Total Training Solutions

COMMERCIAL CHECKLIST

CHECKLIST

EXPLANATORY MATERIAL

Anne Lolley

877-778-5192 x4 (toll-free)

/ COMMERCIAL LOAN
BUSINESS AND AGRICULTURE
─BUSINESS AND AGRICULTURE─
USE THIS CHECKLIST IF LOAN PROCEEDS WILL BE USED FOR BUSINESS OR AGRICULTURAL PURPOSES.
LOOK AT PURPOSE OF LOAN . . . COLLATERAL IS IRRELEVANT.
NEVER APPLICABLE
RESPA
Integrated Disclosures
ARM Disclosures
Right of Rescission
HOEPA / HPML
Waiting Periods
Federal Insurance Disclosures
Risk-Based Pricing Disclosures
Privacy Notice
Non-HMDA Monitoring / APPLICABLE AS USUAL
No Discrimination
Joint-Credit Statement
Adverse Action Notices
ECOA Copy-of-Appraisal Rules
Flood Insurance
Appraisals and Evaluations
Environmental Rules
HMDA
Article 9 Collateral Rules / HMDA WILL APPLY IN ANY OF THE FOLLOWING SITUATIONS: 4
  • Loan is to purchasea dwelling and is securedby a dwelling;
  • Loan is to improve a dwelling and is either (i) securedby a dwellingor (ii)classified as a home improvement loan; or
  • Loan is a refinancing (any purpose) and both old/new loan is secured by a dwelling.

DOES HMDA APPLY? Yes No
NOTE: HMDA will not apply to a loan to purchase farm property, even if there is a dwelling on that property.
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
1 / Copyright © Anne Lolley and Total Training Solutions COMMERCIAL CHECKLIST March 16, 2016
DURING APPLICATION PROCESS
_____ Determine if application is joint. If so, documentthat fact. 2
_____ If existingcustomer, resolve existing exceptions. 3
_____ If HMDA and applicant is a natural person, get monitoring data. 4
_____ Obtain authorization to get information. 5
_____ If loan will purchase real estate, get copy of purchase contract. 6
If loan secured by already-owned real estate, get copies of: 7
_____ Deed _____ Title work _____ Appraisal _____ Existing mortgage
_____ If loan secured by real estate, order a survey. 8
_____ If loan is secured by real estate, obtain title insurance. 22
_____ If zoning will affect business, determine if appropriate. 9
_____ If secured by first lien on a dwelling, provide the ECOA 10
copy-of-appraisalnotice within 3 business days after application.
_____ If applicant/owner is a trust, obtain (i) trust copy/certification. 11
_____ Check for lending limit and Reg O problems. 12
CIP – NEW CUSTOMERS ONLY

_____ Obtaincustomer information beforemaking the loan. 13
_____ Verifycustomer identity within reasonable time.
ENVIRONMENTAL RISK ANALYSIS – IF REAL PROPERTY 14
Past and present uses of the property:
Government agency contacts?
Other relevant information?
ENTITY DOCUMENTATION 15
CORPORATION
_____ Articles of Incorporation ____ Bylaws
_____ Corporate Resolution ____ Certificate of Good Standing
LIMITED LIABILITY COMPANY (LLC)
_____ Articles of Organization ____ Operating Agreement
_____ Resolution ____ Certificate of Good Standing

GENERAL PARTNERSHIP
_____ Partnership Agreement ____ Resolution
LIMITED LIABILITY PARTNERSHIP
_____ Statement of Qualification ____ Partnership Agreement
_____ Resolution ____ Certificate of Good Standing
SOLE PROPRIETORSHIP
____ Identification of sole proprietor ____ Tax returns
____ Other financial data
FINANCIAL INFORMATION 16
____ Financial statements ____ Tax returns ____ Other
GUARANTORS 17

_____ If newcustomer, identify (CIP procedures would work)
_____ If non-individual, obtain entity documentation.
_____ If non-individual, check on authorization to guarantee the loan.
_____ Obtain financial information showing ability to repay.
APPRAISAL/EVALUATION - IF REAL PROPERTY 18
_____ Order new appraisal
_____ Conduct new evaluation(can use county tax data as basis) SELECT ONE
_____ Use existing appraisal or evaluation (must verify validity)

