Loan officer is paying off a 1st mortgage on customer's primary dwelling with new money and refinancing business debt using the dwelling as collateral along with all the other worthless items he has as collateral. The business debt is $34,000. The primary dwelling debt is $17,000. When the loans are combined can this be considered business debt and run as a business loan? ROR apply?

Thanks!

As a follow up on this post, the lender is paying off the dwelling and adding it to the business debt to strengthen the business loan.

Anyone got any thoughts please?

Official Interpretation

3(a) Business, Commercial, Agricultural, or Organizational Credit

1. Primary purposes. A creditor must determine in each case if the transaction is primarily for an exempt purpose. If some question exists as to the primary purpose for a credit extension, the creditor is, of course, free to make the disclosures, and the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt. (See comment 3(a)–2, however, with respect to credit cards.)

Randy, I read that but the thing that is confusing to me is that there are 2 purposes for this loan. One is that the primary dwelling is being paid off and the other is the business debt that is being refinanced and the house added as collateral to strengthen the business loan. The business debt is the greater amount so would the LO just need to document the file with his reasoning?? I have never understood combining business and personal debt but this is what I have to deal with.

A creditor must determine in each case if the transaction is "primarily" for an exempt purpose.

So it comes down to a business decision. Only your bank can answer that question and then be left to defend it.

Thanks for your help Randy!