Commercial Loans

Collateral refers to an asset that a lender will accept to secure a loan, acting as a protection measure. There may be issues surrounding that collateral, particularly if a lender must seize it after the borrower defaults. KJK will conduct thorough due diligence to determine the collateral’s actual value from the start and work to ensure the collection of that collateral if a default occurs.

Occasionally, assigned collateral loses market value over time and your commercial loan attorney can assist in asset investigations and enforcement proceedings.

With each commercial loan secured by collateral, regular, routine monitoring can help to ensure the asset continues to meet the loan’s value. As a lender, you may also need to outline how the borrower uses the asset to avoid destruction or excessive wear and tear. These are all areas where KJK can provide guidance.

Commercial loans may include various documents. However, since the terms of commercial loans differ, the documentation may vary as well.

Depending on the particular nature of the credit and financial arrangements, KJK may recommend any of the following documentation:

• Corporate Resolution
• Intercreditor Agreement
• Subordination Agreement
• Pledge Agreement
• Assignment Agreement
• Guaranty
• Security Agreement
• Mortgage or Deed-of-Trust
• Deposit Account Control Agreement
• Error and Omission Agreement
• Disclosure and Authorization forms

Loan maintenance, or servicing, occurs throughout the lifespan of the loan. This maintenance requires various duties, depending upon the lender’s requirements. KJK works with you to determine what these requirements are and sets in place a streamlined way to monitor and work with the servicer of the loan without wasting your staff’s valuable time.

Examples of the various duties include:

• Collecting, processing and documenting monthly debt service payments
• Maintaining or monitoring real estate taxes, reserve accounts and tenant improvement escrow
• Monitoring insurance coverages in accordance with specifications put in place by the lender
• Reviewing and monitoring Uniform Commercial Code compliance
• Reviewing, approving and monitoring any leases
• Analyzing financial and operating statements
• Reviewing and processing any requests made by the borrower
• Performing site inspections annually

Depending on the type of collateral and nature of the borrower, you may need to include additional duties in your loan maintenance, such as providing financial statements and tax returns.

The lender, borrower or guarantor, or loan servicer can all request loan modifications. Many factors come into consideration and take time to analyze when considering a modification.

Some of these considerations include pre-negotiation agreements for protected discussions, additional due diligence, determination of necessary modification documentation and costs, and a requirement of enhanced collateral and reporting. Your KJK legal team reviews local Ohio laws and can advise as to how they may impact a modification.

When a borrower experiences some type of hardship, a commercial loan workout may be a beneficial solution. These workouts may include allowing commercial borrowers to make interest-only payments, temporarily deferring payments, adding delinquent payments to the end of the loan’s balance, waiving late fees and excluding other penalties that would normally apply.

The goal of a loan workout is to course correct a non-performing loan and preserve the asset. KJK attorneys are skilled in assisting both lenders and borrowers to navigate the work-out process and works to try and find workable solution for all parties. 

Businesses can face challenges and become distressed. In these situations, debtor-in-possession (DIP) financing can help. For businesses filing Chapter 11 bankruptcy protection, operations will continue, and the current board and management remain in place or in possession of the business. KJK works with lenders on financing the turnaround of a protected business through DIP financing.

A specialized solution, mezzanine financing is a debt and equity hybrid model giving a lender the right to convert the commercial loan into equity in default cases. Often associated with company expansions, buyouts and acquisitions, KJK can help lead you through each step of the process.