Obtaining a U.S. Small Business Administration (SBA) loan is one of the most consequential financial decisions a business owner will make. Whether acquiring a business, purchasing commercial real estate, undertaking a construction project, or securing working capital, SBA guaranteed loans involve complex documentation, strict regulatory requirements, and significant long-term obligations. Yet many borrowers try to navigate this process without legal representation, which often causes delays in closing the loan.

Engaging transactional counsel should be viewed by a borrower as a strategic investment and a crucial part of the loan process whereby the benefits significantly outweigh the costs.  Many times, a borrower will forgo legal representation to reduce closing costs, but when the borrower hires effective legal counsel to manage the transaction, the borrower will discover the investment has the opposite effect of reducing closing costs due to a more efficient process of communication regarding the lender’s due diligence requirements, revisions to the transactional documents, and settlement procedures.

As lender’s counsel represents the lender and not the borrower, it would be a conflict of interest for lender’s counsel to advise the borrower as to transactional documentation and due diligence.  A borrower may grow frustrated when providing transactional documents for review which may require multiple rounds of revisions, especially if the borrower is unfamiliar with the reason for the revisions or the best method to do so.  This frustration can be alleviated or removed entirely by hiring counsel familiar with the type of transaction and who can address lender’s requirements.

When a borrower uses transactional counsel that is familiar with the type of transaction and specific type of business or industry, counsel may provide further guidance related to the purchase agreement, lease, and landlord waiver negotiations, city, county, or state business and professional licenses, tax implications, and tax clearance.  Further, transactional counsel can effectively and clearly communicate between all parties – seller, buyer, broker, lender, and lender’s counsel – and reduce excess and often confusing email correspondence which, in turn, should get all parties to the closing table sooner.

When a loan finances a transaction worth hundreds of thousands — or millions — of dollars, the legal fees for competent transactional counsel represent a fraction of the potential downside exposure.  An SBA loan transaction is not a simple banking transaction — it is a legally complex, highly regulated event with long-term consequences for the borrower’s business.  Therefore, it is to the benefit of the borrower and their lender, to hire transactional counsel who will ensure that someone with legal expertise, no conflict of interest, and a singular focus on the outcome is present at every stage of the process will set the business up for success.

For more tips on SBA compliance and loan closing matters, please visit us at www.starfieldsmith.com.