the commercial checklist - total training...

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THE COMMERCIAL CHECKLIST

For Business and Agricultural Loans

ANNE LOLLEYFOR TOTAL TRAINING SOLUTIONS

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Beginning Notes

Booklet contains: Checklist

Explanatory Material

Will e-mail checklist in Word

Red numbers on checklist tie topic to booklet

No memorizing!

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Contact Information

Anne Lolley

[email protected]

877-778-5192 x4

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WHY A CHECKLIST?

Some compliance rules apply: Joint-credit disclosure

Adverse action notices ECOA

Copy-of-appraisal requirements

Flood insurance

Appraisal and evaluation rules

Environmental rules

HMDA

Servicemembers Civil Relief Act

Unique matters must be considered

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COMMERCIAL LOANBUSINESS AND AGRICULTURE

USE THIS CHECKLIST IF THE PROCEEDS OF THE LOAN WILL BE USED FOR EITHER BUSINESS OR AGRICULTURAL PURPOSES.

THE TYPE OF COLLATERAL IS IRRELEVANT.

BASE YOUR DETERMINATION SOLELY ON THE PURPOSE OF THE LOAN.

SEPTEMBER 2015

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FROM TRUTH IN LENDING

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FROM ECOA (Reg B)

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Special HMDA Rule

HMDA will not apply to a loan to purchase farm property, even if

there is a dwelling on the property.

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APPLICANT

______________________

______________________

LOAN NO.

APPLICATION DATE LOAN TYPE

□ New loan

□ Refinancing

BORROWING ENTITY

□ Sole Proprietorship

□ Individuals Acting Jointly

□ General Partnership

□ Limited Liability Company (LLC)

□ Corporation

□ Limited Partnership

□ Limited Liability Partnership

□ Secured by dwelling

□ First Lien

□ Junior Lien

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COMMON BUSINESS APPLICANTS

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HELPFUL NUMBERS17

CHECKLIST

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DETAILED EXPLANATION

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DURING APPLICATION18

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WRITTEN APPLICATION?

Good documentation

Establishes application date

Contains joint-applicant statement

Contains HMDA monitoring block

Can be brief, simple

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NEW CUSTOMERS ONLY

CUSTOMER IDENTIFICATION PROGRAM24

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OBTAIN customer information before making the loan:

____ Name

____ Date of birth (sole proprietor/individual)

____ Address (principal place of business, local office)

____ Taxpayer identification number (SSN or EIN)

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VERIFY customer’s identity within a reasonable time:

■ Sole proprietorship_____ Driver’s license_____ Other (as required by bank policy)

■ Business entity_____ Use the entity documentation_____ Other (as required by bank policy)

■ Each individual signer (if required by bank policy)_____ Driver’s license_____ Other (as required by bank policy

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COMPARE customer name with OFAC list within a reasonable time.

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BANK COMPUTERS USUALLY HANDLE THIS STEP.

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ENVIRONMENTAL RISK ANALYSIS29

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ENVIRONMENTAL RISK ANALYSIS – IF REAL PROPERTY

Present and past uses of the property:

Lumber yardGovernmental-agency contacts about environmental matters?

NoneOther relevant information?

None


ENVIRONMENTAL RISK ANALYSIS – IF REAL PROPERTY

Present and past uses of the property:

Now: Basket storage / Former: Gas station Governmental-agency contacts about environmental matters?

2013 – State environ agencyOther relevant information?

OMG!

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ENVIRONMENTAL RISK ANALYSIS

GENERAL RULE: A bank is not liable for environmental problems on secured property.

BUT ARGUABLY: The bank must conduct due diligenceto determine whether an environmental problem exists.

AND: Why would you want this troubled loan?

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ENTITY DOCUMENTATION 34

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ENTITY DOCUMENTATION35

ENTITY DOCUMENTATION

OBTAIN COPIES OF DOCUMENTS SHOWING:

AUTHORIZED TO DO BUSINESS IN STATE,

AUTHORITY TO BORROW,

AUTHORITY TO SIGN ON BEHALF OF THE ENTITY,

HOW MANY SIGNATURES WILL BE REQUIRED, AND

HOW THE SIGNER MUST SIGN.

