Once the SBA has issued an Authorization for a loan, Lenders and Borrowers immediately ask “When can we close?” For a smooth and efficient closing process, it’s important all involved parties are on the same page and their expectations are consistently set. This article will summarize the process for closing and the role each individual should take to successfully complete your closing.
Step 1 – Engagement Email
A closing process begins when Prudent Lenders circulates a finalized loan report and Authorization to lenders and their closing counsel (or a draft Authorization for Preferred Lender Program, or PLP, loans). A member of the Prudent Lenders legal team, known as the Closing Coordinator, will send the engagement email to introduce themselves to all parties and initiate discussion.
The Prudent Lenders legal department is officially engaged once the Authorization is issued (for General Partner Program, or GP Loans) or when the loan report is signed and approved (for PLP Loans).
Role of the Closing Coordinator
Following execution of the engagement letter, the Closing Coordinator will complete the following and circulate the documents upon completion (normally within 24-48 hours of engagement email):
- Flood Searches
- Good Standing Certificates
- File UCCs
- Post-Filing UCC Searches
At this point, the Closing Coordinator will also perform the following:
- Pull all Judgment and Tax Lien Searches via Lexis Nexis on Borrowers & Guarantors (and Sellers)
- Cultivate any other online resources to assist in closing (e.g. business licenses, basic property searches, etc.)
- Pull copies of all documentation collected earlier in the process (leases, entity documents, equipment lists, insurance, etc.)
- Start reviewing equity sourcing and spending received to date (A best practice: Collect this information and documentation upfront)
While the Closing Coordinator is the primary point of contact on a file, there may be 2-3 people from Prudent Lenders assigned to work on a loan file to ensure the loan continues to move forward with accuracy and efficiency.
Step 2 – Kick-off Call
While this step is optional, it has a proven track record of successfully aligning all involved parties from the outset. Parties included in this call should include: Closing Coordinator from Prudent Lenders, Lender (and/or representative of lending organization), Borrower, and Closing Counsel. If the Borrower is represented by an attorney, which is not necessary, they should join the call too. During this phone meeting, all parties review requisite closing items and make assignments. This checklist approach is handled by the Closing Counsel.
Step 3 – Complete the Checklist
While every transaction is different, the role of Prudent Lenders remains the same. Prudent Lenders will handle the completion of the equity substantiation. Once Prudent Lenders completes the equity review and compiles the equity documentation in a manner that foresees painless SBA reviews and audits in the future; the substantiation documentation will be circulated to the Lender and Closing Counsel. If any equity items need to be collected at the table and/or checks need to be brought to closing, it will be communicated by Prudent Lenders.
The Closing Coordinator will also oversee any post-approval changes. This means the Prudent Lenders team will handle 327s to obtain updated SBA approval, changes needed in E-Tran, and finalize PLP Authorizations.
Third-party reports are not a part of every transaction. When they are, the Prudent Lenders team will submit things like Environmental and/or Appraisal reports to the SBA, if SBA approval is required.
Step 4 – Closing
The closing date should only be scheduled once Closing Counsel and Prudent’s legal team have assured checklist items, including all equity reviews, are complete.
Prudent Lenders will provide its invoices for disbursements to be included on the closing statement and paid from loan proceeds by the Borrower, as applicable.
Immediately after closing, Prudent Lenders will ask for the following to be circulated from the Closing Counsel. It is imperative that Prudent Lenders receive these items as soon as possible so the loan can be booked and boarded and moved to the next stage of finalization, which is: multiple disbursement of the loan or secondary market sales. These items include:
- Signed Authorization; signed 327s (if any); signed internal modifications (if any)
- SBA Form 159
- Copy of any HUDs or Authorization for Disbursement detailing how loan proceeds will be disbursed
Step 5 – Post-closing
Within a week of closing a complete copy of the closing binder (signed loan documents and all supporting due diligence) should be provided to the Lender and Prudent Lenders from the Closing Counsel. Upon receipt, Prudent Lenders will review the file and perform a Quality Assurance Review (QAR) to ensure the file is complete. If the team at Prudent Lenders has any questions, needs, or concerns, we will reach out to the Lender or Closing Counsel. Prudent Lenders will also detail exception items and track them accordingly, so copies are collected when available (e.g. recorded mortgages, DMV liens, recorded Deeds, etc.)
If the loan is a multiple disbursement loan, Prudent Lenders will assist the Lender with post-closing disbursements through the final disbursement of the loan funds.