Inflation and cost of living have been spiraling higher and higher since the pandemic. More people, businesses, and even countries are turning to borrowing to cover their expenses or expand their businesses and industries. However, the higher cost of living is putting a strain on people’s abilities to repay these loans, and making it harder for lenders to recover loans.

So, as a lender, you must thoroughly examine your borrower’s application to ensure they are creditworthy. If you don’t do this thorough check, you will end up with irrecoverable loans that will bankrupt you like most lending platforms. A borrower authorization form helps you collect financial information about your potential borrower and use this information to determine their financial health and creditworthiness. Using this form ensures you only give loans to people who will most likely repay.

What is a Borrower Authorization Form?

The goal of lending is to collect repayment with added interest but sometimes borrowers can’t even repay original debt, let alone the accrued interest. Using a borrower authorization helps you collect each loan applicant’s financial history to determine their creditworthiness before giving them the loan. 

The information collected with the form helps you determine the borrower’s likelihood to repay without defaults by evaluating their financial health and debt repayment patterns. For example, if the borrower is already too deep in debt, then borrowing them may mean you’re offsetting their current loans with yours. Unless their income is greater than the periodic repayment amount, you would risk losing your money giving them the loan.

Also, if borrowers can’t replay you foreclose on the collateral used for the loan, such as real estate properties to recover your money. However, there’s still a risk that borrowers may exaggerate the value of their assets, and there’s nothing of actual value to foreclose. So you need a borrower authorization form to help you take well-calculated risks about who to borrow and how much to lend them.

Why You Need a Borrower Authorization Form

Here are the major reasons why you need a borrower authorization form as a lender:

• Risk Assessment: Instead of wasting your resources to recover money from defaulters, the borrower authorization form ensures that you lend only to those most likely to pay back, and save that extra cost.
• Credit Assessment: A look through the borrower’s financial history—credit report, bank statement—to help you understand their payment patterns and credit score.
• Compliance with Applicable Laws and Regulations: This form also ensures that you comply with the applicable financial and consumer protection laws. For example, adding a validity period to the authorization, going through proper channels for loan recovery, etc.

Common Scenarios

The following are the most common use cases for a borrower authorization form:

• Loan applications: The borrower authorization form allows you to view potential borrower’s credit reports, employment documents, and other financial details. 
• Mortgage processing: The borrower authorization form enables you to collect credit reports, tax returns, proof of employment, bank statements, and more. This helps you determine if the borrower qualifies for the mortgage and the loan terms.
• Credit card applications: The authorization form you need helps you look at the cardholder’s credit report and other financial details. This lets you figure out their repayment likelihood, set the card’s credit limit, and decide the interest rate.

Key Components of a Borrower Authorization Form

Here’s a list of the most information to collect with your form:

• Borrower’s Information: This includes the borrower’s full name, address, phone and email, and important numbers like SSN or TIN.
• Lender’s Information: Your company name or full legal name if the loan is coming from a personal bank account, and your phone number or email for easy communication.
• Authorization Statement: This is your legal right to access the borrower’s financial records. It should explain the reason for collecting the information and the specific details you’ll collect.
• Purpose of Authorization: Why you are collecting financial information and how do you intend to use the information?
• Duration of Authorization: When do you need the borrower’s information and for how long? This ensures you use the information strictly for loan purposes and don’t mishandle the borrower’s information. 
• Borrower’s signature and date: The borrower’s signature, confirming their authorization and the date showing when they agreed to release their information.
• Witness or Notary Section (if applicable): This helps you verify the borrower’s identity and signature using a trusted third party. You could also use a notary seal to authenticate the document if required by law or lender policy.

How To Create a Borrower Authorization Form

Here’s a step-by-step guide to creating your borrower authorization form with Formplus:

• Go to the borrower authorization form template and click use template.
• Next, sign up or log in to your account and the form will open.
• Add or edit the form questions to include the financial information you need and click save.
• Customize the form to fit your company’s brand by adding your logo, color palette, and font.
• Share the form with loan applicants by embedding it to a webpage. For added convenience, create a QR code for easy scanning and form completion. Alternatively, share the form link directly via email.

Sample Borrower Authorization Form Template

The formplus borrower authorization template allows you to collect all the information you need to determine an applicant’s creditworthiness. To enhance the template’s effectiveness, customize it by adding new sections or adjusting existing questions. This will help you gather more comprehensive borrower data.

Common Mistakes to Avoid

To ensure a successful borrower authorization form, avoid these common mistakes:

• Incomplete information: Collect all necessary borrower’s information including name, address, and SSN/TIN. To ensure complete submissions, make these questions required. Borrowers will not be able to submit the form without filling them out.
• Unclear or ambiguous language: Your authorization statement and purpose of authorization should be straightforward. 
• No expiration date or revocation option: You don’t have unlimited access to your borrower’s information, so state how long you need access to financial information. For added transparency, provide a revocation option. Borrowers can request to have their information deleted if they no longer wish to proceed
• No signature or date fields: You need the borrower’s consent by signature and date of signing to collect their information. This helps you prevent future legal disputes with borrowers about informed consent and agreement terms.
• Noncompliance: Know the various laws and regulations governing lending and borrower’s authorization to prevent fines and legal consequences for noncompliance.
• Lack of transparency: Tell borrowers how you intend using their information and exactly what you do for the protection of that information.

Wrapping Up

Having a borrower authorization form ensures you give out loans to people most likely to repay their debt without default. In addition, it also serves as legal proof of borrower’s consent for you to access their information. 

We hope this guide makes creating your borrower authorization form seamless, and here’s a free template to get you started.