THESE DOCUMENTS MAY ALSO BE USED TO SATISFY

CIP REQUIREMENTS

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CORPORATION • Articles of Incorporation

• Bylaws

• Corporate Resolution

• Certificate of Good Standing


LIMITED LIABILITY COMPANY(LLC)

• Articles of Organization

• Operating Agreement

• Resolution


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GENERAL PARTNERSHIP • Birth Certificate

• Partnership Agreement (if written agreement exists)

• Resolution

• Certificates of Good Standing

X

X


LIMITED PARTNERSHIP • Certificate of Limited Partnership

• Partnership Agreement

• Resolution


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LIMITED LIABILITY PARTNERSHIP

• Statement of Qualification

• Partnership Agreement

• Resolution



SOLE PROPRIETORSHIP • Personal identification of sole proprietor

• Tax returns

• Other financial data as required by bank’s loan policy or procedures

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FINANCIAL INFORMATION43

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Obtain financial information showing applicant’s ability to repay.

Follow bank loan policy if possible. If policy does not address this issue, consider obtaining

the following information.


FOR ESTABLISHEDBUSINESSES

Financial statements for the previous two fiscal years

The most current interim financial statement

Tax returns for the previous two years

FOR NEWBUSINESSES

Financial statements of individual owners for previous three fiscal years

The most recent interim financial statement

Tax returns of the individual owners for the previous three years

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ADDITIONALINFORMATION

• Monthly interim statements (year-to-date)

• Balance sheet

• Income statement

• List of accounts receivable (aged)

• List of accounts payable (aged)

• An accountant’s compilations, reviews, audits

• If new customer, a Dun and Bradstreet report


REPORTS AND DOCUMENTS

• Feasibility studies (for development and construction projects)

• Copies of leases and subsequent rent rolls (when repayment will come from income–producing property)

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GUARANTORS49

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GUARANTORS51

ECOA RULES Can require guarantees of directors, partners or officers

IDENTIFICATION If new customer, identify (CIP not required, but will work)

ENTITY DOCUMENTATION If business entity, obtain entity documentation

ENTITY RESOLUTION If business entity, make sure resolution authorizes the guarantee

FINANCIAL INFORMATION Obtain financial information showing guarantor’s ability to repay

APPRAISAL/EVALUATION52

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APPRAISAL/EVALUATION53

APPRAISAL/EVALUATION

BUSINESS LOANS OF $1 MILLION OR LESS

Can use an in-house evaluation (instead of an appraisal) if repayment is not dependent on:

Sale of the property or

Rental income from the property.

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COPY OF VALUATION55

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COPY OF VALUATION

Provide copy of appraisal/evaluation

Deliver promptly

Must be received at least 3 business days before closing

Timing may be waived Oral or written

Waiver must be received at least 3 business days before closing

Still must provide by closing

Even if denied, withdrawn

E-mail permitted (but comply with E-Sign Act)

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MAILBOX RULE

If copy is provided by mail or e-mail, bank must allow 3 business days for delivery.

But bank may use evidence to show that the applicant received the copy sooner. E-mail “read receipt”

Signed statement

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3 business days for delivery+ 3 business days waiting period

6 business days total

ADVERSE ACTION60

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ADVERSE ACTION62

PROVIDE A NOTICE OF ACTION TAKEN

DENIALCOUNTEROFFER

BANK INACTION LONGER THAN 30 DAYS

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ADVERSE ACTION63

SMALL BUSINESS$1 MILLION OR LESS

Provide usual NOAT within 30 days

BIG BUSINESSMORE THAN $1 MILLION

Notify within a reasonable time _________________

FORMAL OR INFORMAL

ORAL OR WRITTEN(DOCUMENT IF BY ORAL)

WRITTEN STATEMENT ONLY REQUIRED IF APPLICANT REQUESTS REASONS IN WRITING WITHIN 60 DAYS AFTER

NOTICE.

FLOOD INSURANCE64

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FLOOD INSURANCE66

SECURED BY BUILDING • Flood hazard determination• Usually done by third-party vendor

STRUCTURE IN FLOOD HAZARD AREA

• Notice of Flood Hazard Risk• 10 days before closing• Get acknowledgement

FLOOD HAZARD AREA

COMMUNITY PARTICIPATES

• Require flood insurance

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FLOOD INSURANCE67

Increases, renewals, extensions . . .Can use previous determination if:

• Obtained within last seven years, and

• No map revisions or updates.

