Application dates are sometimes a foreign concept in commercial lending. However, now that 1071 is a reality, commercial divisions everywhere will have asked themselves, “When do I have a completed application?” and perhaps the most important question of the day, “What will define my application date?”
In commercial lending, it’s not as simple to determine when an application is received as it is with consumer loans. In consumer lending, loan officers or personal bankers either log into a loan origination system or pull a blank paper application out of a drawer and ask the applicant the necessary questions. On commercial loans, this process can take many different forms depending on the financial institution’s processes.
In this Article, we are going to discuss the many options that you have in choosing your application date.
What is important to remember is that the financial institution must be consistent when choosing the date and the criteria you set for defining an application date. With 1071 looming on the horizon, the Bank may want to consider using a commercial loan application. This is becoming highly encouraged by many auditors and examiners as the application helps document some of the data needed to complete the Small Business LAR.
However, this is not your only option. The important thing is that you have written procedures that detail what you are going to use for every field on the Small Business LAR.
Here are a few options available to you; this is not an all-inclusive list; however, these are the ones that TCA has seen most often used to establish application dates:
- Commercial Loan Application – This document is the easiest to use as its purpose is clearly defined in the name of the form – Commercial Loan Application. This form contains space to record the loan purpose, loan amount, information on the applicant and guarantor, etc., and maybe more importantly, a signature and date line for the applicant and loan officer. A new loan application will be completed each time the customer applies for a new loan.
- Financial Statement – This document is usually required by most financial institutions; however, is not necessarily completed each time there is a request for a new credit. Typically, a financial statement is completed by the customer and obtained annually by the financial institution. This can be used as an “application,” but your procedures will have to clarify that a new financial statement is required for each request for credit and there must be a process in place to record the date received. Additionally, this document does not contain the GMI collection data, and another form would be necessary to collect that pertinent information.
- Loan Presentation – This document is not necessarily the time the applicant applied; that is typically a few days to a few weeks before. However, this is completed each time a new credit request is requested. The downfall is the Loan Presentation does not always include the collection of personal information and the Bank would need another form to collect all that information.
- Credit Report – A Credit Report is typically run when the customer applies for a loan. However, if the applicant is an entity, the Bank may not have a credit report. In addition, the credit report will contain other required data such as GMI and another form will be necessary to document that information.
Whatever method you choose to document the application date on a Commercial Loan, the Bank should define the application document and any other items necessary to constitute a complete application within your procedures.
As always, we are here to help! TCA shows you “A Better Way” to comply with the intricacies of Small Business LAR compliance.
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