The Triple “A” Funding System – Step Eight – Loan Documentation – Part Two
As we continue our look at the unique Triple “A” Funding System, we reached Step Eight in the process last week, which is the Loan Documentation step.
As I’ve explained in previous weeks, the Triple “A” Funding System is the system we use every time we work with a client. It is a specially devised 9-step system which speeds up the process of obtaining business finance for our clients.
If you read last week’s blog, you’ll know we covered the first part of the Loan Documentation step last week and we’ll finish it off this week as we pick up where we left off so let’s dive in!
I finished last week by explaining the importance of making sure you employ a solicitor who is familiar with the conveyancing process and can handle a more complex commercial transaction. And should you need help finding a solicitor we can certainly point you in the right direction as we have some great solicitors we work with.
The other main part of the loan documentation that needs to be dealt with is what is called the ‘Conditions Precedent’.
Conditions Precedent are outstanding points or conditions which are outlined in the offer letter and which need to be satisfied before any funds can be released.
By this stage in the process, all the information the lender needed will have been provided, otherwise they wouldn’t have been able to make a funding decision in the first place.
So, at this stage the conditions that need to be satisfied include such things as having all the necessary legal paperwork executed.
It can also include for instance, needing to provide written confirmation of information which was originally provided verbally by either you or your broker, and the lender is now asking for this information to be confirmed in writing.
A good example of this would be your tax affairs. When the lender had the initial meeting with you to discuss your funding requirements, one of the questions they often ask is, are your tax affairs such as self -assessment, PAYE and corporation tax up to date.
Having responded in the affirmative, a condition precedent in the offer letter would then be asking the clients accountant to “provide written confirmation that all your tax affairs are up to date”.
A straightforward enough condition, but it would not be the first time I have sat in a meeting between a lender and a client, or indeed where I have asked the client directly, and the client has confirmed their tax affairs are up to date; only for us to discover several weeks later when the accountant is asked to confirm, that the clients tax affairs are in fact not up to date.
This highlights another important point. Do not under any circumstances mis-lead the lender or provide any wrong information. Better by far to be open about any issues or potential issues ‘up front’.
Another common condition precedent in offer documentation is the need for buildings insurance where the lender is using a property as security for the loan. Again, this is a standard condition, but one that is often overlooked. I have seen unnecessary delays on funds being released because buildings insurance was not in place.
A couple of tips here. The lender will require the sum insured on the insurance documents to match the re-instatement figure that the valuer has provided in their valuation. Just keep an eye on this, particularly if you already own the property and have done for several years as sometimes you may be under-insured on your existing policy.
The other point on buildings insurance, is that lenders very often want their “interest noted on the policy”. Ask the lender exactly what they require and then ask your insurance broker to organise it. Again, don’t hold the deal up for this small but often overlooked and important point.
When we work with clients, one of the first things we do once the offer documentation is issued, is go through the conditions precedent with our client and discuss what needs to be done and what information needs to be provided.
We then agree who is dealing with what. Some of the conditions will be dealt with by the solicitor, whilst others can be dealt with by the client and still others will be dealt with by us as the broker.
The point is, having discussed the Conditions Precedent, we all know “who’s doing what”. We then review the conditions on a weekly basis right up to completion to make sure that everything is in hand.
A list of conditions can feel overwhelming, but it is simply a process of providing information to the lender prior to funds being released.
Providing you liaise and review with your solicitor and broker on a regular basis and everyone knows what they’re supposed to be doing, conditions are nothing to worry about – it simply becomes a list of points to be ticked off.
In summary, if your business loan is unsecured, or you are taking out an asset finance or invoice discounting facility, then this step in the process, the Loan Documentation step, is relatively quick and indeed funds can be released in a matter of days.
However, where the loan is being secured against a property, then the process can take much longer.
Which brings me back to the point I made in last week’s blog. A good solicitor who has expertise in conveyancing commercial property can be “worth his weight in gold”. So, choose the solicitor you use for the transaction with care.
We’re nearly there! The Loan Documentation has all been issued, checked, signed and executed. Any Conditions Precedent have been satisfied. Now it’s time for the lender to release funds.
That’s next week!