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#2005833 - 04/02/15 03:46 PM Consumer vs Business Purpose Loans
TimC Offline
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Joined: Aug 2014
Posts: 7
I need some input as to if the below situation would be considered consumer or business purpose.

We have a borrower that has approximately $4MM in commercial loan exposure secured by multiple 1-4 family investment residential real estate. These loans are accounted for as Purchase Credit Impaired under ASC 310-30, but they are performing satisfactorily. We are offering a $1.5MM HELOC on thier personal residence with the proceeds to be used as follows:

$300,000 to be used to pay off 1st mtg
$700,000 to pay off existing HELOC
$500,000 to pay down commercial credit mentioned above to bring LTV in line

Going forward, the borrower plans to revolve the loan to make repairs/improvements to the investment properties mentioned above.

Is this HELOC consumer or business purpose?

I appreciate your feedback and insight.

Thanks,
Tim

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#2005991 - 04/02/15 09:09 PM Re: Consumer vs Business Purpose Loans TimC
Melissa S Offline
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Melissa S
Joined: Jan 2015
Posts: 280
Maine
I am in no way an expert, but I have seen several borrowers take out HELOCs on personal residences and use the proceeds for business purposes. This will usually cost them less in the way of appraisals and documentation costs. These have been considered consumer loans by the lender as the loan is on their personal home and when they take the funds, they can do with it as they please.

That said, I would be interested to hear other opinions.
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#2006006 - 04/02/15 10:04 PM Re: Consumer vs Business Purpose Loans TimC
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 77,002
Galveston, TX
Bad bad idea. Never mix business with personal loans when dealing with a personal residence. If they want a business loan secured by their house - make them a business loan. If they want a personal loan - make them a consumer loan. If they want both, make them two loans. Using HELOC documents is especially dangerous as you are granting the borrower all sorts of right they are not entitled too.
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#2006035 - 04/03/15 12:47 PM Re: Consumer vs Business Purpose Loans rlcarey
TimC Offline
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Joined: Aug 2014
Posts: 7
I completely agree with you, but sometimes we have to play the hand we are dealt. It is somewhat a workout situation given that it was a purchased credit impaired loan.

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#2006039 - 04/03/15 12:57 PM Re: Consumer vs Business Purpose Loans TimC
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 77,002
Galveston, TX
Doubly bad idea to mix personal and business debt in a workout situation.
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