Guarantees are an important part of the commercial lending function. They help with financial stability and reduce risk from a safety and soundness perspective. That said, when it comes to Regulation B (The Equal Credit Opportunity Act) and Fair Lending, there are some things commercial lenders need to be aware of to stay out of hot water with examiners. For instance, there are individuals you can require to guarantee a loan and there are individuals that are off limits. Regulation B says a lender can require a personal guarantee from a director, officer, partner, shareholder, etc. of an entity. That’s it. Lenders cannot require that same individual to sign the loan in a personal capacity nor can they require the spouses of those individuals to guarantee the loan or sign it personally.
Kevin explains more in the video.
Video Highlights:
- Requiring guarantees from partners, directors, officers and shareholders of an entity is permissible.
- Spouses cannot be required to guarantee simply because of the marital relationship.
- Unlimited guarantees also create some risk and one way to mitigate this risk is with limited or specific guarantees.
Published
2023/12/19