_____ Review appraisal or evaluation
COPY OF VALUATION 19
_____ If first lien on a dwelling, providecopy ofappraisal or evaluation
 Must be receivedat least 3 business days before closing
 If waiver, provide by closing
 Remember mailbox rule (allow 3 business days for delivery)
ADVERSE ACTION (IF APPLICABLE) 20
_____ SMALL BUSINESS– Notice of Adverse Actionwithin 30 days
_____ BIG BUSINESS- Notify within reasonable time
FLOOD INSURANCE – IF SECURED BY BUILDING 21
____ Obtain flood hazard determination (or recertification)
____ If SFHA, provideNotice10 days before closing (get acknowledgement)
____ If SFHA and participating community, require insurance (before closing)
KEY MAN INSURANCE 23
_____ If an individual is indispensible, consider key man insurance
LOAN-TO-VALUE LIMITS 24
_____ Ensure that the bank complies with theloan-to-valuelimits
MORTGAGE 25
_____ Obtain completed mortgage(or deed of trust).
_____ If real estate has improvements, verify insurance coverage.
OBTAIN SECURITY INTEREST 26
_____ LIFE INSURANCE - Assignment of Life Insurance
_____ CERTIFICATE OF DEPOSIT OR DEPOSIT ACCOUNT - Assignment
_____ INVESTMENT PROPERTY (STOCKS, BONDS) – Assignment
_____ OTHER COLLATERAL - Commercial Security Agreement
PERFECT SECURITY INTEREST 27
____ List of potential buyers
FARM PRODUCTS ____ Pre-notification to buyers
____ UCC-1 filed centrally
TITLED VEHICLES ____Note lien on title
FIXTURES ____ UCC-1 filed locally
CERTIFICATE OF DEPOSIT ____ Possession
BEARER STOCK CERTIFICATE ____ Possession
REGIST STOCK CERTIFICATE ____ Possession + Endorse/Re-registration
UNCERTIFICATED SECURITY ____ Written agreement
MOST OTHER COLLATERAL ____ UCC-1 filed centrally
ADDITIONAL STEPS TO PROTECT COLLATERAL 28
_____ If secured by equipment/vehicles, verify insurance coverage.
_____ If collateral on leased property, obtain landlord’s lien waiver.
_____ If PMSI ininventory or livestock, notification to lienholder.
_____ If perfected by filing, UCC lien search to determine priority.
PREPARE FOR CLOSING 29
_____ Promissory note / Guarantee
_____ Mortgage / Security Agreement
_____ Assignment of insurance / stock / deposit account / rents and leases
_____ Landlord’s lien waiver
_____ List of potential buyers
_____ If HMDA applies, obtain LAR data
_____ Schedule closing date, time, signers
_____ If loan is secured by real estate, coordinate with closing agent
_____ Prepare and mail instruction letter to closing agent
AT CLOSING 30
_____ Ensure that documents are signed, dated and initialed
_____ Collect any funds due from borrower
AFTER CLOSING 31
Record or file the following documents, as appropriate:
_____ Mortgage or deed of trust (must be notarized)
_____ Assignment of leases and rents
_____ UCC financing statement
_____ Conduct a UCC lien search to verify bank’s filing
_____ Review documents; organize/assemble files; book loan
_____ Document and record exceptions
_____ Verify accuracy of “uploaded” information

DON’T FORGET 32
SCRA PROTECTIONS APPLY TO BUSINESS AND AGRICULTURAL LOANS.
NOTES AND INSTRUCTIONS
1 / Copyright © Anne Lolley and Total Training Solutions COMMERCIAL CHECKLIST March 16, 2016
1 / THE REQUIREMENT ORIGINALLY DESIGNATED AS BLOCK 1 (FOR KANSAS BANKS) IS NOT GENERALLY APPLICABLE IN OTHER STATES AND HAS BEEN REMOVED FROM THIS BOOKLET.
2
JOINT CREDIT STATEMENT / The Equal Credit Opportunity Act (Reg B) applies to all loans, including commercial loans. Under the ECOA, applicants must indicate—at the time of application—whether they are applying for joint credit. This requirement is found in the Regulation B Commentary and states as follows:

