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#2078388 - 05/12/16 05:32 PM Guarantees and layered ownership
Cornfed Turtle Offline
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"...Somewhere in Middle Americ...
Commercial Borrower (ABC, LLC) where the members of the LLC are other sole member LLCs (A, LLC and B, LLC) for individuals. Our policy states and Reg B allows us to require the members of ABC, LLC to guaranty the debt. Can we go to that next level and require the gtys of Mr. A and Mr. B without documenting that these individuals are directors, officers etc of the borrowing entity?

I know, I know, it sounds like it belongs in my "settle a bet" forum!

We are a Fed bank if there are differing examiner opinions.
Last edited by John Burnett; 05/12/16 05:38 PM.
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#2078390 - 05/12/16 05:34 PM Re: Guarantees and layered ownership Cornfed Turtle
David Dickinson Offline
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David Dickinson
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Central City, NE
No. Reg B prohibits lenders from requiring anyone to become liable. The one exception is for officers, directors, shareholders and partners of the applying entity. You can require the members of ABC, LLC to guaranty the loan. Anything beyond that violates Reg B.
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#2078392 - 05/12/16 05:37 PM Re: Guarantees and layered ownership Cornfed Turtle
John Burnett Offline
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John Burnett
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Cape Cod
And I am going to change the topic name for this discussion, because it does not involve joint intent.
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#2078402 - 05/12/16 06:11 PM Re: Guarantees and layered ownership David Dickinson
Cornfed Turtle Offline
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Excellent...thanks to you both. Documentation of Mr A as an officer of ABC, LLC can support his required guarantee but Mr B is off the hook.

Thanks again.

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#2078503 - 05/13/16 10:56 AM Re: Guarantees and layered ownership Cornfed Turtle
rlcarey Offline
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Galveston, TX
I would not make the loan without their guarantees. These are sole member LLC and as such are disregarded entities. Just because ABC,LLC is held by two sole member LLC's does not preclude you from requiring the sole members of the A&B LLC's to guarantee the debt. If you are uncomfortable with that position, just deny the loan with the loan and tell them they need more skin in the game and you need additional guarantors. Relying on the guarantee of a sole member LLC is really not a sound credit practice to begin with.
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#2078518 - 05/13/16 01:09 PM Re: Guarantees and layered ownership rlcarey
Cornfed Turtle Offline
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Now that's a different question.....and where we ended up, by the way. There's nothing wrong with going back to ABC and saying there's not enough strength behind the credit. The guarantees of the sole member LLCs offer us nothing. But maybe if we had some strong guarantors coming to the table.......

Navigating the Reg B side of this started to get tricky as our commercial lenders are accustomed to being able to require the guarantees of the members of the LLCs. But can they drill down through the layers?

Always appreciate your "safety and soundness" look at issues.

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#2078523 - 05/13/16 01:36 PM Re: Guarantees and layered ownership Cornfed Turtle
rlcarey Offline
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Galveston, TX
But can they drill down through the layers?

Well, under the new FinCEN CDD rules, they are not going to have a choice in the matter as far as drilling down. As far as when you feel comfortable that you have enough financial support for any specific transaction, that is going to be a loan by loan issue based on the specific circumstances.
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#2078596 - 05/13/16 04:55 PM Re: Guarantees and layered ownership rlcarey
Cornfed Turtle Offline
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Yes, isn't that going to be some fun!

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