KEY MAN INSURANCE68

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KEY MAN INSURANCE69

LOAN-TO-VALUE LIMITS70

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LOAN-TO-VALUE LIMITS71

MORTGAGE72

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MORTGAGE73

SECURITY INTEREST74

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OBTAIN SECURITY INTEREST76

LIFE INSURANCE • Assignment of life insurance • Maybe insurance company’s form

CERTIFICATE OF DEPOSIT / DEPOSIT ACCOUNT

Assignment of deposit account

INVESTMENT PROPERTY (STOCKS, BONDS)

Stock assignment

OTHER COLLATERAL Commercial security agreement

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PERFECT SECURITY INTEREST78

TITLED VEHICLES Notice of Security Interest (NOSI)

Get lien noted on certificate of title

FARM PRODUCTS (LIVESTOCK, CROPS)

List of potential buyers

Send farm notice of security interest to potential buyers

File financing statement - central filing office

FIXTURES File financing statement – local filing office

FOOD SECURITY ACT

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PERFECT SECURITY INTEREST79

CERTIFICATES OF DEPOSIT Take possession of certificate of deposit

INVESTMENT PROPERTY (STOCKS, BONDS, MUTUAL FUNDS)

Bearer certificate - Possession

Registered certificate – Possession +

• Owner’s endorsement OR• Re-register in bank’s name

Uncertificated security – Written agreement that issuer will comply with bank’s instructions without further consent of the owner

MOST OTHER COLLATERAL File financing statement – central filing office

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SECURITY INTEREST81

EQUIPMENT OR VEHICLES Verify that collateral is insured

COLLATERAL LOCATED ON RENTED OR LEASED PROPERTY Obtain landlord’s lien waiver

PMSI - INVENTORY OR LIVESTOCK Send notification to existing lienholder

IF PERFECTED BY FILING Conduct UCC lien search

If a particular individual is indispensable to the business, consider key man life insurance (name bank as beneficiary).

PREPARING FOR CLOSING82

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AT CLOSING84

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AT CLOSING86

Promissory Note

Guarantees (if applicable)

Mortgage (or Deed of Trust) Assignment of Leases and Rents

Commercial Security Agreement

Assignment of Life Insurance

Stock Assignment

Assignment of Deposit Account

Landlord’s Lien Waiver

Listing of Potential Buyers

Obtain any money due from borrower

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AFTER CLOSING87

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AFTER CLOSING89

Record mortgage (or deed of trust)

Record assignment of leases and rents

File UCC financing statement (not necessary if collateral is covered by existing filing)

Conduct a UCC lien search to verify bank’s filing

Review documents / organize files / book loan

Document exceptions

Verify accuracy of all uploaded information

SERVICE MEMBERS90

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SERVICE MEMBERS

SERVICEMEMBERS CIVIL RELIEF ACT

6% rate cap

Limits on foreclosure

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NOTES AND INSTRUCTIONS93

NOTES AND INSTRUCTIONS94

NOTES AND INSTRUCTIONS

Vicki –

Call ACME – 555-9783 - and get bylaws - I have resolution.

Mike

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SUPPLEMENTAL DOCUMENTS95

SUPPLEMENTAL DOCUMENTS

Quick Application Form - 14

Government Monitoring Form – 15

Reg O Chart - 16

Entity Documentation Chart – 17

Obtaining an EIN – 18

Environmental Guidelines (FDIC) - 19

Appraisal and Evaluation Chart – 21

Adverse Action Chart – 22

Proposed HMDA Changes- 23

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HOW TO APPLY FOR AN EIN

On line …………..…....immediately

Phone ………………….immediately

FAX …………………….four business days

Mail ………………….....four weeks

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IDENTIFYING PARTNERSHIPS

A BUSINESS OWNED BY TWO OR MORE PEOPLE

Intent not required

Written agreement not required

Applies to spouses

Owning property ≠ owning business

Employer identification number required

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THANK YOU FOR BEING WITH US TODAY!

QUESTIONS?

Thank You!100

TTS

Kyle Bennett

www.BankWebinars.com

[email protected]

1-800-831-0678

Upcoming WebinarsSeptember 17th – Living Trust Documents

September 17th – Compliance Perspectives: A Monthly Update

September 18th – Health Savings Accounts

September 22nd – Get Global: Understanding Global Cash Flow Analysis

September 23rd – E-Sign Compliance and the Account Life Cycle

September 24th – Legal Liabilities when Check Fraud Occurs

September 24th – Marketing and Advertising Compliance – The First UDAAP Hotspot

September 29th – Call Report for Banks – Recent Changes, Highlights, and Pitfalls

September 29th – Common Mistakes with LLCs

October 2nd – Do's and Don'ts for Working with Caregivers and Fiduciaries