Creative Loan Product for Small Business Owners

Considering a "new" loan product directed at Small Business owners (DBAs/Sole Proprietorships) that would be generated from the Retail Division of the Bank.
Product would be a Line of Credit "secured" by a 2nd mortgage on the Small Business owners principal dwelling. LOC would be under $50,000 and accessible by use of a "card." Underwriting would be based largely on credit score.
My understanding is that the LOC would be exempt from Regulation Z since it would be a "Business Purpose" loan. I am trying to research and consider all compliance risks/issues.
I have thought about Reg. B as far as denials; Credit Score disclosures; LTV of property; Bsuiness card disclosure. What am I missing?

- flood insurance
- how will you ensure that advances are never made for consumer, family, or household purposes?
- CRA (small business loan) reporting
- HMDA reporting, refinancing. Applicable if loan is a new obligation that satisfies and replaces an existing obligation by the same borrower where both the existing obligation and the new obligation are secured by liens on a dwelling regardless of the purpose of the existing obligation.

Don't glide past Reg. Z so quickly. By the looks of it, your borrowers will be individuals and you haven't offered any justification for concluding that these LOCs will be used primarily for business purposes. Unless you contractually restrict their use, it will be hard to defend a business purpose exemption.

Comment on Advances: Based on the commentary to 1026.3 where it states "If a business-purpose credit card is issued to a person, the provisions of the regulation do not apply, other than as provided in 1026.12(a) and 1026.12(b), even if the extensions of credit for consumer purposes are occasionally made using the business-purpose credit card" - Would that not apply for this product?

Would that not apply for this product?

That depends on the true purpose of the LOC, business or consumer. With this product being originated in your retail loan area it would be my opinion you'll have a difficult time selling it to the regulators as business credit unless you have some iron clad documentation.