class and type to create the following journal entries:

Loan Funding

Debit     Loan Payable
Credit     Loan Liability

Accounting for Loan Billing

When you generate a loan bill, Loans uses the Loan Billing accounts that you defined for the particular loan's combination of loan class and type to create the following journal entries:

Billing - Principal

Debit     Principal Receivable
Credit     Loan Receivable

Billing - Interest

Debit     Interest Receivable
Credit     Interest Income

Billing - Fee

Debit     Fee Receivable
Credit     Fee Income

Note: Define the credit for fee billing when you create a fee. See: Defining Loan Fees.

Accounting for Loan Cancellation

When you cancel a loan application, Oracle Loans uses the Loan Cancellation accounts that you defined for the particular loan's combination of loan class and type to create the following accounting events:

Loan Cancellation for Direct Loans

Debit     Loan Payable
Credit     Loan Receivable

Note: Loan Cancellation is for the entire loan amount for loans without distributions, and on amounts yet to be disbursed for loans with multiple disbursements.

Defining Loan Fees

Define the fees that your agents can attach to a loan application. Fee names must be unique within an operating unit.

You can define fees for the following categories:

For more information about the types of fees, see: Fees.

When defining a new fee, you indicate the category, event type, currency, event rules, calculation method, amount, billing option, accounting information, and whether the fee amount can be modified by the loan agent. Additional parameters are available based on the fee category selected.

When selecting a billing option, you can bill the fee as due before first loan payment, at origination, with an installment, equally with installments, or recurring. Note that billing options change based on the selected category.

Define rules for a late charge to determine the grace period, minimum fee amount, and whether the fee is calculated for overdue principal or overdue principal and interest.

You can update fee setup at any time.

You cannot delete a fee attached to an approved loan. You can end date fees that you no longer want to use.

If the fee amount varies from loan to loan, set up a fee with a nominal amount and allow updates to the fee amount. Loans agents can modify the fee amount in Servicing.

To attach a fee to a loan application, see: Fees.

Loans displays the fees that you attach to a loan in the loan's amortization schedule. See: Amortization and Viewing Current Amortization Schedule.

Defining Credit Accounts for Fees

When you generate a bill for a loan, Oracle Loans uses the debit account you define for Fee Accounting in System Options, and the credit account you define in Fees when you create the fee, to create the journal entries for a fee. All fees debit the same fee receivable account, but you can define a different fee income account to credit for each fee you create. You can define only one credit account for each fee.

Note: You can update the credit account when you assign the fee to a loan. See Fees.

See: Accounting Events and Setting Up System Options.

Preaccrued Interest

If your organization creates loan applications for existing receivables (the funds were already disbursed), then you can optionally set up a memo fee for any interest that has already accrued on the receivable. to record for read only purposes.

See: Fees.

Setting Up Loan Products

Loan Product is a product offering that provides defaulted and mandatory characteristics that meet loan program rules including term, index rates, fees, conditions and disbursement. Loan products are tied to loan types and cannot be created until loan types are available. Also, you must set up rates, conditions and notifications before creating a loan product. Before creating a new loan product, you can search existing loan products and duplicate any match that suits your need.

Creating a Loan Product

To create a new Loan Product, login using the Loans Administration Responsibility and select Setup. Use the Focus icon to access the setup tasks for a specific operating unit. Click Create and perform the following steps:

  1. Select a Loan Type

  2. Enter a Loan Product name, Description and select Currency, Segment and Start Date.

  3. In the Terms tab, specify the Requested Amount From. The Requested Amount To parameter lets you specify an optional upper limit to the amount the Loan Product can offer. If you want loan agents to be able to set the upper range amount when creating a loan application for this product, then leave this field blank.

    Important: You cannot specify a requested amount range for ERS loans since Loans derives the loan amount from the receivables selected to convert to a loan.

  4. The minimum duration of a loan is set by the Term Range From parameter. Selecting the Disable Updates option will disallow the loan agent from changing the loan duration. You can optionally set the Term Range To parameter. Leaving it unspecified will allow you to offer a Loan Product without predetermined duration.

  5. Specify if you require loan approval and approval to cancel disbursements.

    Note: Once set, both these fields cannot be updated.

  6. In the Interest Rates tab, specify values for Index Name, Interest Accrual Frequency, Rate Type, Allow Interest Only Payments, Payment Frequency, Collateralized and Reamortize Overpayments field.

    Note: Select Enable Update to allow loan agents to modify a parameter when creating a loan application.

  7. In the Conditions tab, add conditions for the loan product. Select Mandatory if a condition must be met before the loan application can be submitted for approval. You can add conversion conditions only to Construction-to-Permanent loan products.

    Note: Adding conditions to a loan product is optional.

  8. In the Fees tab, you can set fees to be paid by the borrower at origination or during the course of the active loan. Fees marked mandatory cannot be overridden by the loan agent. However, if it is marked Update Amount, then the amount can be modified by the loan agent.

    Note: The fees associated must be in the same currency as the loan product and from the same operating unit.

    Note: A loan product can be created without any mandatory fees.

  9. The Disbursement tab lets you configure the number of disbursement to be allowed for a particular Loan Product. You can set up multiple disbursement activities and optionally associate conditions and fees to be met before disbursing each installment. If you set fees and conditions to mandatory, only you or a user with administrator rights can modify it. Multiple disbursement is executed based on a disbursement schedule configured while creating a loan. For further details, see: Creating a Disbursement Schedule.

    Note: If your Loan Type does not allow multiple disbursement, the loan release will be defaulted to Single Disbursement. The Disbursements tab is not available for ERS loan products.

Updating a Loan Product

If you are updating a loan product, the Class, Type, Currency, Segment and Start Date will appear as read-only fields and cannot be edited. Changes to existing loan products will be effective only for future loans. While you cannot delete a loan product, you can end-date it, which will ensure your Loan Product is not assigned to new loans.

Duplicating a Loan Product

To create similar products you can duplicate a loan product instead of creating a new one. Search for the loan product you wish to duplicate and click Duplicate. Replace the "Copy of <Loan Product Name>" with a new name (if necessary). Enter a Description and Start Date. The new loan product inherits the loan class and loan type and cannot be changed. The Loan Product is set to Incomplete until all required details are entered.

Defining Oracle Loans Lookups

The following table lists the extensible lookup types that Oracle Loans uses.

Define lookups for these types in the Oracle Loans Lookups window.

Meaning Type
Loan Purpose LOAN_PURPOSE
Asset Quantity Type for Machinery and Equipment ASSET_QNT_MACHINERY_EQUIPMENT
Asset Quantity Type for Class Other ASSET_QNT_OTHER_ASSET
Asset Quantity Type for Class Real Estate ASSET_QNT_REAL_ESTATE
Asset Quantity Type for Class Securities ASSET_QNT_SECURITIES
Asset Quantity Type for Other ASSET_QNT_OTHER_ASSET
Asset Classes ASSET_CLASSES
Asset Reference Type for Machinery and Equipment ASSET_REF_MACHINERY_EQUIPMENT
Asset Reference Type for Class Others ASSET_REF_OTHER_ASSET
Asset Reference Type for Real Estate ASSET_REF_REAL_ESTATE
Asset Reference Type for Securities ASSET_REF_SECURITIES
Asset Reference Type for Others ASSET_REF_OTHERS
Loan Types for Direct Class DIRECT
Loan Types for ERS Loan Class ERS