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SpotlightAttorney Spotlight 
Ethan W. Smith, Esq.
Ethan Smith
Ethan focuses his practice in business law, with an emphasis on commercial lending, government guaranteed lending, mergers and acquisitions, real estate, contracts, commercial and corporate law. He is a closing attorney for various lenders nationwide. Ethan is also a designated closing counsel for several Certified Development Companies that operate in Pennsylvania, New Jersey and Delaware. In addition to representing commercial lenders, Ethan represents and counsels a number of small businesses in a variety of contexts, including mergers and acquisitions, corporate governance, and contract and real estate matters.

As a closing attorney for commercial lenders, Ethan prepares and reviews loan files for conventional, SBA 7(a) and 504, and USDA B&I loans, confers with loan processors and in-house counsel, and drafts, analyzes and negotiates loan documents. He has closed hundreds of government guaranteed commercial loans through the SBA 7(a) and 504 loan programs, through the USDA B&I program, and has closed numerous conventional commercial financing transactions, including asset-based, real estate, and factoring arrangements. Ethan has closed numerous complex commercial transactions, often involving multi-jurisdictional issues and collateral. As a licensed title agent in Pennsylvania and New Jersey, Ethan provides title insurance for commercial projects including purchases, refinancing and ground up construction. Through his underwriters' national networks, Ethan coordinates title insurance, escrow and closing services for his clients nationwide.
 
 

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FeaturedArticleAFFILIATION ISSUES TO CONSIDER WHEN LENDING TO FRANCHISEES, LICENSEES OR GAS STATION OPERATORS
By Christopher M. Evans, Esq.
 
Christopher M. Evans, Esq.
Chris

Whenever lenders contemplate extending SBA-guaranteed loans to borrowers who have or will have franchise agreements, license agreements, or fuel supply agreements which are critical to the borrower's business, SBA requires a determination as to whether the agreement or agreements give rise to affiliation between the franchisor and franchisee.  As affiliation with another business which does not meet the SBA's size standards will render the loan ineligible, this determination can mean the difference between the SBA honoring the guaranty and a full denial of liability if the borrower defaults. 

 

For the convenience of its lending partners, SBA has established and maintains a Franchise Registry (the "Registry") which lists approved franchise/license/dealer/jobber or similar agreements.  Lenders should always check http://www.franchiseregistry.com/ to determine if an agreement is listed.  If the agreement is listed on the Registry, lenders still must include in the loan file a Certification of No Change or Non-Material Change executed by an authorized representative of the franchisor, licensor, or fuel supplier (often referred to as the "jobber").  

 

If an agreement is not listed on the Registry, an eligibility determination must be performed on a case by case basis.  For GP loans, SBA makes this determination; PLP lenders must make this determination under their delegated authority.  Lenders may also inquire with the SBA Franchise Mailbox ([email protected]) for a report of any "franchise findings" applicable to the agreement in question.  The information provided in any "franchise findings" would include if, when, and why an agreement has previously been determined to be unacceptable by SBA field counsel and what, if any, fixes have been negotiated in the past.  This information can be used as a guide for lenders in determining whether a specific agreement is ineligible and how the lender may approach negotiating the requisite fixes in order to ensure that the agreement is acceptable under the SBA's rules on affiliation. 

 

When determining if a franchise, license, dealer or jobber agreement is acceptable, lenders should always be aware of common issues which could make an agreement unacceptable.  Such issues include, but are not limited to:

 

         Control: does the franchisor/licensor/jobber/dealer have excessive control over the borrower such that the borrower is deprived of the right to profit from the business or to bear the risk of loss associated with business ownership.  Such provisions, among other things, may fix the borrower's net profit, require excessive fees, control the borrower's hiring or termination practices, require the borrower to deposit revenues into an account not controlled by the borrower, or include an option to purchase the borrower's business property upon termination of the agreement.

 

         Excessive Restrictions Upon the Sale or Transfer of the Borrower's Interest in the Agreement: If the agreement requires the consent or approval of the Franchisor/Licensor/Dealer/Jobber in order for the borrower to transfer or sell the borrower's business or the borrower's interest in the agreement, SBA requires the agreement to specifically state that the consent or approval "shall not be unreasonably withheld or delayed."   

 

This list is by no means exhaustive and lenders should

always conduct a thorough analysis of the agreement in question.  Furthermore, with respect to fuel supply agreements, an affiliation analysis can be much more complex and should always include an analysis of the title to real estate, real estate sale agreements, lease agreements, fuel supply agreements, deeds, and any instruments related to the supply of gasoline that are filed in the public record. 
 

For more information on franchise and affiliation issues and other SBA eligibility issues, contact the author at [email protected] or 215-542-7070. 

 
DYKDid you know...
 
Compass
...that Starfield & Smith, P.C. represents lenders  on guaranty repairs and denials?

For more information about this and other services Starfield & Smith, P.C. provides its clients, please call Ethan at 215-542-7070 or by email at [email protected].
 
 
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SeminarsEventsUpcoming Seminars and Events
 

Fundamentals of SBA Lending

 

Presented by: PA Association of Community Bankers

Instructors: David W. Starfield and Kimberly A. Rayer
Dates: July 22nd, 2010

Time: 3:00 pm EDT - 4:30 pm EDT

Location: Webinar

 

 

SBA lending affords banks and other lending institutions with the opportunity to finance commercial loans to small businesses and, at the same time, secure a loan guarantee from the federal government. While the program can be quite profitable, it's not without its risks. Compliance with SBA regulations is mandatory to ensure success and profitability. With changes occurring to the program over the last year, it is critical to understand the new regulations and the way to make the SBA loan programs work for you.

 

To register for this course, click here 
 
Fundamentals of SBA Lending: Documenting, Closing and Funding the SBA Loan
 
Presented by: Lorman
Dates: September 9th and 21st, 2010
Time: 1:00 pm EST - 2:30 pm EST
Location: Webinar

SBA lending affords banks and other lending institutions with the opportunity to finance commercial loans to small businesses and, at the same time, secure a loan guarantee from the federal government. While the program can be quite profitable, it's not without its risks. Compliance with SBA regulations is mandatory to ensure success and profitability. With changes occurring to the program over the last year, it is critical to understand the new regulations and the way to make the SBA loan programs work for you.

Register online here.
Or call 1-866-352-9539
When registering, use priority code 15800 and discount code F2716129.

 
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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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