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| | Kristen G. Dickey, Esquire |
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Kristen is an associate in Starfield & Smith's Florida office and she concentrates her practice in the areas of commercial lending, real estate, contracts and corporate law. As closing counsel for various financial institutions (including banks, credit unions and certified development companies) that extend commercial credit facilities to small and mid-size businesses, she drafts, analyzes, and negotiates documents for government guaranteed loans through SBA 7(a) and 504 loan programs and conventional loans.
Kristen also reviews SBA guaranteed loan files and advises lenders on eligibility matters, due diligence documentation, and closing issues in order to preserve and protect their government guarantees. Kristen has closed many commercial finance transactions from start-up business transactions to complex real estate and business acquisitions. She has also worked on financings under the SBA CAPLine, Export Working Capital, and USDA Business and Industry loan programs.
ADMISSIONS:
- Florida
- District of Columbia
To read more about Kristen, click here.
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FEATURED ARTICLE 
Best Practices: Oversight, Overruns, and Managing Construction Projects
By: Gabriel B. Herman, Esquire
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| | Gabriel B. Herman, Esquire |
Construction and leasehold improvement projects are often affected by delays and cost overruns. Recognizing this, the SOPs have varying provisions that encourage Lenders oversight both before, during, and after construction has started.
On March 17, 2016, the Office of Inspector General ("OIG") released Management Advisory Memorandum, Report No. 16-11 ("Report No. 16-11") addressing a High Risk/Early Default construction loan and the Lender's conduct. The OIG concluded that the Lender's negligent monitoring of both the project and Borrower's financial conditions resulted in loan disbursements without the business ever opening for operation.
The OIG recommended that the SBA recover over $2 million from a Lender who extended a $2.7 million SBA 7(a) Loan for the purposes of beginning leasehold improvements on a high-end fitness center. The Borrower was required to inject $1.6 million. Initially valued at $5 million, construction costs rose to nearly $12.3 million within 14 months of closing. Although the Lender's conduct was exacerbated by ballooning construction costs, the OIG's comments offer take-aways for all Lender's making construction loans. The OIG specifically faulted the lender for (1) not monitoring project progress, and (2) not remedying adverse changes to the project and borrower's financial condition.
The Lender was faulted for not receiving final plans and specifications that defined the entire scope of the work to be performed. Additionally, the OIG determined the Borrower's portion of construction costs and equity injection was unreliable given total projects costs. Lastly, the Lender never approved of changes to the construction contract.
Additionally, the OIG found that the Lender failed to properly monitor the project, as ballooning construction costs caused the Borrower to seek additional funding. The OIG also found that the Borrower put the SBA at risk by receiving an additional $2.75 million loan from its Landlord. Pursuant to the Landlord's loan agreement, the Lender and Borrower were stripped of the right to approve construction changes contrary to SBA requirements. Furthermore, the Lender both required the Borrower to inject additional equity without identifying how the injected cash and decreased liquidity would negatively impact the Borrower's business and mitigating such adverse consequences.
Report No. 16-11 highlights the fluid nature of construction and leasehold improvement projects and why Lenders must proactively monitor their loans. First, Lender must diligently obtain and review final construction plans and specifications prior to breaking ground. As a second step, and after receiving final plans, Lenders should analyze whether the Borrower's financial responsibility is reasonable given the total construction cost. Lender's should perform their own due diligence in this regard and not simply rely on the opinion of Borrowers and other interested parties. Lenders must not overlook cost and time overruns and the financial consequences they inflict upon small businesses.
Diligent oversight during the construction project can be the difference between a guarantee repair or denial and full payment. Lenders must adopt best practices for monitoring construction projects beginning with initial approval of plans and specifications through the final nail completing the project. For more information regarding construction loan projects, please contact Gabe at 267-470-1227 or at gherman@starfieldsmith.com.
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SEMINARS & EVENTS
NAGGL 2016 SBA Lending Technical Conference
Date: May 2, 2016 through May 4, 2016
Location: Hyatt Regency St. Louis at the Arch, St. Louis, MO.
Closing and Funding the SBA Loan
Date: May 5, 2016 & May 6, 2016 Instructor: Ethan W. Smith
How to Get SBA to Honor Its Guaranty
Date: May 6, 2016 Instructor: David W. Starfield
For more information about this event, and/or to register, click here.
Avoiding Lender Liability
Presented By: SBA West Virginia District Office Instructor: Ethan W. Smith Date: May 17, 2016 at 11:00am EST Location: Webinar
For more information about this event, and/or to register, click here.
WPASGL 2016 Quality Circle Presented By: Western Pennsylvania Association for SBA Guaranteed Lending (WPASGL) Instructor: Kimberly A. Rayer Date: May 22, 2016 through May 23, 2016 Location: Nemacolin Woodlands
For more information about this event, and/or to register, click here. | |
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WHAT OUR CLIENTS SAY...
Jeff Aiello / President / American Coil, Inc.
You and your firm will be my go-to source for legal counsel on business matters from now on. You have earned my trust with your integrity, drive and common-sense approach to complex matters.
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