SBA lenders know that having a complete and compliant closing file is key to preserving the SBA Guaranty. When a transaction deadline is looming, or in the case of an end of fiscal quarter push to close multiple loans in a short period of time, it is worth taking a few extra moments to make sure that these steps have been taken to insure an efficient and compliant closing.
Credit, Loan Authorization and Loan Documents Review
All credit changes that have been made to the deal since initial underwriting must be clearly documented well in advance of the closing date. SBA loan approval should be pulled from E-Tran and the SBA Loan Authorization should be prepared at least 5-7 days prior to closing to assure that the loan documents align with final credit terms. This helps to avoid post-close amendments, missing conditions or inaccurate documentation in the Loan Documentation package.
In a table-funded closing, identify who needs to attend settlement, including limited guarantors, minority owners or officers, any of whom may need to sign resolutions or other documentation. Confirm where the closing will take place. Will it be at the title agent’s office or at the closing attorney’s office, or will a mobile notary be traveling to the Borrower’s location? Determine who will be responsible for delivering the documents to closing and overseeing the signing. Does an officer from the Lender need to be present?
Fees and Costs
Have all Lender’s costs and fees been accounted for? Some often missed charges include recording costs or taxes for secondary collateral, post-close searches and local counsel fees. It is difficult to get a title agent to issue Lender required endorsements in the final title policy if required endorsements have not been identified clearly and monies for these endorsements have not been collected in advance. If a closing includes both 7(a) and Express loans, make sure both guarantee fees are included on the settlement statement. Verify use and source of Borrower funds, so that the Lender is confident that the Borrower has contributed enough cash towards closing costs to meet its equity injection requirements.
Third Party Signatures
The parties may have spent time negotiating the lease and landlord consent, but perhaps never obtained the final executed signature pages from the landlord. Confirm that you have both. Further, ensure that the seller has signed all the sales documents, including the settlement statement and any Standby Agreements. Are the appropriate officers or members available to sign the resolutions or other transaction documents? Is the limited guarantor available to sign recording documents at closing or does a separate signing need to be scheduled?
Expired Searches and Certifications
Have searches and good standing certificates been recently pulled, or are they now stale under Lender’s closing policy? Are the financial statements dated and signed within the last 90 days? Has the credit approval expired and, if so, does it require an extension and an amendment so that its terms align with the final SBA Loan Authorization?
If stock is being pledged, have the original stock certificates been delivered to closing? Has the seller delivered the original vehicle titles that are being transferred to Borrower? Have mileage, weight or other specific information required for transferred vehicles been provided at closing? Have original lien instruments been sent to the title agent for recording, including the deed of trust/mortgage, as well as any other required documentation, such as assignments, releases and subordination agreements?
Closing Agent Deliverables
The title or closing agent should have returned the signed Lender’s instruction letter and closing protection letter prior to funding. The lender or its counsel should also have received, reviewed and approved a pro-forma or marked up title commitment. Has evidence of compliance with state Bulk Sales laws been provided to lender and its counsel? Does Lender have evidence that Borrower’s funds have been delivered to escrow? Lender’s instruction letter should require that copies of all disbursements must be provided promptly to Lender after closing and funding.
Funding and Post-closing
Most Lenders will fund on scanned copies of the loan documents, and may only need a few executed loan documents for their funding package. But it’s advisable to require that all the loan documents be scanned from closing to Lender and its counsel for review in order to avoid tracking down missing signatures from the Borrower or any third party post-closing.
Closing agent should be provided with clear instructions where to send original executed loan documents, and other documentation required to be included in the final closing package, such as drivers’ licenses, disbursements, and copies of recorded documents.
As the above summary demonstrates, there are a number of considerations to manage before, during and after a loan closing to insure Lender’s underwriting terms and SBA program requirements have been met. When the pressure to close is high, it’s easy to disregard the time it takes to prepare for and effectively manage a closing. But if these steps are followed, the closing and funding process will be a smoother, more positive experience for all parties, and Lenders are more likely to achieve SBA loan compliance.
If you have any questions about SBA loan closing, please contact Kim Rayer at firstname.lastname@example.org.