Stage 4: Closing
The second-to-last step in the SBA 7(a) loan process is the lender’s final review and approval of the loan file. This starts with an analysis of the recently submitted closing documents. Unlike the initial set of lender-requested documents, the lender doesn’t analyze the closing documents to evaluate the business. Instead, they analyze them simply to make sure they’re complete and satisfactory to SBA guidelines and the loan terms and conditions. As long as there are no issues with the documents, the lender approves them and the loan can move forward.
After the lender reviews and approves the submitted documents, they do a final review of the entire loan file to ensure nothing was missed the first time around. After this, there’s nothing left to do but create the final loan closing documents and complete the loan. A date and time is set for the closing meeting, where the final documents will be signed.
For real estate loans, the final loan closing documents can be prepared in two different ways, differing state-by-state. In the eastern U.S., most states require the documents to be prepared through negotiation by two lawyers, one representing the lender and one representing the borrower. In the western U.S., most states don’t have such a requirement, and the documents are usually prepared by the lender. The way it’s done in the western U.S. is much cheaper, easier, and quicker, but it puts more power in the hands of the lender, as even though the loan terms are already set, it gives them more ability to shape the nuances of the documents. If you wish, you can hire a business lawyer to be your advocate in the document preparation process regardless of the state or use of proceeds.
Focuses of Closing Document Analysis
Although exactly what the lender looks for in the closing documents differs from loan to loan, here are their general focuses:
• Satisfaction of Loan Terms and Conditions
The lender checks the documents to make sure they adhere to the loan terms and conditions as stated in the loan approval/commitment letter. This is to make sure all conditions have been met and the loan can be completed.
• Adherence to SBA Guidelines
To ensure eligibility for the SBA guarantee, the lender checks the documents to make sure that all SBA guidelines have been followed for both the loan process and the business itself.
