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Our Commercial Lending Manual last updated in June 2024 discusses the issues facing
California lenders in making commercial loans secured by personal property, including due diligence
requirements, structuring issues, and documentation requirements. It covers both secured and
unsecured commercial loans, with an emphasis on the methods of creating and perfecting a security
interest in a broad range of collateral types under Division 9 of the California Uniform Commercial
Code. In addition, the Manual includes a discussion of the California Secretary of State’s online
UCC Connect service and a detailed discussion of loan participations.
SPM #3 is organized into seven parts, each focusing on different aspects of commercial
lending. These parts are as follows.
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Part One addresses a lender’s due diligence obligations when originating a
commercial loan, including general due diligence requirements, an introduction to
CIP, the beneficial ownership rule and customer due diligence, verifying borrowers
and guarantors, evaluating personal property collateral and hidden liens.
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Part Two covers regulatory issues affecting commercial loans, including safety and
soundness standards; the Current Expected Credit Losses (CECL) methodology;
CIP requirements; lending limits; credit union member business loan requirements;
ECOA and HMDA for the commercial lender; appraisal regulations; the applicability
of federal and state UDAP/UDAAP laws to commercial loans; a comprehensive
discussion of the CFPB’s new Small Business Lending Rule (also commonly referred
to as the “Section 1071 Rule”), which requires covered financial institutions to collect,
maintain, and report certain data to the CFPB regarding their loans to minority-
owned, women-owned, and small businesses; a discussion of fair lending issues in
connection with commercial loans; and many other regulatory topics.
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Part Three, titled Structuring and Loan Documentation, lays out structuring
considerations for commercial lenders; loan documentation requirements (including
detailed discussions of promissory notes, loan agreements, financing statements,
intercreditor agreements and more); managing risks in an electronic environment;
lending to nontraditional borrowers such as municipalities and local government
units, native American tribes, and homeowners associations; rules for the grant and
perfection of security interests in personal property; and financing special types of
collateral including accounts receivable, manufactured homes, government
contracts, inventory, crypto-related assets, equipment, taking an assignment of a
franchise agreement as collateral, and financing the acquisition of a business, among
others. Part Three also includes a discussion of the changes made by California
Senate Bill 95 (which became effective on January 1, 2024) to the UCC rules relating
to perfecting security interests in personal property.
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Part Four focuses on several miscellaneous commercial lending issues, such as
guaranties; using letters of credit as credit enhancements; lender liability; federal and
state forfeiture laws; and insurance matters.
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Part Five addresses the SBA’s 7(a) Loan Guaranty Program and its 504 Certified
Development Company Loan Program. Additionally, Part Five discusses in detail
SBA’s CARES Act-related loan programs, such as SBA’s Paycheck Protection
Program, its Debt Relief Program, and the SBA’s Economic Injury Disaster Loan
(EIDL) Program.
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Part Six provides discussions of the legal and regulatory requirements governing
banks and credit unions when purchasing and selling commercial loans.
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Part Seven focuses primarily on loan participations to provide bankers with an
understanding of the developing law of loan participations, with particular emphasis
on the proper documentation of a loan participation to protect the rights and clearly
define the duties and responsibilities of the originating lender/seller, the lead lender
(who may also be the originating lender) and the participant/purchaser. Topics
covered include due diligence issues specific to loan participations; regulatory issues
affecting loan participations; structuring loan participations; recommended provisions
for loan participation agreements; and insolvency and bankruptcy risks. Part Seven
also includes a brief discussion that distinguishes loan participations and loan
syndications.
The text of the Manual is 1024 pages, plus 24 pages of appendixes.
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Compliance Companion
Compliance Companion® is a one-stop regulatory compliance resource for financial institutions. This online
compilation of 19 industry-leading compliance manuals, including this SPM #3, Commercial Lending, takes the legalese out of federal
and California laws and regulations, making it easier to understand and keep up with ongoing compliance developments.
Published by Aldrich & Bonnefin, PLC, Compliance Companion® has many useful features including search capabilities,
links to internal cross-references and web-based sources, as well as samples of dozens of forms, disclosures and notices.
This compliance resource can also be accessed from your mobile device, making it faster and easier to get the latest information
on federal and California laws and regulations governing financial institutions.
For information regarding online subscriptions to Compliance Companion®, contact
info@bankerscompliancegroup.com or call 949-553-0909.
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