Evidence of joint application. A person's intent to be a joint applicant must be evidenced at the time of application. Signatures on a promissory note may not be used to show intent to apply for joint credit. On the other hand, signatures or initials on a credit application affirming applicants' intent to apply for joint credit may be used to establish intent to apply for joint credit.
This disclosure is typically found on the application form. If the bank’s business application does not contain this statement, a separate form will be required.
NOTE: When several individual applicants apply for a business loan, the bank must determine whether the individuals have formed a partnership. If so, the application is being made by a single partnership—it willnotbe a joint application.
3
RESOLVE EXCEPTIONS / If an applicant has existing loans with the bank, review those existing loans to determine if there are exceptions that need to be cleaned up before the bank can act on the application.
4
HMDA
MONITORING
AND
REPORTING / A bank is subject to the Home Mortgage Disclosure Act (HMDA) if it (i) has assets in excess of $44 million and (ii) has a home or branch office in a metropolitan area. [$44 million is the threshold for 2016; it changes annually.]
If a loan is subject to monitoring requirements and the applicant is a natural person (a sole proprietor), the lender must document the applicant’s ethnicity, race and sex. If the applicant is not a natural person (partnership, corporation), no HMDA monitoring is required.
If monitoring data must be collected (because the applicant is a natural person), the lender must inform the applicant:
  • That the federal government requires the information in order to monitor compliance with federal discrimination laws; and
  • For in-person applications, that if the applicant does not provide the data, the lender is required to note the data on the basis of visual observation or surname.
Some business applications do not contain a monitoring block for this data. If that is the case, use a separate form to collect the information. A sample form is printed onPAGE 15.
Proposed Changes: In October of 2015, the CFPB revised the HMDA reporting rules. Most of the new rules, however, will not become effective until January 1, 2018. The new reporting requirements are briefly discussed on PAGE 23.
5
AUTHORIZATION / Obtain the applicant’s written authorization to obtain information from third parties.
6
PURCHASE CONTRACT / If the loan proceeds will be used to purchase real estate, obtain a copy of purchase contract.
7
REAL ESTATE INFO / If loan will be secured by real estate already owned by borrower, obtain copies of the deed, previous title work, previous appraisals, and any mortgages.
8
REAL ESTATE SURVEY / If loan will be secured by real estate, order a survey. Indicate whether the bank wants (i) an “Improvement Land Certificate” (ILC) that shows the improvements or (ii) a “contract” that only shows the pins.
9
ZONING / If zoning will affect the business operation, investigate the zoning and determine whether it is appropriate for the property’s intended use.
10
COPY-OF-APPRAISAL NOTICE / The copy-of-appraisal requirement arises under the Equal Credit Opportunity Act (Reg B), which applies to all loans, including commercial loans. For years, if a loan was secured by a dwelling, the bank had to provide a copy of the appraisal/evaluation, either (i) routinely or (ii) upon request (after providing a notice of the applicant’s right to receive a copy of the appraisal).
Because of the new CFPB rules, the copy-of-appraisal requirement has now changed. Beginning January 18, 2014, if a loan is secured by a first lien on a dwelling, the bank must provide the applicant with a notice of the applicant’s right to receive a copy of any valuation (appraisal or evaluation). This notice must be given within three business days after application.
11
CERTIFICATION
OF TRUST / If either the applicant or the owner of secured property is a trust, the lender should obtain either (i) a copy of the trust document or (ii) a completed-and-notarized Certification of Trust. If permitted in your state, the Certification is usually the easiest and best solution.
12
LENDING LIMIT/REG O / Make sure the loan will fall within the bank’s lending limit.
If the applicant is an insider, be sure to check for possible Reg O problems. Reg O is complicated and detailed, but a simple summary—showing the basic rules—appears onPAGE 16.
13
CUSTOMER IDENTIFICATION
(CIP) / Under theBank Secrecy Act a bank must develop a Customer Identification Program (CIP). Your bank doubtless has such a program. If the applicant is an existing bank customer, someone will have already gathered the appropriate information. But if the applicant is a new customer, the lender must follow the bank’s customer identification program to identify the applicant and verify that identity. At minimum, the bank’s program will require the following:
  • Identify the customer by obtaining the following information prior to closing:
  • Name,
  • Date of birth,
  • Address, and
  • Social security number or employer identification number.
  • Verify the customer’s identity within a reasonable time after the loan is closed.
Verification requirements are typically as follows:
  • Sole proprietorship  Driver’s license + Other (refer to bank’s CIP)
  • Business entity  Documentation shown in next section + Other (refer to bank’s CIP)
  • Each individual signer  Driver’s license + Other (refer to bank’s CIP)

14
ENVIRONMENTAL RISK ANALYSIS / When a loan is secured by real property, the bank must consider the risk of environmental liability and conduct a brief analysis of that risk. This checklist enables the lender to conduct a simple environment risk analysis by asking two simple questions and documenting the responses right on the checklist. Usually the responses will not indicate a potential problem and the analysis will be complete. If the responses indicate an environment concern, the lender should turn to the bank’s environmental policy for additional guidance.
15
ENTITY DOCUMENTATION
/ If the applicant is a business entity (sole proprietorship, corporation, partnership, LLC), obtain copies of documents showing:
  • That the entity is authorized to do business in your state,
  • Whether the entity has the authority to borrow,
  • Who has the authority to sign the loan documents on behalf of the entity,
  • How many signatures will be required, and
  • How the signer must sign.

