What is Loan Origination?

Loan origination is the term used to describe the beginning of the loan process, which begins with an individual, company, or couple submitting an application to borrow money. The term loan origination encompasses the entire process from application to release or denial of funds.

When a potential borrower wants to apply for a loan, they are required to submit information about their credit history, assets, employment, and other related information. The business lender or a loan originator, also called a loan officer, will then review the application. Loan underwriting is the process by which a loan officer evaluates a potential borrower's application in order to determine whether or not to approve the loan.

If the loan officer determines that the application should be approved, the closing process begins. This is when the interest rate, repayment terms and other details are explained and agreed upon. Sometimes lenders require a loan origination fee, which is an activation charge for opening the loan account. This is usually a very small percentage of the loan, less than 1% or 2%. Once all of the appropriate documents are complete and related fees paid, the funds are released to the borrower. At this point, the loan has been originated.

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