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SpotlightAttorney Spotlight
 

 

 

Kim Web Photo
Kimberly Rayer, Esq.

 

Ms. Rayer concentrates her practice in the areas of financial services, commercial contracts, real estate and corporate law. Ms. Rayer has extensive experience representing banks, financial institutions, as well as companies in connection with commercial financing transactions, including acquisition financing, asset-based financing, healthcare receivable financing and other secured transactions. She has experience with intercreditor relationships, as well as creditor's rights in bankruptcy. Ms. Rayer also advises small businesses on corporate governance and transactional matters.

Ms. Rayer is admitted to practice before the Supreme Courts of Pennsylvania and New Jersey and the Federal District Court for the Eastern District of Pennsylvania. She is a member of the Philadelphia Bar Association and the National Association of Government Guaranteed Lenders (NAGGL).

Ms. Rayer is a graduate of Drexel University where she received a Bachelor of Science Degree, cum laude, and the James E. Beasley School of Law, Temple University, where she earned a Juris Doctor degree.

Prior to joining Starfield & Smith, P.C., Ms. Rayer was an associate at Blank Rome LLP in Philadelphia, Pennsylvania.

 

  

 

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Best Practices: Collateral Options for Working Capital CAPLines

 By:  Kimberlee Knopf, Esq.

 

Kim Knopf
Kimberlee Knopf,  Esq.

 

The new SBA Working Capital CAPline program offers lenders a powerful new tool to meet the working capital needs of their borrowers. However, it is critical that lenders understand the collateral requirements under this program to participate in a compliant manner. Pursuant to SOP 50 10 5(D), the collateral required for a Working Capital CAPLine is based upon whether or not Lenders are disbursing under the line through a borrowing base, or not.

 

If Lender intends to fund the CAPline based upon a borrowing base certificate (which certificate must be delivered by a Borrower monthly, or on a more frequent basis to conform to Lender's internal policy and procedures for similarly situated non-SBA borrowers), then the Lender is only required to obtain a first priority lien and security interest in borrower's working assets, namely, accounts receivable and inventory. The advantage to proceeding under a borrowing base is that fewer assets are required to be pledged as collateral for the loan; the disadvantage is that monitoring a borrowing base requires much more intensive monitoring on the part of the lender.  

 

For various reasons, a Lender may not wish to disburse working capital funds through a borrowing base, and in such event, the Working Capital CAPLine is to be secured on a 1:1 collateral ratio based upon the maximum usage of the line of credit. Lenders must first analyze the working/trading assets of Borrower and if such assets are insufficient to meet the 1:1 test, then additional business assets and personal assets of the principals must be taken to fully collateralize the line of credit. If, after taking all available assets, lender is unable to achieve a 1:1 collateral ratio, the maximum amount of the Working Capital CAPline must be reduced to meet the 1:1 requirement. 

  

SOP 50 10 5(D) has added further clarification with respect to determining the 1:1 collateral ratio for non-borrowing base Working Capital CAPlines. Unless otherwise indicated, business assets are to be discounted based upon the Net Book Value of such assets as listed on Borrower's financial statements. However, it is noted that this valuation method is inconsistent with the adequate collateral requirement in SOP 50 10 5(D) at p. 185 requiring lenders to value business operating and trading assets at not more than 10% of current book value due to such assets having a "negligible value in a liquidation."   In any event, after determining the Net Book Value of the working capital assets, Lenders must then consider the Net Book Value of such assets as a percentage of the maximum line of credit. After subtracting ineligible receivables, Accounts Receivable must be less than or equal to 80% of the maximum line of credit while Inventory can not comprise more than 50% of the maximum line of credit.  

 

If the working capital assets do not fully secure the Working Capital CAPLine, then Machinery and Equipment should be considered at either 50% of Net Book Value or 80% of Orderly Liquidation Value, less prior liens. A conservative approach when selecting between these options would be to utilize the lesser of the two values.  

 

Lastly, Real Estate can be collateral for the Working Capital CAPLine using 80% of the value of such Real Estate, determined in accordance with Chapter 4, Paragraph II.C. of Subpart B. In the event Lender determines that the value of the Real Estate securing the line is in excess of its Net Book Value, then Lender must obtain an independent appraisal to support the higher valuation in accordance with Chapter 4, Paragraph II.C.3. of Subpart B.   For more information about Collateral Options for Working Capital CAPLines, please contact  Kim at [email protected] or 267-470-1188.

 

 

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SeminarSeminars and Events

 

               NAGGL's Closing and Funding the SBA Loan

 

Presented by:  NAGGL

Instructor:  Ethan Smith

Date:  December 5, 2011

Time:  8:30 AM - 4:30 PM

Location:  Chamber of Commerce Building

Address:   320 North Meridian Street

                      Suite 1011

                      Indianapolis, IN 46204

To register, click here 

 

 

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Starfield & Smith, P.C. would like the thank everyone for a great NAGGL Annual Conference.

 

Thanks to all of you who stopped by our booth - it was nice to meet you. 

 

For those of you we did not have the opportunity to meet, we hope to do so in the future!

 

Please feel free to call us at (215) 542-7070 or send us an email, we'd love to hear from you!

 

  

 

 

 

 

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ContactInfo Starfield & Smith, P.C.
Pennsylvania Office
1300 Virginia Drive | Suite 325
Ft. Washington, PA 19034
phone: (215) 542-7070 | fax: (215) 542-0723

 

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