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Katie Web Photo
Katie G. O'Brien 

Katie's practice areas include finance, real estate, contracts and corporate law. Katie assists commercial lenders with loan documentation and closing issues and with the drafting of corporate and finance documents. Katie also advises small businesses on regulatory and licensing matters at both the state and federal levels, as well as corporate governance and transactional matters.

Katie is admitted to practice before the Supreme Courts of Pennsylvania and New Jersey. She is a member of the American Bar Association, the Pennsylvania Bar Association, and the Philadelphia Bar Association.

Katie is a graduate of the Pennsylvania State University, where she graduated with Distinction and earned a Bachelor of Science degree, and Temple University Beasley School of Law, where she earned a Juris Doctor degree and was a member of the Temple University Political and Civil Rights Law Review.
  

FeaturedArticlePROVING EQUITY INJECTION IN THE 504 LOAN PROGRAM
By Janet M. Dery

 Janet Web Photo 
            Equity injection, whether under the 7(a) program or the 504 program can be one of the most challenging items for Lenders to document properly.  In addition to proving both the source and the use of funds, an additional consideration for third party lenders, CDC's and borrowers under the 504 loan program is ensuring all monies are injected towards eligible Project costs.  Sections 120.882 - 120.884 of the Code of Federal Regulations and pages 279 - 285 of SOP 50 10 5(B) discuss in detail what are considered eligible and ineligible project costs.  Here are two issues you may want to consider:
 
            1.)        Legal fees present an issue since some legal fees may be considered eligible costs and some may not.  Pursuant to Section 4(a)(7) of SOP 50 10 5(B) (pages 279-280), attorney's fees incurred in closing the Interim and Third Party loans are ineligible costs.  The Third Party and Interim Lender's legal fees are ineligible costs as well.  Accordingly, these legal fees cannot be counted towards the borrower's equity injection requirement and should therefore be subtracted from the total amount injected by the borrower when determining whether the injection requirement has been met.
 
            The only legal fees which are eligible to be included towards borrower's injection requirement are (1) $2,500 pre-paid paid towards the CDC's legal fees  and (2) any legal fees related to zoning, permits or platting (see Subsection (c) of CFR 120.882).  To have such legal fees counted towards injection, borrower will have to submit detailed invoices from his counsel that show legal fees were only incurred in relation to zoning, permits or platting and proof of payment of same (preferably cancelled checks and related bank statements).
 
            2.)        Another possible injection issue relates to equipment purchases which are included as part of the Project.  Sometimes borrowers may begin purchasing equipment prior to the closing of the Third Party and Interim loans and want to receive credit towards their injection requirement for the purchase of such equipment.  If borrower submits invoices and proof of payment for such equipment, it is the Lender and CDC's responsibility to ensure that the equipment purchased is included in and budgeted for in the Project.  If the equipment purchased is not part of the Project, then any money paid for that equipment will be ineligible to be included towards injection.
 
            Ensure a seamless 504 closing by keeping these requirements in mind and clearly communicating them to the borrower.  Regardless of whether you are the Third Party Lender, the Interim Lender or the CDC,  a thorough understanding of  how to prove equity injection in the 504 program will avoid any unnecessary delays in funding the 504 loan.  For more information on this topic or other services provided by Starfield & Smith, contact the author at [email protected], or 215-542-7070.
 
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Visit Starfield & Smith, P.C at the NAGGL Annual Conference!
 
 
  
Visit us at our booth in Phoenix at the upcoming
NAGGL Annual Conference, October 26 - 28.
 
Please stop by Booth #47 to learn more about the services we provide to lenders nationwide!
   
 
 
  
 
 
 
SeminarsEventsUpcoming Seminars and Events
 
"Rediscover Herndon: Prepare Perfect Purchase Requests"
Presented by David W. Starfield for the NAGGL Annual Conference
Dates: October 27 and 28, 2009
Loacation: Phoenix, AZ
For more information and to register, click here.
To use NAGGL's online registration system, click here.
 
"Rediscover Franchise Lending"
Presented by Michele Courneya for the NAGGL Annual Conference
Date: October 27, 2009
For more information and to register, click here.
To use NAGGL's online registration system, click here.

"Understanding the SOP 50-10"
Presented by Michele Courneya for the NAGGL Annual Conference
Date: October 29, 2009
Location: Phoenix, AZ

For more information and to register, click hereTo use NAGGL's online registration system, click here. 

"Guarantee Purchase Process and Package Submission"
Presented by David W. Starfield for the NAGGL Annual Conference
Date: October 30, 2009
Location: Phoenix, AZ
For more information and to register, click here
To use NAGGL's online registration system, click here

For additional information, please contact us or visit our booth (#47) at the NAGGL Annual Conference, October 26 - 28
 
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ContactInfo Starfield & Smith, P.C.
Pennsylvania Office
501 Office Center Drive,
Suite 350 | Ft. Washington, PA 19034
phone: (215) 542-7070 | fax: (215) 542-0723
 
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1516 West Lake Street, Suite 303 | Minneapolis, MN 55408
phone: (612) 208-0877 | fax: (215) 542-0723

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