The Complexities and Nuances of Commercial Lending Licensing

The Complexities and Nuances of Commercial Lending Licensing

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It is obvious that private lending continues to be very profitable in the world of real estate investing, but with the continued growth of real estate investing comes the need for more and better funding.

To keep up with this growing trend, private lending companies who make business purpose mortgage loans are now obtaining multiple state licenses to lend in several states throughout the US, not just limiting their activities to one or two states anymore. While it may seem easy to apply for a specific lending license and pay the associated fee, think again. Mortgage lender licensing laws and requirements are complex and highly varied among the states. Therefore, new and growing private lenders are so overwhelmed and confused by the research and preparation needed to become properly licensed in the states. The process is confusing, tedious, and time-consuming.

Eighteen states have some form of restriction on business purpose mortgage lenders.  Currently, the most popular (and most restrictive) states that require a license to originate business purpose loans, regardless of collateral type, are Arizona, California, Nevada, North Dakota, South Dakota, and Vermont (if the loan is less than $1 million). Due to the complexity of lender licensing requirements, most lenders do not understand the licensing application and have trouble navigating the licensing requirements of each state.

How to Navigate the Mortgage Lender License Applications

State Specific Eligibility Requirements

Many states have unique eligibility requirements. For example, California requires the lending company’s net worth to be at least $25,000, while Arizona requires $100,000.  Additionally, in Arizona and Nevada, it is mandatory to have a brick-and-mortar office location and a Qualified Individual residing in the state. All states generally require the company to maintain a surety bond, but the minimum bond amount varies from state to state.  

Series of Applications

State regulatory agencies in the US use the opens in a new windowNationwide Mortgage Licensing System and Registry (NMLS) to administer initial license applications as well as ongoing compliance requirements. NMLS is a web-based platform used to process all mortgage lender licensing applications for private lending companies looking to apply, amend, renew, and surrender licenses. However, the whole process is complicated, tedious, and time-consuming.

The licensing application is submitted and processed through the NMLS, which includes the company application, individual applications for each control person(s) of the company, and potentially branch application(s). And here is where things get tricky- you must link individual accounts and any branch offices to the company account. For states that require electronic surety bonds, the bond company must link its bond to company accounts. But that is not all; document uploads require specific file names (which vary by state) and must be uploaded under different locations within the NMLS.

The entire process is tricky to navigate and tedious. You have more important things to focus on as a mortgage lender or business owner.

Financial Statements and Other Documents

Although most states require you to submit your company’s financial statements, the specific requirements of the financial statement or balance sheet vary between the states.  For example, California requires an unaudited financial statement prepared in accordance with GAAP standards, and Arizona requires the most current CPA audited financial statement.  Meanwhile, Nevada provides no specific requirements and Minnesota does not require a financial statement to be uploaded.

Business Plans

Most states require a formal business plan to include the licensing application outlining the company’s products and marketing strategies. Depending on the state, there are additional state-specific materials required, and certain states like California and Nevada each have their own business plan forms that require additional attachments.

Organizational Structure and Management Charts

All state regulators will require the company to provide its organizational structure and management charts.  Perhaps this is where most of the headache from the application is. 

Organizational structure charts generally need to include the ownership percentages of direct owners, indirect owners, and depending on the state, any other individuals who own a certain percentage of “voting shares” of the company.  Management charts are often required to show all managers, officers, and directors of the company or any other individuals who have control and authority over the company.

Getting this part right is crucial as it has a trickle-down effect on the rest of the application.  Depending on the state, the individuals ultimately listed in these charts may be required to submit to an FBI or criminal background check and/or credit check. For example, background checks are generally required for each executive officer or control person of the company, but California additionally requires a background check for any individual who directly or indirectly owns 10% or more of the company and has authority over the company’s lending activities. Arizona requires background checks for all individuals who hold 20% or more of the company’s voting shares, and Nevada requires it for holders of 10% or more of voting shares. Each state’s regulators are precise in what they are looking for in the company’s organizational structure and management charts.  Careful analysis of a company’s organizational and management structure is critical in accurately completing any state lender license application.   

Complications and Nuances

Timing for the entire application process varies on several factors, including the time needed to compile and prepare all necessary state-specific information and documents, obtaining the required foreign state registration complete for the company, and of course, getting the correct bond in place.

Once the licensing application is finally submitted, the waiting time for a state to review the application may take more than six weeks. This is especially true because of the COVID-19 backlog all states are experiencing. There may also be multiple rounds of follow-up items from state regulators before you get final approval of any state license.

How We Can Help

We have extensive experience and expertise in navigating the commercial mortgage lender licensing process in the US. We are experts in the industry and can guide your company through the specific licenses required and evaluate potential exemptions applicable to your case.

With our national knowledge, we can simplify the process for you. While many state regulators offer public information concerning commercial mortgage licenses, this information lacks standardization.

We streamline and simplify the commercial licensing application for your business by determining the type of license you need, and we correspond with state regulators on your behalf during the crucial purgatory stage -between application submission and license approval.

Our team has helped hundreds of private lenders obtain multi-state lending licenses.  We have the tools, resources, and experience to jumpstart your commercial mortgage lending business, and we handle the licensing process from start to finish. We also help create the correct organizational structure and management charts to avoid any potential issues you may face with the rest of the application. Our licensing experience allows us to streamline the entire process without you having to break a sweat. Let us take care of your lending license so you can focus on your business.

Questions about this article? Reach out to our team below.
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