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#1370818 - 04/07/10 07:38 PM Line of Credit Agreement
starfinlr Offline
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Joined: Apr 2010
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I am researching the Obligatory vs. Discretionary option on the Line of Credit Agreement. Our loan center has always checked 'Discretionary' in the past. As of late we've had a few requests to check 'Obligatory' instead of 'Discretionary' from a few of our lenders. I am looking for the type of borrower that this pertains to. What are the traits that these borrowers have in common? I appreciate your contributions and help with this. Thanks!

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Lending Compliance
#1370837 - 04/07/10 07:51 PM Re: Line of Credit Agreement starfinlr
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Are these consumer notes or commercial? How are you using the terms obligatory vs discretionary? There is a big difference if one is a discretionary line of credit where the bank can refuse to advance vs a committed (obligatory) line of credit.

That is a major change and should not be done just on a lenders say so. It affects the bank's call report, financials, problem loan management, etc.
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#1370877 - 04/07/10 08:32 PM Re: Line of Credit Agreement Kathleen O. Blanchard
starfinlr Offline
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Joined: Apr 2010
Posts: 8
Thank you so much for the quick response! I am new to the banking industry so all info is greatly appreciated.

These are commercial notes. The Line of Credit Agreement is the standard form from ARTA that you check either Obligatory or Discretionary. We have always used Discretionary but as of late have had a couple of lenders request that Obligatory be checked.

I have checked with one of our lenders that is requesting this and his reply was: "In most cases, if we approve a working capital line of credit for a business, I feel that the draws should be obligatory. However, there are other times that we/I would use discretionary. Most working capital lines of credit in our market are obligatory."

Is Discretionary the preferred choice as a rule?

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#1370959 - 04/07/10 09:37 PM Re: Line of Credit Agreement starfinlr
HRH Okie Banker Offline
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Oklahoma
I would be interested to know what the document says about adanvces. Does the reverse side of your document define Obligatory and/or Discretionary or talk about advances that would get you closer to an answer?

Our documents do not have those choices and if they did I would expect some kind of further discussion, within the document, of the definitions.
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#1371033 - 04/08/10 03:44 AM Re: Line of Credit Agreement HRH Okie Banker
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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I would expect the loan approval document to discuss whether the bank is approving a committed (obligatory)or discretionary line.
_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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