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IN THE SPOTLIGHT
| Katie O'Brien, Esq. |
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Katie concentrates her practice in the areas of
commercial lending, real estate and commercial contracts. She represents financial institutions nationwide, including national banks, community banks, credit unions and non-bank lenders, who extend commercial credit facilities to small and mid size businesses. Katie has extensive experience in the areas of government guaranteed lending and acquisition financing and has closed hundreds of commercial finance transactions, from start-up business transactions to complex real estate and business acquisitions.
Katie advises lenders on eligibility matters and documenting and closing loans under the SBA 7(a) and 504 loan programs and assists lenders in preserving and protecting their government guaranty. She also assists lenders with respect to their closed SBA-guaranteed loan files by reviewing and preparing SBA guaranty repurchase packages, responding to SBA recommendations, and performing loan portfolio audits.
ADMISSIONS:
To read more about Katie, click here.
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FEATURED ARTICLE
Best Practices: Three Things Lenders Must Look for when Reviewing Entity Documents
By: Jessica L. Conn, Esquire
| Jessica L. Conn, Esquire |
Obtaining entity documents for the obligors to a loan is a key part of the due diligence process. When reviewing these documents, lenders should look for the following information:
An Entity's Legal Name
Lenders should always obtain the filed formation documents for every entity obligor in order to ensure that the loan documents are properly executed and enforceable against the entity that is executing the documents. Prior to closing, verifying an entity's legal name from the filed formation documents is essential to ensure that searches are run properly. Lenders should confirm that the searches, including any UCC, bankruptcy and judgment lien searches, are run against the entity's actual legal name. Slight variations in a name can impact the search results, and therefore, a lender's lien position against its collateral. If a lender fails to obtain the proper lien position against required collateral by searching the incorrect entity name, the loss suffered by the lender could result in a repair or denial of the SBA guarantee.
Member-Managed and Manager-Managed LLCs
Most limited liability companies are managed by either their members or managers. Determining proper management of an LLC is critical to determining who is authorized to execute loan documents and bind an LLC to its terms. Probably one of the most common errors in drafting entity documents occurs when the filed formation documents state one method of management, but the governance documents, namely the operating agreement, states another. If there is a discrepancy in the formation and governance documents that is not corrected, the entity could potentially raise a defense against enforcement of the loan documents based on improper execution. If a lender suffers a loss based on its inability to enforce an entity's obligations under the loan documents, the SBA guarantee may be jeopardized. Therefore, lenders should require the borrower or guarantor to correct any contradictory information regarding management in their organizational documents.
Authority for the Signor
Whether an entity is a corporation, a limited liability company, a trust, a partnership or otherwise, a lender must determine whether the person signing the loan documents is properly authorized to do so. Issues regarding proper authority can arise in many different ways. For example, pursuant to the terms of an operating agreement, a manager of a manager-managed LLC may need unanimous consent of the members in order to pledge an interest in the assets of an LLC. Alternatively, the bylaws of a corporation may require that any note executed by the corporation requires the signature of two officers. If someone executes loan documents on behalf of an entity, but is not authorized to do so, the shareholders, members or other owners of that entity may be able to raise a defense that the entity was not properly authorized to enter into the transaction. If a lender is unable to enforce loan documents against an obligor for lack of authority, any losses to the lender may result in a repair or denial of the SBA guarantee. Therefore, lenders should always review the entity documents for each obligor to determine whether the person signing on behalf of the entity is actually authorized to do so. To the extent additional written authority is required in order for an officer or manager to bind the entity, the lender should require a copy of such written authorization prior to closing.
For more information on entity documents, please contact Jessica at 267-470-1188 or [email protected].
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David Lucht / Chief Risk Officer / Live Oak Banking Company
Starfield & Smith is our go-to law firm for issues regarding SBA Repurchases or Compliance. Their knowledge of the SBA, in terms of the people, processes, and policies is unparalleled. The more complex the issue, the more this firm shows their value. We use them both on the closing side, as well as for helping us on Ten-Tab matters. Our main point of contact at the firm, Ethan Smith, in particular is just an exceptionally bright attorney. I whole-heartedly endorse them for any work that involves the SBA programs. They are simply recognized as the expert in that area of law!
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