Investors Choice Commercial Leasing, LLC Credit Policy. Effective August 1, 2017

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Brook Franklin
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1 Investors Choice Commercial Leasing, LLC Credit Policy Effective August 1,

2 Investors Choice Commercial Leasing, LLC (ICCL)Credit Policies and Procedures have been designed to insure transactions are processed in a timely and efficient manner, and to mitigate risk to the company. The Five C s of Credit The ICCL Credit Policies and Procedures are built on the foundation of the Five C s of Credit. These are: Character, Capacity, Capital, Collateral and Conditions. Character Every leasing decision must answer a basic question: Is the customer of sound character and do they have the management capability to run their business and make agreed upon payments? The lessee s reputation or track record for repaying debts is an important component to determining their credit-worthiness. This information is obtained through the major credit bureaus Experian, Equifax, TransUnion where the credit reports contain detailed information on each applicant related to how much each applicant has borrowed in the past and whether they have repaid their obligations. The reports also contain information on collection accounts, judgments, liens and bankruptcies and they retain most information for seven years. The Fair Isaac Corporation (FICO) uses the information in these reports to create a consumer s credit score that provides a snapshot into the creditworthiness of the lessee. While ICCL only provides lease financing to businesses, the leases are guaranteed by individuals where the credit score is an important factor to be used in underwriting the lease application. Capacity Capacity refers to the customer s ability to generate sufficient earnings to sustain current obligations, to service their new lease. Capital Capital refers to the customer s financial position and progress, asset quality, working capital, liquidity and debt structure. The review and analysis of these factors involves historical and current review of balance sheet, banking statements, etc. so that changes in net worth and cash flow can be evaluated. This evaluation will help identify if the customer s financial position has improved or deteriorated over time. Conditions ICCL considers a number of outstanding circumstances that may affect the lessee s financial situation and ability to service lease, for example, what is happening in the local economy. If 2

3 the lessee is a business, the lessor may evaluate the financial health of the lessee s industry, their local market and competition. Credit and Underwriting Guidelines The credit and underwriting guidelines for ICCL related to equipment leasing include the underwriting criteria, required information for complete due diligence and the roles and responsibilities of the credit operations team. Objectives The Credit Operations team is responsible for insuring that new customer relationships (and renewing existing customers) are profitable while adhering to the company s risk tolerance. This is predicated on a process where sound underwriting practices and procedures will support maximizing earnings and being in compliance with applicable laws and regulations. It is also important for Credit to be aware of changes in technology and economic conditions within the target markets that could have a positive or negative impact on the lessee and subsequently ICCL. Due Diligence Focus Due diligence will focus on the following areas: - General information regarding the business and guarantor - Financial performance and portfolio analytics - Macro-economic environment - Industry / Market trends - Reputational and Regulatory compliance risks - Market trends, including industry maturity, competition and cost structure Processing The Processing Team will be responsible for reviewing and entering data including: - Reviewing submissions / applications - Review of bank statements, calculation of ADB, identification of NSFs, unusual credits/debits, etc. - ID check driver s license, documentation guarantor is a valid US resident - Pulling credit reports on the business and guarantor - Pulling background check (Accurint, etc.) on the business and guarantor - Verifying corporate documentation (most recent SOS, company by-laws, member agreements, etc.) 3

4 - Conducting a Google Search of the business to verify business address and location (saving the results of the search in the document tree) - Social Media search on the business including searching for Yelp, Angie s List reviews, etc. with the results saved to the document tree) - Product qualification check list Credit Analysts The Credit Analysts will: - Review and evaluate files for credit worthiness - Approve deals within designated approval authority - Generate any stipulations required to be cleared for funding - Document any policy exceptions for approval by the Chief Credit Officer - Submit lease applications for funding Funding The Funding Team will: - Prepare leases for execution by lessee - Secure ACH Authorization Agreement - Conduct landlord / mortgage verification - Conduct verification phone call with lessee prior to funding the lease o Verify name, address and guarantor s social security number o Verify signature to Driver s License. If signature does not match, this will need to be presented to Chief Credit Officer who will determine if funding is to proceed o Ensure that the guarantor understands the terms of the lease agreement All communication with the guarantor must be in English to insure the guarantor clearly understands the lease documents. - Forward lease documents to lessee for execution and will coordinate return receipt - Notify accounting department that the lease has been executed in order to disburse funds and to set up payment stream Acceptable Business Structure An acceptable business structure is any one of the following: - Corporation - Limited Partnership (LP) - Limited Liability Corporation (LLC) - Professional Corporation (PC) - Sole Proprietorship 4

5 Restricted Industries Restricted industries include the following: - Gas Stations - Cell Phone Stores - Financial Services companies - Pack & Ship - Oil Related Industries - Adult Entertainment - Cannabis Industry - Entertainment / Event Ticket Sales - Attorneys - Agriculture - Consulting - Non-Profits - Churches / Religious organizations - Tax Preparation Services - Gambling Establishments Collateral At the time of funding, a UCC-1 will be filed with the state of record for applying business that lists the assets as collateral. The UCC-1 is filed against the corporation of record, the DBA and additional addresses and locations. Bank Statements Bank statements are required for all applications and will be reviewed by the Processor and Credit Analyst. Personal Credit Bureau Reports The guarantor personal credit bureau (CBR) provides the credit analyst with information on the credit history and likelihood that the signer will service their lease. In addition, the CBR provides data regarding the individual/owner s borrowing habits and overall financial profile. In addition to a score, the credit analyst will evaluate credit trends. Derogatory Credit - Previous or open BK - Foreclosure - Judgments - Tax Liens 5

