NetLoan - Loan Balance Cap (Fixed Installment)

OVERVIEW

NetLoan now supports setting a maximum balance cap on loans with capitalized interest. This feature is designed primarily for Payment-In-Kind (PIK) loans where interest capitalizes into the loan balance and is paid off in chunks or at loan maturity.

When interest capitalization would cause the loan balance to exceed the configured limit, the system handles the excess interest based on the selected cap type - Accrue Interest or Forgive Interest. 

Use Case:

This feature is particularly valuable for: 

• PIK Loans: Loans where interest payments are deferred and added to the principal balance
• Risk Management: Controlling maximum exposure on individual loans
• Regulatory Compliance: Meeting lending agreement restrictions on maximum balance amounts
• Portfolio Management: Maintaining consistent cap policies across loan products

CONFIGURATION

Step 1: Enable Loan Balance Caps

1. Navigate to NetLoan > NetLoan Setup > Global Settings
2. Check the box to Allow Loan Balance Caps 
3. Click Save

Note: Loan balance cap fields will only be visible on the loan type and loan records when this global setting is enabled. 

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Step 2: Configure Loan Type Defaults

1. Navigate to NetLoan > NetLoan Setup > Manage Loan Types
2. Open the desired loan type or create a new one
3. Configure the following fields: 

Default Loan Balance Cap

• The default maximum loan balance for all loans of this type. This can be overridden on individual loan records. 

Loan Balance Cap Type

• Determines how interest is treated when the cap is reached.
• Options:
  • No Cap: No loan balance cap is applied (default)
  • Forgive Interest: Interest that causes the balance to exceed the cap is forgiven
  • Accrue Interest: Interest

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Step 3: Configure Individual Loans (Optional)

Override loan type defaults for specific loans if needed. 

1. Navigate to the NetLoan Loan record
2. Locate and edit the Loan Balance Cap field on the loan record
3. Click Save

Note: The Loan Balance Cap Type field is hidden on loan records and should only be set at the loan type leve. 

HOW IT WORKS

Interest Capitalization Under the Cap

When scheduled interest capitalization occurs and the resulting balance would remain below the cap, interest capitalizes normally into the loan balance.

When the Cap is Reached

The system behavior depends on the configured Loan Balance Cap Type:

Forgive Interest: When the Loan Balance Cap Type is set to Forgive Interest, only the amount needed to reach the cap is capitalized. Additional interest that would exceed the cap is forgiven (written off). The loan balance remains at the cap amount, and future interest continues to be forgiven until payments reduce the balance below the cap

Example:

• Loan Balance Cap: $100,000
• Current Balance: $98,000
• Interest Due for Capitalization: $5,000

Result:

• $2,000 interest is capitalized (bringing loan balance to $100,000)
• $3,000 interest is forgiven
• New Loan Balance: $100,000

Accrue Interest: When the Loan Balance Cap Type is set to Accrue Interest, only the amount needed to reach the cap is capitalized. Additional interest that would exceed the cap continues to accrue. The loan balance remains at the cap amount and accrued interest accumulates without adding to principal. Once a payment reduces the balance below the cap, interest capitalization resumes normally. 

Example:

• Loan Balance Cap: $100,000
• Current Balance: $98,000
• Interest Due for Capitalization: $5,000

Result:

• $2,000 interest is capitalized (bringing loan balance to $100,000)
• $3,000 remains as accrued interest
• New Loan Balance: $100,000

After a $10,000 payment:

• New Loan Balance: $90,000 (below cap)
• Interest capitalization resumes normally on future dates

Partial Capitalization Scenario:

• The portion of interest that fits under the cap is capitalized
• The remainder continues as accrued interest
• This ensures the loan balance never exceeds the defined Loan Balance Cap

Troubleshooting

Cap fields are not visible on loan type or loan records

1. Verify that Allow Loan Balance Caps is enabled in NetLoan > NetLoan Setup > Global Settings
2. Refresh the loan type or loan record page
3. Verify you have permissions to view these fields

Interest is not being handled correctly at the cap

1. Verify the Loan Balance Cap Type is set correctly on the loan type
2. Check that the Loan Balance Cap is configured on the loan
3. Regenerate the amortization if changes were made after the schedule was initially generated (loan must be in a "Pending" status)