Hergenroeder Rega Ewing & Kennedy, LLC

skennedy@hrslaw.com

Phone 412.208.3310Fax 412.281.6153

Review Carefully

Check Note repayment terms

Check names

Check collateral

Check equity

Check use of proceeds

SBA Authorization:

If Authorization is incorrect, prepare change letter and send

If you have any doubt about what is in the Authorization do a change letter

Change Letters:

Collect and submit timely

Loan Fee

Only get one form signed

MUST HAVE AN AUDIT TRAIL

Must comply with use of proceeds in Authorization

Must match disbursements with use within 10%

Watch out for EPC/OC. No Working Capital

1050/Use of Proceeds with copies of Checks:

Have reviewed by experienced person

Less is more, the more exceptions the less coverage

Watch out for: Use covenants Existing liens Some standard Endorsements Oil and Gas

Mortgagee Title Insurance Policy:

Should have with new construction

Look for encroachments

Look for access

Survey:

Verify balance

Determine if Open End

Watch for HELOC

Future Advances

Evidence of balance due on first mortgage:

Check all jurisdictions

Check Bankruptcy

Check Judgments

Credit Report will have

Order right away to avoid problems

POST CLOSING UCC SEARCH:

Verify Priority

Good to pre-file

Pre-Closing UCC and Other Searches:

Be certain of name

Be certain of where to file

Watch out for collateral that must be in possession of Secured Party (stocks)

Process filing takes 7-10 business days

Pre-file

UCC-1 Financing Statements:

Similar to Security Agreement

Sometimes done if business is licensed

May need to posses stock

Pledge of Stock:

Need for uncertificated stocks, investment accounts, etc.

Only way to get to the Collateral and only way to perfect security interest

Control Agreement:

Done with Stock Certificates

Sign in blank

Stock Power:

Must match term of Loan

If you don’t care do a change letter because Authorization requires the term of the lease to be as loan as the loan

May include renewal options as long as tenant can exercise unilaterally

Lease:

Subordinate Landlord lien to Bank lien

Must be able to cure default, so need notice of default and opportunity to cure

Must have access to collateral

Problem if you don’t get it

Landlord Waiver:

Rare, but sometimes required

Difficult to get

May not want it

Assignment of Tenant’s Interest in Lease:

A license is a privilege

In Pennsylvania you can take security interest but subject to Liquor Control Board

You can get interest in the ability to transfer

General Intangible under UCC-1; someone else may have a lien already

Should be mentioned in both the Security Agreement and the UCC-1

If the business closes down, you may want to remove the license

Liquor License:

Good to have so that you can work with Liquor Control Board and taxing authorities, Pennsylvania Department of Revenue

Allows lender to execute transfer documents and fill out forms

Liquor License Power of Attorney:

Whole process in SOP

Be sure you have all the Franchise Documents and all signed

Franchisor should certify that these are all the documents

Careful! May render Loan ineligible!

Franchise Offering/ Agreement:

Requires notice of default and opportunity to cure

Defer franchise fees is Loan is in default (hard to get)

Access to Franchisor’s books as they pertain to Borrower

Agreement of Franchise (to cure default):

Make sure in place

Change Endorsement

Copy of Declarations page

Mortgagee/Lender Loss Payee

Certificate of Insurance for real and personal property listing

Must have if they have employees

Workers Compensation Insurance:

Be certain Insured is correct

Owner may be other than insured

Copy of the policy

Term long enough for loan?

Be sure in correct amount

Life Insurance:

Must be signed by OWNER of the policy

Must not be assigned to anyone else

Must be correct Insured

Must be correct Amount

Must be assigned as Collateral, NOT CHANGE IN BENEFICIARY

Collateral Assignment of Life Insurance:

Check all parties

Be sure allow for Confession of Judgment whether a GP or an LP

If not all Partners must sign authority of one Partner to sign Confession of Judgment

Partnership Authorization and Partnership Agreement:

Get copy of Standby Note

Compare to be sure it is correct

Be sure you have payee on Note as Standby Creditor

Standby Creditor’s Agreement (SBA Form 155):

If no Note, tell them to draft one

Have Note endorsed as follows:

“This Note is subject to the terms and conditions of a Standby Creditor’s agreement between Payee and ____________ (Bank) dated the _____ day of _____________, 20__”

Copy of Standby Note with Endorsement:

Critical

I prefer an Affidavit

One of the first things looked at

Cash is King

In kind must be supported by appraisal (I would be sure SBA agrees)

Careful about where it comes from, there are many specific rules about this

Evidence of Equity:

Purchase of more than 51% of assets

Pennsylvania Department of Revenue clearance

Escrow/Indemnification

Verify payment of seller taxes

Compliance with Bulk Sale Provisions:

Important as this is required by Authorization under collateral where security interest is listed

Should have list of all equipment

All equipment over the value of $5,000 should have a complete description with serial number

Complete Equipment List:

Good way to track use of proceeds

HUD-1 Settlement Sheet:

Same as a Deed for personal property

Bill of Sale:

Must have EIN

If Borrower requires a license, need a copy (attorney, barber, restaurant with liquor license, dentist, doctor, etc.)

Pennsylvania contractors are required to have permits

Business Licenses, Permits, EIN, Certificate of Occupancy:

Good to have in a business acquisition

Be sure the principal or principals of the seller are bound. No good if seller is a corporation and person that can compete is an individual. They are not bound.

Non-Compete Agreement:

Protects Lender and Borrower

Must match use of proceeds

Fixed Price Contract:

Contractor’s Builders Risk and Workers Comp:

Need if you have to complete work

Collateral Assignment of Construction Documents:

Post closing

Very important for new construction and leasehold improvements

Occupancy Certificate:

New construction only

Earthquake Compliance: