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The Financing Advisor – Closing Checklists for Loan Transactions, A Roadmap to Efficiency

January 23, 2014

Lenders and borrowers alike are often times anxious to get their loan transaction documented and closed as quickly as possible.  The most important thing that the parties can do to ensure that their loan transaction gets properly documented and closed expeditiously is to make sure, at the outset, that everyone is on the same page regarding what must be accomplished.  The first step should be for the lender or the lender’s counsel to prepare a comprehensive and organized closing checklist for the parties to use as a roadmap – from start to finish – of the closing process.  A well thought-out closing checklist will lead to productivity and efficiency, and will help reduce overall transaction costs.

The closing checklist should be as thorough as possible.  It should set out the structure of the deal and describe all of the documents that must be delivered and all of the tasks that must be completed on or prior to the closing date.  Important tasks may be overlooked unless they are memorialized within a closing checklist – so it is critical for the parties to make it a point to document every closing requirement.  Although preparation of the closing checklist may be started during the due diligence process and expanded upon concurrently with the negotiation of the term sheet and the loan documents, constant and consistent updating of it will help to identify critical closing requirements and long lead-time items which, if tackled early on in the process, will allow the parties to meet their targeted closing date.

There is no template or form of checklist universally used.  However, most checklists are similarly structured in what may be considered “market standard”.  The closing checklist should begin by identifying the key players involved in the transaction, along with their detailed contact information.  The closing checklist should then be broken out into categorical sections.  The typical closing checklist will include, for example, sections for the requisite loan documents, corporate documents, due diligence deliverables and other miscellaneous items (e.g., closing fees, required equity infusions, wiring instructions), each with status and responsibility columns and comprehensive line items with respect to the various requirements.  Depending on the type of financing, additional sections may also need to be included within the closing checklist.  For example, real estate financings should include a section for real property and title related requirements, and acquisition financing should include a section for acquisition related documents, as well as specific pre-closing conditions that must be achieved vis-à-vis the acquisition agreement.

 Identifying long lead items early on is critical to the timing of closing any loan transaction.  Required filings, third party approvals and requisite lien and litigation searches should be clearly identified in the closing checklist and discussed with the borrower and the borrower’s counsel at the outset.  In order to avoid last minute fire-drills and unnecessary delays in closing, the closing checklist should specify who is responsible (i.e. lender, borrower or their respective counsel) for ordering any requisite searches, certificates and certified organizational documents, and any third parties with whom agreements, consents or waivers are required (e.g., landlords, third party creditors, depository banks, securities intermediaries) should be identified and the applicable documents should be sent to such third parties as early as possible.  The closing checklist should also address any payoff letters, lien releases or subordination and intercreditor agreements that may be required with respect to existing loans, alerting the relevant parties to request such documentation from the existing lender with sufficient time to vet and negotiate such documents.

As mentioned above, when a deal gets underway and loan documents are being negotiated and finalized, the closing checklist should be reviewed and updated frequently in order to properly track the status of each closing requirement.  The lender or the lender’s counsel should circulate updated closing checklists as often as may be necessary to ensure that all parties are “on the same page” with respect to the status of each closing requirement.  Regular conference calls should be scheduled among parties to discuss the checklist and confirm that everyone is in agreement as to what open items remain so that any bottlenecks or unresponsive third parties needed to deliver closing checklist items can be quickly addressed.

On the closing date, the lender or the lender’s counsel should conduct one final walk-thru of the closing checklist with the borrower or the borrower’s counsel to confirm that all closing conditions have been met.  Oftentimes, there may be closing checklist deliveries or requirements that may remain outstanding by the proposed closing date.  The lender may decide that closing should not be delayed as a result of such items and may be willing to accept the satisfaction of such conditions post-closing.  These items should be scheduled on a separate post-closing checklist or post-closing letter agreement which clearly identifies the specific post-closing requirements and the due-date for the delivery or satisfaction of such requirements.

Efficiency and organization make for a cost-effective deal.  Identifying long lead-time items early in the process will avoid fire-drills as the closing date approaches.  A properly prepared and utilized closing checklist is, therefore, the critical baseline on which virtually all deals are successfully consummated.  If you would like to discuss our approach to efficiently and properly close loan transactions, or would like to discuss any other financing matters, please do not hesitate to contact us.

In 1972, Shulman Rogers was founded on a commitment to client service.  Today, the firm’s roster of highly skilled attorneys and other dedicated staff members are all guided by that same commitment.  A client-first approach.  A smart, efficient practice.  A relentless focus on problem solving.  And an underlying compassion-for our clients and our community.  It all adds up to resolutionary thinking.  The kind of thinking you can count on from the people of Shulman Rogers.