Loan documents don't have to be confusing, overwhelming to your borrower,
or full of archaic legalspeak. Negotiating the terms of your documents
and closing your loans do not have to exhaust your team or test the
relationship with your borrower. You don't have to struggle with a multitude
of legal forms that don't really fit your procedures and only make the
job harder. And you don't have to worry about losing control or running
up a huge legal bill if you just need some quick advice or assistance
in dealing with a modification, a problem, or a concern.
A well-planned lending program starts with you. If you are interested
in simplifying, re-organizing, or fine-tuning your documents, it is
your task to define your program, your market, your product and standard
business terms, and your desired procedures for documenting, closing,
and administering your loans. We listen. We ask questions. And then
we do a bottoms-up analysis of what we have learned from you to develop
a new or revised set of documents. The document sets that we create
are usually shorter and simpler than what you have been using and are
often modularized in some fashion. They are specifically designed to
custom fit your lending program and to help you achieve the highest
attainable levels of efficiency.
Consider
a Total Overhaul of Your Loan Documents.
As an example, a lender who makes construction loans in several states
had fielded numerous complaints about its documents, was being slowed
down by extensive negotiations on many deals, and was sensing strain
on its relationships with borrowers. The process of documenting and
closing was unpleasant for the borrowers, some of whom had gone to other
lenders for subsequent deals. We were hired to overhaul the document
set and eventually assist in documenting deals.
We discovered that the client was using separate forms for each state,
and as many as 15 separate documents on each construction loan, many
on legal size paper with tiny print crammed on each page. The documents
were full of hard-to-read legalese, poorly organized, and cumbersome
to work with. The provisions were so overreaching in favor of the lender
that any responsible borrower or lawyer who worked through them would
feel compelled to ask for numerous changes.
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We met with the client on several occasions to understand its program
and procedures, including the standard borrowing terms, regular closing
conditions, collateral and guarantee package, and administration procedures.
We separated items that would change from deal to deal from items that
should apply, virtually unchanged, to every transaction. We developed
a modular loan agreement to make the loan process easier. One part of
the agreement contains all of the essential business terms and the variable
items that are sometimes negotiated. This part can be printed out as
a loan commitment letter or as a modular part of the loan agreement.
A second part contains standard terms that are constant on every deal,
and essentially functions as a hand-out for a loan commitment. Other
parts of the agreement were designed to address the differences between
the states, so that a single document set could be used in all of the
states.
We reduced the number of documents by about half, shortened the documents
considerably, and organized them so that all of the items the borrower
was most interested in were gathered together in one section. We know
how much time can be wasted when lawyers battle over representations
and warranties, so we took a novel approach of letting the borrower
offer an "exceptions sheet" to detail any manner in which the standard
representations are not accurate. That exceptions sheet must be approved
by the lender. To our surprise, we found that when the burden to detail
exceptions to the warranties is shifted to the borrower, neither the
borrower nor its counsel usually take time to nit-pick with the warranties.
Most importantly, we eliminated the old-fashioned legalese and the
provisions that were oppressively one-sided and unnecessary. Lenders
need to have strong rights, but too much overreaching only damages the
relationship with the borrower and makes the documentation and closing
process harder. Under our revised loan documents, the lender is still
very protected and empowered with a broad array of effective rights
and remedies. However, merely making the terms more reasonable has dramatically
reduced the amount of negotiations that occur. This lender has achieved
huge good will among its borrowers, who have offered compliments on
our documents and come back for deal after deal.
Or
Maybe Only a 1,000 Loan Tune-Up.
For a different client who operates nationally, we needed to stay relatively
close to the forms that the bank had developed, but had to make sure
the documentation could be used effectively in a number of new states
in the west. In this instance, we focused on how to make the necessary
changes to the documents to allow them to be used in a number of new
states without disrupting the lender's systems and procedures for dealing
with their nationwide lending in an efficient and consistent manner.
Communication as to the lender's existing practices and procedures and
creativity in dealing with state-specific issues that arose were the
keys to ensuring that the idiosyncrasies of the several states did not
overwhelm our client's primary goals. We have since assisted a number
of clients, either directly or through one of our Meritas
Affiliates, in performing similar state specific tune-ups.
