Reg B - Is the Applicant Business or Individual

On a business loan to an entity, can an individual guarantor ever be considered the "applicant" per Reg B? If so, do we use the individual guarantor's income/revenue (> or < $1 million) to determine the 30 day clock requirement per 1002.9?

In Reg B,I think guarantors are only considered applicants under 1002.7 - for the intent to apply jointly rule.

But under 1002.7(d)(5) it states:

(5) Additional parties. If, under a creditor's standards of creditworthiness, the personal liability of an additional party is necessary to support the credit requested, a creditor may request a cosigner, guarantor, endorser, or similar party.

So, if the creditor needs a guarantor to support that credit, that guarantor (whether individual or not) could be considered an "applicant" under 1002.2(e), correct? And if so, how would you apply 1002.9 to an individual guarantor/applicant for notification and revenue purposes?

In our bank we require all denied applications to be treated the same way. We deliver an adverse action notice with the denial reasons listed regardless of the size of the applicant, so I'm not much help. I haven't ever given your situation any thought.

For purposes of determining which notification rules apply under Reg B, look at the borrower only - the actual borrower, not any guarantors.

Thank you for your help Kathleen. One more question to add to this...

What if an individual (guarantor) wants to apply for a loan, where the borrower will be an entity to be formed (for example, a real estate holding company to be created, or a new Trust for estate planning, etc)? Do we not have an application until we have a borrower name and TIN? And therefore, we can't apply 1002.9 (notification and revenue determination) until we have a borrower defined?

(I know that borrower name and SSN is required under RESPA 1024.2 to be considered an application, but let's assume this loan does not fall under RESPA).

usually, commercial areas will process these applications because it is such a common occurance, unlike in consumer lending.

You have a startup with no revenue to measure. I would follow the <$1 million requirements.

Thank you very much. And yes, these are typically commercial loans. Just to tag on to your last response... What if the business borrower is an entity "to be determined", and it has not been formed yet? Do we have an application even without a borrower? Permissible purpose to pull credit on the individual guarantor?

Second question pertaining to this... What if the individual applies as the borrower for a business purpose loan, the bank approves the loan, but after that (before loan closing), the borrower decides to put the loan in the name of a business entity (with them individually as the guarantor). What actions should be taken? (simple bank amendment to the approved loan?; require a whole new application?; etc)

Sorry for the detailed questions. Unfortunately, these are real life scenarios I'm dealing with today.

1. That's up to the bank if you allow non-existent businesses to apply for a loan. Most banks are not in the venture capital business.

2. Those are operational issues and not those involving compliance.

A bank will generally only allow a non-existent business to be "applying for a loan" with a known customer who will be guarantying the loan, or perhaps with a new individual who is quite strong as a guarantor and well vetted.

For Reg B purposes, just follow the rules for the smaller entities and you will be fine no matter who the final "borrower" ends up being.

Thanks Kathleen. And you're correct, the types of loans I'm referring to would be for a well known "wealthy" individual customer that will guarantee a loan to an unknown borrower to be formed (e.g. real estate holding company).

So on an application like this, we would follow the rule for smaller entities (since it's a new entity, with $0 revenue in the previous you).

But what if the loan is declined? Does the adverse action go to the individual guarantor? (even though he/she's not the borrower). Based on the above comments, the borrower would be the applicant, and should therefore receive the notification, but there is no known borrower...

I would treat it as if the individual is the borrower in that case and address the adverse action to that person, referencing the "entity to be named" in a description of the loan applied for. (Obviously a check the box adverse action won't work.)

Send them a Model Form C-5 and be done with it. Well, unless they ask for the written reasons.

I like fancier business adverse action notices. :-)