Loan Proposal Stages

The loan proposal creation and execution process is a structured journey involving various actors: the arranger, borrower, and lenders. The process ensures transparency, fairness, and robustness against potential collusion.

1. The arranger sets or updates the loan terms, entering a COOL_OFF_PERIOD where no changes can be made. During this time period the arranger can't do any updates to the loan proposal. Moreover, during this time period the borrower can't accept.

2. If after the COOL_OFF_PERIOD the borrower accepts the loan terms then the UNSUBSCRIBE_PERIOD after which the loan proposal terms get locked in (i.e., the arranger can't change them anymore) during which lenders can make their final decision to stay subscribed or unsubscribe.

3. Note, during the UNSUBSCRIBE_PERIOD the borrower can still cancel the loan, in which case a rollback is triggered, and lenders can unsubscribe.

4. If, however, the borrower doesn't cancel the loan and enough lenders stay subscribed then an EXECUTION_GRACE_PERIOD begins, and the borrower has a an execution time window during which he can execute the loan.

5. If the borrower executes the loan, the loan lifecycle starts. If, however, the borrower doesn't execute the loan proposal within the given time window then anyone can rollback the loan proposal, allowing lenders to unsubscribe again.

High-Level Overview

In the following, we illustrate the step-by-step process of how a loan proposal is carried from its initial terms set by an arranger, through specified grace periods for revisions and cancellations, to the ultimate scenarios - either initiation of the loan lifecycle or the loan's rollback. This journey underscores the interplay between the arranger, borrower, and lenders, along with system-enforced wait periods to ensure the considered decisions of all parties involved.

Steps from initial loan proposal to loan execution.

1. Arranger sets terms: The loan process begins with the arranger proposing the loan terms.

2. COOL_OFF_PERIOD: Once the loan terms are proposed, the process enters the cool-off period. This is a waiting phase during which neither the arranger can update the loan terms nor the borrower can accept them.

3. Borrower accepts terms: After the cool-off period, the borrower can now accept the proposed loan terms. At this point, the arranger is blocked from making any more changes to the terms.

4. UNSUBSCRIBE_PERIOD: The process now enters the unsubscribe period. During this time, lenders have the option to unsubscribe, respectively, the borrower has the option to pull out of the loan proposal.

5. At the end of the unsubscribe period, there are multiple possible scenarios:

   • Borrower cancels?: If the borrower decides to cancel the loan, lenders are allowed to unsubscribe.

   • Borrower stays?: If the borrower does not cancel the loan, the next phase is dependent on whether enough lenders stay or not.

6. Enough lenders stay?: If a sufficient number of lenders remain subscribed to the loan, the process moves to the next waiting period, the execution grace period. If not enough lenders stay, a rollback is triggered, allowing the remaining lenders to unsubscribe.

7. EXECUTION_GRACE_PERIOD: During this period, the borrower has the opportunity to provide collateral and finalize the loan proposal. If the borrower does not execute the loan during this period, the loan proposal is cancelled.

8. At the end of the execution grace period, the flow moves to one of the two options:

   • Loan executed?: If the borrower executes the loan, then the actual loan lifecycle starts.

   • Loan not executed: If the borrower does not execute the loan during the execution grace period, anyone can trigger a rollback. This allows all subscribed lenders to unsubscribe from the cancelled deal.

Deep

• Initially, the loan is created by the arranger in the state of WITHOUT_LOAN_TERMS. At this point, it's not yet initialized and lacks a repayment schedule, meaning users can't subscribe. The arranger needs to propose a repayment schedule to advance the process.

• Once the arranger sets a repayment schedule, the loan transitions to IN_NEGOTIATION. Now, users can subscribe or unsubscribe. The arranger can adjust loan terms to attract the borrower and lenders, taking market feedback into account. However, a LOAN_TERMS_UPDATE_COOL_OFF_PERIOD is introduced to prevent any potential collusion. During this period, neither the arranger can update the loan proposal nor the borrower can accept it, ensuring lenders sufficient time to assess the proposal.

• The process proceeds when the borrower accepts the proposal, and the loan moves to BORROWER_ACCEPTED. At this stage, the arranger can no longer update the terms, but lenders can still subscribe or unsubscribe, provided it doesn't violate the loan's target range.

• Post the unsubscribe grace period, if the final subscriptions remain within the loan target range, the borrower can finalize the loan, transitioning it to READY_TO_EXECUTE.

• The loan moves to LOAN_DEPLOYED after it has been executed, marking the beginning of the loan lifecycle. This is when the loan amount is transferred, lenders can convert, and the borrower initiates repayments according to the defined schedule.

• However, if at any point the borrower chooses to back out from the proposal or too many users unsubscribe causing the total to fall below the target min loan amount, the loan transitions to ROLLBACK. This can be triggered by the borrower anytime before the unsubscribe grace period has passed or by anyone post this period if the minimum loan amount hasn't been met. If the borrower backs out from the proposal or if insufficient subscriptions prevent reaching the target minimum loan amount, the loan transitions to DEFAULTED.