When loan proceeds are used to finance the acquisition of a small business, there are special considerations which lenders should keep in mind in order to assure an efficient, SBA compliant closing. Here are some items keep in mind so that transactions may proceed without delay.

Always order long lead time items early in the process. Appraisals, environmental reports, life insurance, survey and title should all be ordered after the borrower has executed the commitment letter and furnished the lender with a deposit. Searches should also be ordered at the transaction's inception.

It is helpful if lenders confirm with borrowers which entities the borrower plans to establish. Frequently, borrowers give little thought to whether they will incorporate or establish a limited liability company. As soon as the entities have been organized, the lender may proceed with its due diligence and, if it chooses, prefile its UCC-1 financing statements.

When the borrowing entity leases space, it is common for the Loan Authorization to require landlord waivers. While these are often difficult to obtain, the best time to approach a landlord is before the tenant (our borrower) signs the lease. Since lenders have to go through the process with a landlord sooner or later, it is better to approach the landlord early on with the hope of obtain meaningful concessions, including notice, priority and access.

Borrowers often obtain hazard and liability insurance shortly before the loan closes. The result is often incomplete or inadequate coverage. Accordingly, it is incumbent upon closers to advise borrowers that the process takes several days and that the financing will not take place unless the insurance is in place prior to closing of the loan.

Immediately after your commitment letter has been signed, make sure that the borrower and seller comply with the state's bulk sales requirements. These laws were designed to protect creditors and still protect state agencies from delinquent business owners. It is not uncommon for a state to impose a notice requirement prior to the consummation of any business sale.

During a change of ownership, the SBA recognizes that a seller may be able to assist the borrower during a short transition period. However, the seller may not remain with the company as an officer, director, keyperson/employee or owner. Therefore, if the business requires the seller to be retained for a short term transition period, be sure that a management contract is executed with a contract period no longer than 12 months. Otherwise, the seller will be viewed by the SBA as a key employee and the transaction will not be seen as a true sale.

Lenders face a host of challenges when dealing with business acquisition issues. With state variations in liquor license requirements, recordation taxes, and stock sales, the financing of business acquisitions outside of lender's footprint can be problematic, especially when borrowers are unrepresented. It is therefore incumbent upon lenders to order long lead time items early, make sure the borrower understands the entity formation requirements; be prepared to deal with landlords and insurance agents; and handle local requirements so as to assure an efficient loan closing.