Loan Reviews for Businesses

Businesses often take out loans for buildings, expansions, and potentially for operating expenses.  Businesses should receive a Financing Commitment Letter.  There are a few key terms to consider when reviewing these.

The Financing Commitment Letter should clarify many items, including all of the business terms like the interest rate, repayment terms, and loan amount.  You should confirm the following more “legal” boilerplate terms:

• Costs. What kind of costs you will need to pay for in advance, and the amount of the advance. It is important to clarify that if any of the advanced money remains that it will be applied to the loan and other costs.
• Freedom to Choose. You should be able to use use service providers (like appraisers, surveyors, environmental evaluators, and title companies) of your choice.  You may have a cheaper price if you search for your own third parties.  However, the best price could come from those the bank works with often.
• Closing Date. The letter should also indicate the expected closing date on the transaction.
• If there are any assets of your business that you do not expect to be encumbered by the bank’s lien, you should ensure that is clearly stated in the Financing Commitment Letter.
• Right to Review and Approve. You should preserve your right to request changes to the loan documents (including the Loan Agreement, Promissory Note, Deed of Trust, Assignment of Rents, and Guaranties). The specific wording should indicate that these documents “shall be in a form and content acceptable to Borrower and Guarantors”.
• Financial Reporting. Financial reporting to the bank can be burdensome. So, it can help to clarify how often financial reporting will be required (i.e. quarterly), and how often audited financial information will be required.
• Insurance (especially flood insurance) can be very expensive.  Be sure you are comfortable with the cost of all insurance the bank will require.

Angela Madathil is a Business, M&A, and Deal Attorney and provides legal assistance to shareholders, buyers and sellers of businesses, as well as business brokers in Nebraska, Missouri, and Kansas.   This can involve reviewing loan commitments, loan documents, general contract review and negotiation, due diligence assistance, and post-sale integration.  The Goosmann Law Firm team advises to buyers and sellers of businesses, as well as business brokers throughout the Midwest and has attorneys licensed in Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota, and other states.