One of the most basic and crucial things a lender must do in making a loan to a business entity is to verify that it is using the correct, legal name of that entity in its loan documents, and that those loan documents are being signed by a party who has authority to bind the entity.  Use of an incorrect entity name in the loan documents may provide a defense in any suit to enforce those documents.  It may also prevent a lender's UCC-1 financing statement from being properly indexed - and, therefore, enforceable - in future searches by creditors, which could jeopardize the lender's SBA guaranty.

An entity's legal name is found on the formation document that the entity files with its home state to create the entity (e.g., Articles of Incorporation/Partnership/Organization/ Formation).  While many states have websites where an entity search can be conducted, the results of such search should not necessarily be relied upon to provide a lender with the entity's correct legal name, as the name may not be entered correctly on the state's website.  Therefore, the formation document is the only document that is dispositive with respect to the legal name of the entity, and should be the only document relied upon by the lender to accurately determine the business entity's name.

If the business operates under names other than its legal name, the lender should confirm that a fictitious/trade name filing has been entered for such "dba" names.  If no such filing has been made, the lender may want to require one, so that anyone dealing with the business entity under the fictitious name will be able to identify the entity operating the business.

The entity's organizational and governing documents will identify the party with authority to execute loan documents and bind the entity.  Corporate bylaws should identify the officers of a corporation and their respective powers, and a review of the bylaws will allow the lender to ascertain which officer or officers has the required authority to execute the loan documents.  The business entity should provide the lender with the name of the person elected to such office, which should then be certified in the corporation's resolution authorizing the borrowing.   A Partnership Agreement will designate the partner(s) with authority to bind a partnership.  An Operating Agreement will designate the member(s) or manager(s) with authority to bind a limited liability company.  Because some states require the Articles of Organization of a limited liability company to identify whether the company will be member-managed or manager-managed, the lender should review both the filed Articles and the Operating Agreement to make sure that they are consistent in specifying whether the company is member-managed or manager-managed.  If they do not match, the lender should require the business entity to amend those documents so that they are consistent in the management designation.   When the documents are made consistent, the lender will then be certain that the member(s) or manager(s) have the authority to bind the limited liability company.

By collecting and carefully reviewing the borrower's organizational and governing documentation before preparing any loan documents for execution, the lender will limit potential defenses to enforcement of the loan documents based upon the incorrect party names or lack of due authorization of the signatory on behalf of that entity.  By protecting the enforceability of the loan documents, lenders will also protect their most important piece of collateral, the SBA guaranty.