CORPORATION /
  • Articles of Incorporation
  • Bylaws (along with any amendments)
  • Corporate Resolution(showing who has authority to borrow and sign for the corporation)
  • Certificate of Good Standing (for any state in which the entity does business)

LIMITED LIABILITY
COMPANY (LLC) /
  • Articles of Organization
  • Operating Agreement
  • Resolution (showing who has authority to borrow and sign on behalf of the LLC)
  • Certificate of Good Standing(for any state in which the entity does business)

GENERAL
PARTNERSHIP /
  • General partnerships are not typically required to file with the state
  • Partnership Agreement(if written agreement exists)
  • Resolution(showing who has authority to borrow and sign on behalf of the partnership)
  • Certificates of Good Standing are NOT issued for general partnerships

LIMITED
PARTNERSHIP /
  • Certificate of Limited Partnership
  • Partnership Agreement
  • Resolution (who has authority to borrow and sign on behalf of the limited partnership)
  • Certificate of Good Standing(for any state in which the entity does business)

LIMITED
LIABILITY
PARTNERSHIP /
  • Statement of Qualification
  • Partnership Agreement
  • Resolution (who has authority to borrow and sign on behalf of the limited partnership)
  • Certificate of Good Standing(for any state in which the entity does business)

SOLE
PROPRITORSHIP /
  • Personal identification of sole proprietor
  • Tax returns
  • Other financial data as required by bank’s loan policy or procedures

16
FINANCIAL INFORMATION / OBTAIN FINANCIAL INFORMATION SHOWING APPLICANT’S ABILITY TO REPAY THE LOAN.
______
IF THE BANK’S LOAN POLICY CONTAINS REQUIREMENTS FOR FINANCIAL INFORMATION,
LENDERS MUST FOLLOW THOSE REQUIREMENTS.
OTHERWISE, CONSIDER OBTAINING THE FINANCIAL INFORMATION INDICATED BELOW.

ESTABLISHED BUSINESSES /
  • Financial statements for the previous two fiscal years
  • The most current interim financial statement
  • Tax returns for the previous two years

NEW
BUSINESSES /
  • 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

ADDITIONAL INFORMATION
DEPENDING ON THE
SITUATION, THE ADDITIONAL
INFORMATION SHOWN
AT THE RIGHT MAY NEED
TO BE OBTAINED. /
  • 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 applicable), as well as consolidated and consolidating statements
  • If borrower is a new customer, a Dun and Bradstreet report

REPORTS AND
DOCUMENTS
THESE ADDITIONAL
REPORTS AND DOCUMENTS
MAY BE APPROPRIATE /
  • Feasibility studies (for development and construction projects)
  • Copies of leases and subsequent rent rolls (when repayment will come from income–producing property

17
GUARANTORS

REQUIREMENT / HOW IT APPLIES
EQUAL CREDIT OPPORTUNITY ACT
(REG B) / The Equal Credit Opportunity Act (Reg B) applies to all loans, including commercial loans. It permits the bank to require that directors, partners or officers guarantee the loan. The bank cannot, however, automatically require the signatures of their spouses.
IDENTIFICATION / Pursuant to safety and soundness considerations, a prudent bank will determine and verify the identity of any guarantor. The CIP rules do not technically apply to guarantors, but could be used in the identification process.
ENTITY DOCUMENTATION / Obtain entity documentation (see “ENTITY DOCUMENTATION” on PAGE 6 for suggested documentation).
ENTITY
RESOLUTION / If the guarantor is a non-individual entity (corporation, partnership, LLC), use a resolution form that specifically authorizes the entity to guarantee the loan (commonly-used resolution forms may not contain this authorization).
FINANCIAL INFORMATION / Obtain financial information showing guarantor’s ability to repay the loan. See “FINANCIAL INFORMATION” on PAGE 7 for suggested documentation.
18
APPRAISALS
AND
EVALUATIONS / If a loan is secured by real property, the value of the secured property must be determined in one of the following ways:
  • A new appraisal;
  • A new evaluation; or
  • An existing appraisal/evaluation.
Note: No appraisal/evaluation is required when the mortgage is taken only as an abundance of caution.
Appraisals. If a loan is secured by real property and the amount of the loan exceeds $250,000, the bank must hire certified appraiser to conduct an appraisal of the real property securing the loan. Note, however, there are certain exceptions for (i) Certain business loans, (ii) same-lender refinancings with no new money and (iii) same-lender refinancings with no material change in the market or property. In these cases, an in-house evaluation may be permitted.
Evaluations. If a loan is secured a real property and the amount of the loan is $250,000or less, the bank can value the property by conducting an in-house evaluation. An in-house evaluation can be based on a county tax assessment, but the bank must (i) review the assessment, (ii) determine whether the assessment is valid and (iii) prepare a written review that includes a reconciliation of the value.
Business Loans of $1 Million or Less. If repayment for this type of loan is notdependent on (i) the sale of the real estate or (ii) rental income from the real estate, the bank can satisfy the appraisal requirement by conducting an in-house evaluation.
Existing Valuations. If the bank has an existing appraisal or evaluation, it can use that existing valuation to support a new loan—but only if it documents that the existing appraisal or evaluation is still valid.
Reviewing Appraisals and Evaluations. As part of a bank’s credit approval process—and prior to the final credit decision—the bank should review appraisals and evaluations to ensure that they comply with the federal appraisal regulations and the bank’s internal policies.