Commercial Loan Documentation
Q: Do we need a borrowing resolution for lending to a sole proprietorship?
A: A lender’s intent is to determine that the proprietorship actually exists and that the individual signing the loan documents is indeed the person that formed and is still doing business as the proprietorship. A Sole Proprietor / DBA Resolution of Authority accomplishes that purpose as we outlined in today’s webinar. In submitting this document, the sole proprietor identifies the proprietorship, states that he / she is the founder and sole owner of the business, and that the business is a sole proprietorship. It contains all the elements of a Borrowing Resolution. Be guided by legal counsel.
In the absence of the Resolution of Authority, we as lenders must prove to ourselves in some other way that the proprietorship actually exists. Perhaps a business license or IRS confirmation of the Tax ID might be evidence,
Q: When filing a UCC on Partnership entity as debtor, should we include the general partners as additional debtor?
A: Yes. This should be an acceptable way of providing public notice of the general partners’ responsibility on the loan and identifying the pledged collateral. This handling will be especially important in those states that don’t formally register partnerships. In doing so, confirm that the filing office will file the UCC document under both the partnership’s name as debtor and that of the general partners as additional debtors. Confirm also that the filings will be fully visible to the public under both names.
Note, however, that an abundance of caution calls on us to file separately on the partnership and then file separately on each of the general partners. Be guided by legal counsel.
Course overview: Commercial Loan Documentation