Loans play a critical role in any economy, so their disbursement must be swift and efficient after approval. Learn more about loan disbursements, their types, examples, and use cases.
There are many use cases for disbursements in business. One of these is the delivery of loans - money borrowed to be paid back with interest. These loans range from personal, payday, student, mortgage, and car loans to debt consolidation loans.
Not everyone will qualify for a loan, but for those who do, the most anxious time is between approval and disbursement. Approval, however, does not mean immediate access to the borrowed money. It does not always mean the lender will immediately release the entire loan amount.
This article discusses loan disbursements. We will look at the different types of loan disbursements and where they apply. We will also show you how to streamline loan disbursements and save money and time.
What is a loan disbursement?
Loan disbursement is the delivery of a loan to the borrower by the lender. After approving the loan application, the lender must make the loan amount accessible to the applicant by depositing it into their provided disbursement method.
Ideally, the borrower would prefer to access the loan as soon as it is approved. But merely getting approved does not mean the money will be immediately available.
The loan disbursement partner that the lender uses and the payment method the borrower chooses determine how soon the borrower can access the loan.
If the lender is a bank, it could use its infrastructure to disburse the loan. A micro-lender could disburse their loans through the bank where their funds are held or streamline the process with a fintech like Intasend.
What is an example of a loan disbursement?
Loans come in different forms. Student loans are extended to students to cover their tuition and boarding costs, mortgage loans for those buying residential property, car loans, and business loans for recapitalisation and operating expenses.
Lenders will usually require collateral before they can approve a borrower for a loan. With that provided and after successful appraisal, the lender will approve and proceed with the loan disbursement. They will do this by issuing a cheque or depositing the money into the borrower’s bank account or mobile money wallet.
An example of a loan disbursement is when a business secures a big order but lacks the funds to source the materials they need to produce the goods.
The company may apply for a short-term loan to bridge the funding gap. The lender will approve the loan, but it will pay the supplier directly instead of releasing cash. Lenders prefer this method of loan disbursement as it guarantees that the money will be used for the purposes for which it was borrowed.
Speaking of types of loan disbursements:
How many types of loan disbursements are there?
There are different ways lenders disburse loans. The type of loan disbursement a lender uses to release the money depends on the purpose of the loan.
Let’s use two examples where a lender may use different loan disbursement methods. In the first one, a business owner has run out of cash for their operational costs, so they apply for a short-term loan.
The other example is when an undergraduate student gets accepted into a prestigious university without money for tuition fees and living expenses. They then apply for a student loan.
In the two examples, the borrowers all need funding. The difference, however, is that the business owner needs it in cash, and the student doesn’t. The student only needs to know that their fees, food, and boarding expenses will be paid, so they don’t mind the money going straight into the university’s bank account.
Let’s now talk about the different types of loan disbursements:
1. Full loan disbursement.
A full loan disbursement releases the loan amount as a lump sum directly into the borrower’s bank account or preferred method of disbursement.
Full disbursements make the entire loan amount immediately available for use. The money is released in cash so the borrower can use it as desired. An example is the short-term business loan we just referred to above.
2. Partial loan disbursement.
With a partial disbursement, the loan amount is released in smaller chunks. The money is released as it is needed. This is done mainly to prevent misuse of the funds.
Cases where partial disbursements make perfect sense include home construction and student loans. Houses are built in stages, meaning the floor tiling, painting, and other finishing touches don’t need to be paid for until much later in the construction project.
3. Direct payment loan disbursement.
Direct disbursements release the loan money directly to the service provider. This could be a contractor and building materials provider, as in the home construction loan example, or directly into the university’s bank account in the example of a student loan.
Student loans also don’t need to be paid in full, as students can drop out midway through their study program. The loan can be broken up into smaller amounts released at the beginning of every semester.
So, student loans can be released through a hybrid of the partial and direct payment disbursement methods. This approach prevents misuse of the funds and ensures that the student can concentrate on their studies, knowing that the funding aspect is taken care of.
How Intasend simplifies loan disbursements.
The faster you can release loans and make the borrowed funds available for borrowers, the sooner they can put it to use.
For business loans, the faster they can deploy the funds borrowed usually determines whether the money will be put to its most productive use and paid back as agreed. If the borrower misses the business opportunity they intended to use the money for, they may misuse the loan and resultantly struggle to pay it back.
Intasend provides the best loan disbursement services in Kenya. We are committed to ensuring your disbursements are processed promptly, using the most convenient methods for recipients.
We have tools that streamline the disbursement process, including the ability to release loans to up to 5,000 recipients in one request. You can add the recipients to your business account’s dashboard or upload an Excel sheet with your list of recipients, the amount, and their disbursement methods.
We also make it easy to schedule your disbursements if you prefer to release the money in smaller chunks. So, in effect, we support both full and partial disbursements.
Intasend disbursements are instant and secure and are cheaper than the rates charged by banks. We support direct bank deposits and mobile money transfers. Whether you are disbursing loans, grants, cash aid, or salaries, Intasend will streamline the process for you.
Manage all your business payments, collections, and disbursements from a single dashboard to minimise costs, boost tracking and reporting, and make the most productive use of your money with an Intasend business account. Sign up here to get started.
