We have husband and wife borrowers with a personal draw down line of credit to build their home. The husband is the contractor for the project and has an incorporated contracting company. The borrowers would like draws on their personal line of credit to be deposited directly into the business account for the contracting company. Both the husband and wife are authorized signers on the business account and will provide invoices and waivers to verify the use of the funds. Are there any problems with this arrangement? We are aware that depositing a customer’s personal check into their LLC’s account is not recommended.

Jul 29, 2019

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We believe your bank may deposit draws from a personal line of credit into a business deposit account. We are not aware of any Illinois or federal laws that would prohibit this practice.

You are correct that depositing a customer’s personal check into their LLC’s account — without the proper indorsement — is not recommended, but this is because the Uniform Commercial Code requires a bank to make certain presentment warranties for the checks it deposits. Such warranties are not applicable to a personal line of credit, and the customers have authorized your bank to deposit the draws into the business account.

For resources related to our guidance, please see:

Uniform Commercial Code, 810 ILCS 5/4-205(2) (“If a customer delivers an item to a depositary bank for collection: . . . (2) the depositary bank warrants to collecting banks, the payor bank or other payor, and the drawer that the amount of the item was paid to the customer or deposited to the customer’s account.”)