Line of Credit Test

  • Published on Aug 3, 2023
  • 4 minute(s) read
  • Stephanie Schmidt
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From time to time, credit unions may be required to demonstrate to their auditors that they are able to access funds from their line of credit (LOC). Utilize the information below to identify which type of test may work best for your credit union based upon settlement account type - Plateau or Premier. To learn more about how to make transfers, review the Account Transfers article. Should a wire need to be initiated, learn more about initiating an outgoing wire in the Outgoing Wire article.

Plateau Account

These options pertain to credit union members with Plateau Accounts. Based on other account types your credit union has set up, begin with the First Option and work down the list until the most applicable option is identified. 

LOC tests should be avoided over the weekend or the day before a holiday to avoid additional days' worth of interest charges. Additionally, perform the test at an appropriate time of the day that takes into account all settlement postings. If done too early, a settlement posting to the account could draw the account further negative causing more interest charges. Alternately, settlement deposits could result in a positive balance that could cause the loan to pay off automatically overnight and not conclude in a successful test.

First Option - Plus Account Transfer

Considerations

  • $500,000.00 minimum balance required in Plus Account to earn dividends
  • 4 Plus Account withdrawals allowed per month
  • Standard transfer cutoff times apply

Steps

  1. Transfer all available funds, plus an extra amount, from the Plateau Account into the Plus Account. The extra amount causes the Plateau Account to go negative and activates the line of credit.
  2. Transfer funds back to the Plateau Account the following business day.
  3. Pay off the line of credit.
    1. The loan will automatically pay off in that evening's overnight processing, provided funds are still available in the Plateau Account, or
    2. Manually transfer funds from the Plateau Account to the line of credit by utilizing a share-to-loan transfer in the Money Movement module, making sure to select the payment option of Loan Payoff. This will ensure principal and interest are paid.

Second Option - Money Market Transfer

Considerations

  • $2,000,000.00 minimum balance required in Money Market Account to earn dividends
  • 3 Money Market Account withdrawals allowed per month
  • Standard transfer cutoff times apply

Steps

  1. Transfer all available funds, plus an extra amount, from the Plateau Account into the Money Market Account. The extra amount causes the Plateau Account to go negative and activates the line of credit.
  2. Transfer funds back to the Plateau Account the following business day.
  3. Pay off the line of credit.
    1. The loan will automatically pay off in that evening's overnight processing, provided funds are still available in the Plateau Account, or
    2. Manually transfer funds from the Plateau Account to the line of credit by utilizing a share-to-loan transfer in the Money Movement module, making sure to select the payment option of Loan Payoff. This will ensure principal and interest are paid.

Third Option - One-Day Certificate

Considerations

  • Quoted rate matches that of what would have been earned in the Plateau Account
  • Additional paperwork 
  • Standard cutoff times apply

Steps

  1. Contact Investments to purchase a one-day certificate in the amount of all available funds from the Plateau Account, plus an extra amount. The extra amount causes the Plateau Account to go negative and activates the line of credit.
  2. The certificate redeems the following business day, and the principal and interest earned will automatically transfer to the Plateau Account.
  3. Pay off the line of credit
    1. The loan will automatically pay off in that evening's overnight processing, provided funds are still available in the Plateau Account, or
    2. Manually transfer funds from the Plateau Account to the line of credit by utilizing a share-to-loan transfer in the Money Movement module, making sure to select the payment option of Loan Payoff. This will ensure principal and interest are paid.

Fourth Option - Wire Funds Out

Considerations

  • Outgoing and incoming wire fees apply
  • Standard cutoff times apply

Steps

  1. Initiate an outgoing wire consisting of all available funds from the Plateau Account, plus an extra amount. The extra amount causes the Plateau Account to go negative and activates the line of credit. 
  2. Wire the funds back the following business day. Wired-in funds automatically post to the Plateau Account.
  3. Pay off the line of credit
    1. The loan will automatically pay off in that evening's overnight processing, provided funds are still available in the Plateau Account, or
    2. Manually transfer funds from the Plateau Account to the line of credit by utilizing a share-to-loan transfer in the Money Movement module, making sure to select the payment option of Loan Payoff. This will ensure principal and interest are paid.

Premier Account

This option pertains to credit union members with Premier Accounts.

Manual Transfer

Considerations

  • Self-managed account
  • Standard cutoff times apply

Steps

  1. Manually advance a loan from the Premier Loan by utilizing a loan-to-share transfer in the Money Movement module.
  2. Manually pay off the Premier Loan the following business day by utilizing a share-to-loan transfer in the Money Movement module, making sure to select the payment option of Loan Payoff. This will ensure principal and interest are paid.