We’ve said it more than twice: It’s important to have effective procedures from the get-go, from loan origination through closing. It’s equally important to have accurate documentation and to perform relevant searches early on. Too often we’ve seen lenders conduct searches and collect documents late in the process, only to run into what we call, “SQUIRRELS” – bottlenecks and/or the need to put out fires that hold up loan closings.
At JRB, we recommend creating a comprehensive checklist that includes an end date for each task with benchmarks along the way. Check. And check again. Or as many times as necessary. Here’s our guide to documents and searches to keep in mind:
Entity documents. Find out if there are ownership issues that need to be rectified including:
- Organizations formed in a different state than applicant is operating from
- Minority owners (or previous owners) not removed from ownership roles properly
- For LLCs, Operating Agreements that don’t match the Articles of Organization
- Order good standing certificates; ensure the business is not inactive or considered dissolved
Size Standards. Make sure the request is with in SBA’s size standard requirements.
Tax Return Verifications should be ordered AND verified before you approve the loan to make sure there are no issues:
- involving sellers in a business acquisition transaction
- involving borrowers in all other transactions
Source of Equity Injection. Make sure deposit statements are collected AND reviewed early. Updated statements will be needed if the loan closes more than two months after the last deposit statement was obtained.
UCC Searches. Check for:
- Old liens that were not terminated.
- Additional liens not originally disclosed
- UCCs that weren’t filed in the right jurisdiction
Character Searches. Best to find out about long-forgotten criminal records, even minor offenses
Entity Searches to determine if the entity is considered “Active”
Title Searches on Real Property to determine prior liens, if tax payments are current, and other judgments
Credit Reports business and personal
CAIVRS to determine that there was no prior loss to the government
SAM.GOV to make sure no party to the transaction is barred from doing business with the SBA
As we say: Check once. Check twice. Or more. And follow up, early and often.