In my role as General Counsel for Gulf Coast Small Business Lending, I oversee our SBA loan closing process. I am generally involved from cradle to grave on our SBA loans in closing and work closely with each of our closers to ensure a smooth and timely closing.
The closing team typically starts its work on a deal once we have received a signed commitment letter from our borrower. At that point, we will carefully review the file, create a closing checklist of needed items, and conduct a closing kickoff phone call to go through the closing checklist and answer any questions that the borrower may have.
One question that our closing team gets fairly frequently on the closing kickoff call is: “How quickly can we close?” That question can be a hard question to answer and will depend on the specifics of the deal and the items on the closing checklist. Quite often the checklist items will be dependent on third parties performing certain tasks and providing documentation to the borrower and/or to the Bank. It is often helpful if the borrower stays engaged with the third parties and works to ensure the third parties provide the needed items as quickly as possible.
We understand that for most borrowers this will be their first time through the SBA loan process and the length of the closing checklist as well as the entire process can seem daunting and confusing. The good news is that it does not have to be that way! Below, I have outlined several basic preparation steps that a borrower can take to help the closing process go smoother.
The first and most crucial step is to put together a list of the name and contact information for all the parties who will need to help get the loan across the finish line. Having this list compiled and available to share with us can save time and avoid frustration during the closing process. The list below contains a suggestion for who the appropriate contact person may be for each respective item. Make sure all the necessary people that you will need are included on your contact list.
Corporate Documents
Have these in good order and have copies ready to provide to the Bank.
Contact List: Accountant, tax preparer, and attorney on this list.
- Formation. The borrower will be required to provide the filed formation documents. If you do not have a copy of the documents that you filed to form your company, go ahead and contact the governmental authority in your state and get a copy. If you already have your formation documents, go ahead and send them to us.
- Governing Documents. If the borrower is formed as a limited liability company, we will need a copy of your operating agreement. We will also need to ascertain who are the managers and members. Go ahead and compile any resolutions or other written documentation that establish your current members and managers (if applicable).
If the borrower is formed as a corporation, we will need a copy of your Bylaws. We will also need to ascertain who are the shareholders, directors, and officers. Go ahead and compile any resolutions or other written documentation that establish your current shareholders, directors, and officers. - Assumed Name. If you are doing business under a name that is different from the legal name of your entity, make sure you have made the appropriate filings under your state’s law.
Real Estate
Make sure you inform us as to how exactly any real estate is titled. Quite frequently, the closing team will receive a title commitment or title report that discloses some of the real estate that is collateral for the loan is owned by an entity that is not listed as a borrower or guarantor.
Contact List: Attorney or title company that closed the purchase or most recent loan on the property.
- Title Insurance and Survey. If there will be any real estate collateral for the loan and it is currently owned by the borrower or a potential guarantor, we will want you to obtain your prior title insurance policy and any survey (if you have one). This will help shorten the amount of time a title search will take. Have your prior title insurance policy and if applicable, your survey, ready to send to us. Typically, this will be requested soon after a Loan Commitment Letter is executed.
Insurance
Request that our insurance requirements be provided as soon as they are available.
Contact List: Name and contact information for insurance agents for all types of insurance are critical. We will contact the agent for you and help facilitate the insurance documents assuming you provide the necessary contact information.
- Business Insurance. Choose an agent/broker early on in the process – don’t wait until closing is near to start requesting quotes/comparison shop. If you are going to comparison shop, begin this process as soon as you have our written insurance requirements. In today’s marketplace, all new policies, and especially new hazard policies on real property, will take time to underwrite/quote.
Once you have selected an agent, allow us to work directly with the agent.
Know that lenders, including Gulf Coast Small Business Lending, don’t typically review quotes or proposed binders to approve insurance as they can be tricky to interpret, and they do not include the lender’s and SBA’s required information. Agents can provide “draft” Acord certs in advance of closing, prior to insurance being in place and based upon the quotes they have obtained. Drafts are typically missing the policy numbers and effective dates. There is usually some back and forth communication and revisions to certificates that will take place prior to the certificates being approved by the lender. This is when deficiencies will be caught and will allow time for the agent to obtain updated quotes/binders if needed. When the drafts are approved by the lender the insurance is ready to be bound once a closing date is determined. The agent can then issue the final certificates by adding the policy numbers/effective dates to the draft certificates previously approved by the lender. In most cases, the insurance does not need to take effect until the date of closing. - Life Insurance. Use an agent familiar with SBA requirements. We can provide contact information for agents we have successfully worked with on past SBA loan transactions. While you may use your own agent or an existing policy (if it is not currently assigned), please understand that this process can and frequently does cause delays in closing. Either way, start this process as soon as you know that life insurance is required. Be certain to connect us and the agent to speed up the process. The agent will need specific info from us in order to get the policy assigned to the Bank. Ultimately, we will need to have a copy of the complete life insurance policy, and a copy of the life insurance assignment, acknowledged by the home office of the insurance company, prior to loan closing.
In addition to above steps, I have also outlined below several other items that frequently appear on our closing checklists and have included a discussion on frequently needed documents related to these items.
Debt Refinance
Contact list: Person with creditor or lender who holds the debt that is being refinanced.
If any of the loan proceeds will be used to pay off debt, we will need a copy of the debt instrument (the “note”), a copy of the payment history for the prior 12 months (this must include the borrower’s name, amount of loan, payment, due date, payment received date, and payment amount), and a payoff letter. Please note, if the debt is secured by collateral, the payoff letter will need to address any requirements to release the collateral. The most important point here is to engage with the creditor/lender early.
- Asset List. The Bank will need a list of the borrower’s assets. Go ahead and start putting that together. Further, for any items that are valued greater than $5,000.00, the model and/or serial numbers for those items will need to be provided on the asset list.
- Vehicle Titles. If the transaction includes liens on vehicles or titled road worthy heavy equipment, we will need: 1) Copies of vehicle/equipment titles being refinanced (originals will be required at closing) and 2)Copies of registrations for any such vehicles.
Property Lease
Contact list: Landlord.
If the borrower operates in leased space, we will need to get a fully executed copy of the lease. In most situations, the term of the lease with options will need to be at least the term of the SBA loan.
Invoices
If we are using loan proceeds to purchase equipment or inventory or anything else from a vendor, we will need an invoice from that vendor. If your loan does not involve construction, then the vendor will be paid through closing. If your loan does include construction, the invoices will be paid by us after the closing. The main take away here is that borrowers will not be given loan proceeds directly to go purchase the equipment or inventory.
Contact list: Person with vendor that is selling the subject equipment or inventory.
While the above is not an exhaustive list, a borrower focusing on these items prior to or very quickly after a signed commitment letter, can lead to a smooth and hopefully quicker closing process. We encourage you to speak with our experienced SBA professionals if you have any questions. You can find a listing of our Gulf Coast Small Business Lending Business Development Officers on our website here: https://gulfcoastsba.com/our-people/.