6 - Past due on child support - Fraud alert on the report - High past due amounts - Time in bureau less than 5 years - Delinquencies - Number of trade lines past due Red Flags on CBR (to be evaluated by credit analyst) - Social Security Number or date of birth do not match to the information provided on the application - Multiple Social Security Numbers associated with the same name - Patterns of chronic delinquency - Excessive number / dollar amounts of judgments (within guidelines above). Applicants that have judgments from MCA companies will be declined - Excessive number/ dollar amount of pending lawsuits Business Landlord / Mortgage Verification The landlord or mortgage verification is to be completed on every transaction by the Funder. The landlord verification can be completed verbally or electronically to confirm the payment status as well as the maturity of the lease. The mortgage verification will include receiving a copy of the mortgage statement or copy of the lease with proof that the last three months of payments will have been made. A listing on the CBR that the mortgage is current will suffice as proof. Financial Statements Applicant financial statements are required for all transactions with aggregated funding exposure of $100,000 or greater. The Credit Analyst may request financials for any funding amount to fully understand the gross margins of the business that they are reviewing. These include: - Prior 2 years business Tax Return or audited Balance Sheet and Income Statement - Accounts Payable and Accounts Receivable Aging Reports may be required if the business has a heavy concentration of A/P and A/R Proof of Ownership Proof of Ownership is required on every transaction. The Processor will search the Secretary of State (SOS) for a filed SOS certificate and a listing of officers and members. (See Appendix for documents that can be used if signers are not located). 6

7 Merchant Interview The merchant (guarantor) interview is a core element to the ICCL approach to credit underwriting. It will be completed for all transactions (new and renewal). The Credit Analyst will use scripted and customized questions to learn more about the business, owner and will assess the overall risk of the transaction Exceptions Exception requests are generated when a transaction fails to meet a required underwriting guideline but otherwise displays certain mitigating factors. These exceptions may be requested for either pricing or credit policy. Both types of exceptions must be documented in the document tree and presented to the Chief Credit Officer for review and approval with the mitigating reason/factor for justifying such approval. If the Chief Credit Officer is not available then the exception will be presented to the Chief Financial Officer for review and approval. Required Documentation and Information 1. Application is completed and executed by at least 51% ownership 2. Verification of no competitor funding and verification of bank statements 3. TLO Report 4. Executed Lease Agreement and ACH Authorization signed by 51% ownership 5. IRS Form 8821 and subsequent Tax Guard report if transaction is over $100, Landlord Verification and/or most recent Mortgage Statement 7. CBR for each owner making up at least 51% ownership 8. Recorded call with owner reviewing and confirming terms of the transaction 9. Bank Statements a. 3 months full bank statements (all pages) for the operating account for transactions less than $75,000 b. 6 months full bank statements (all pages) for the operating account if the transaction is $75,000 or greater c. If there are transfer accounts, the most recent full bank statement (all pages) for each transfer account is required on all transactions 10. Cross Corporate Guarantee if applicable 11. Current, legible copy of all signer s driver s licenses or other acceptable form of government issued ID (US Passport, Green Card, etc.) 12. Financial statements for transactions over $100, Merchant interview 14. Proof of Ownership (see appendix A for acceptable items) 15. Satisfactory equipment / property appraisal 7

8 16. Voided check or letter from business bank (on bank letterhead) documenting bank name, account number and routing number for ACH debits and credits 17. Signed Term Sheet 18. Titles for equipment (as applicable) 19. Active UCC review any active UCCs that encumber equipment, assets, property, revenues must be terminated or must have confirmation that they will be terminated upon payoff 20. Signed third party authorization (if applicable) 21. Down payment ($1,500 for equipment appraisal, $2,500 for property appraisal). These are non-refundable if the transaction does not go forward 22. Proof of Insurance Declarations page Insurance requirements: a. Insured: Customer Legal Name b. Loss Payee and Additional Interest: ICCL, 8290 Sahara #160, Las Vegas, NV c. Additional insured: ICCL 8290 Sahara #160, Las Vegas, NV ICCL Credit Committee The ICCL Credit Committee is responsible for reviewing, adjusting and approving changes to the company s Credit Policy and Procedures. The Credit Committee is composed of the following individuals: Chief Financial Officer Credit Manager Appendix - Proof of Ownership o Sole Proprietorship Most Recent Tax Return or Copy of lease where signor s name matches the name on the bank account or Active business license reflecting the merchant s name and DBA or Active sales tax certificate or permit (referred to as Resale Certificate in some states) or Letter from CPA or attorney stating ownership percentage or Copy of executed by sell agreement or Copy of court documents or decree granting ownership o Partnerships 8

9 Most recent executed partnership agreement for the business or Schedule K-1 Partner s Share of Income, Deductions, Credit, etc. as filed with the most recent tax return or Letter from CPA or attorney stating ownership percentage or Copy of executed by sell agreement or Copy of court documents or decree granting ownership Most recent articles of incorporation for businesses showing ownership or percentage and/or ability to encumber the business o C-Corporation Schedule G Information on Certain Persons Owning the Corporation s Voting Stock as filed with the most recent tax return (Form 1120) or Form 1125-E Compensation of Officers as filed with the most recent tax return (form 1120S) or Letter from CPA or attorney stating ownership percentage or Copy of executed by sell agreement or Copy of court documents or decree granting ownership o Limited Liability Corporations (LLCs) Most recent executed articles of incorporation for businesses or the most recent executed operating agreement o Single Member LLC Schedule C Profit or Loss from Business or Schedule C-EZ Net Profit from Business or Schedule E Supplemental Income and Loss o Multi Owner LLC Schedule K-1 Partner s Share of Income, Deductions, etc. as filed with most recent return or Letter from CPA or attorney stating ownership percentage or Copy of executed by sell agreement or Copy of court documents or decree granting ownership 9

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