Congratulations, your business has grown to the point that you’re in the market for your first commercial loan.  Where do you start?  How do you get approved? Should you form a limited liability company or corporation to borrow the money?

The application process can be both confusing and overwhelming.  This post will give you a basic overview of the steps you’ll need to take to apply for a commercial loan.

Step 1. Pick a lender.  The first step is getting in contact with a commercial lender.  Commercial lenders will often tell you they’re in a relationship business.  They want to see themselves as a partner in your future success.  Therefore, pick someone who seems interested in being your partner and who you think you can work well with going forward.

Step 2. Be wary of rate-shopping.  Because your lender will basically be a partner in your business, be wary of choosing your bank based solely on rates. Jordan Space, a Vice President of Integrity Bank, says "like any other product or service, you get what you pay for.  A cheaper rate can carry with it a lower level of customer service." Rate shopping makes sense when you’re looking to refinance your home because you’ll likely never talk to the originating bank again after your loan closes.  Commercial loans are entirely different, and as you’ll see, this is a person who you will send financial statements to every year and who will likely make site visits to your office, especially with an asset-based loan or construction loan.  When referring to this relationship, Space says "a lot of times we’re talking about 10, 20-year terms, and therefore, 20-year relationships.  Your lender is like a business partner, choose your partner carefully and base it on the best relationship fit, not just on interest rate."  Having a good partner is more important than twenty-five basis points.

Step 3. Put together financial statements.  The first thing your commercial lender will ask for is personal financial statements and tax returns of the owners of your business and the same of your company (if it is a separate entity).  If your business is incorporated, the bank will require the owners to personally guarantee the loan.  This does not vary from bank to bank.  Virtually every bank will require this from the owners of a small business.  Also, check your credit score.  The bank will check the credit of the individual owners and take this into account when approving the loan.Continue Reading How Do I Apply for a Commercial Loan?

The Pennsylvania Supreme Court sent shockwaves through the lending world in May 2012 when it issued its opinion in Commerce Bank/Harrisburg  v. Kessler. In the case, the Court held that a bank’s open-end mortgage was subordinate to a mechanics’ lien because part of the mortgage proceeds were used to fund soft costs like taxes and certain fees.

The Open-End Mortgage Exception

Kessler stands for the basic proposition that  "all means all" in Pennsylvania’s open-end mortgage statute, with “all” referring to the amount of the loan proceeds that must go directly toward construction costs in order for an open-end mortgage to fall under the exception to Pennsylvania’s Mechanics’ Lien Law. While typically a mechanics’ lien has priority under the law, the exception allows  an open-end mortgage to have priority over a mechanics’ lien when the proceeds of the loan secured by the open-end mortgage fund “all or part of the costs of completing erection, construction, alteration or repair of the mortgaged premises." In order to obtain this priority, the Pennsylvania Supreme Court decided that all of the proceeds of an open-end mortgage must be applied to hard costs, which greatly impacts lenders in Pennsylvania.

New Legislation Following Kessler

This year, new legislation was introduced which seeks to remedy this problem for lenders in two ways. First, the open-end mortgage statute would be amended to specifically allow proceeds to be used to fund soft costs, such as title insurance, transfer taxes, legal fees, engineering fees, accounting fees, architectural fees and management fees. Second, a mortgage will qualify as an open-end mortgage if at least 60.00% of the loan proceeds are used for these eligible costs. Metro Bank would have prevailed in Kessler if either one of those provisions were included in the statute at the time.

If Senate Bill No. 145 is passed, Pennsylvania lenders will be better protected with respect to their lien priority for construction loans.  Until then, there are some steps that can be taken to  protect those security interests. Continue Reading Pending Mechanics’ Lien Legislation to Impact PA Lenders

About a week or so ago the stack of letters pictured to the right arrived in the mail like a stack of Christmas Cards.  The letters were from "Corporate Records Services" and stated on the front of the envelope "IMPORTANT ANNUAL MINUTES REQUIREMENT STATEMENT."  Initially, the letters appeared to be a mass mailing or simple

Just when you think interest rates are the lowest they’ve ever been, they drop again. This past year has seen such low rates that people are increasingly considering refinancing their mortgages. Refinancing has many advantages, including lowering monthly payments, the possibility of paying off your mortgage earlier, and the potential to eliminate private mortgage insurance (PMI).

Suppose you owe $180,000 on your 30-year mortgage and your interest rate is 6.0%. By refinancing at 3.75%, your monthly principal and interest payments would drop from $1,079.19 to $833.61. Also, if you financed your home with a loan that required less than 20% down, you could eliminate your monthly PMI payment, depending on an appraisal and your principal balance. Refinancing in this situation would dramatically reduce your monthly mortgage payment.

The two biggest decisions you make when refinancing your home are choosing your bank and the title company. Banks’ underwriting fees can vary greatly, as can their interest rates. Many people will look solely at the monthly payments when making this decision; however, consider the amount of time it would take to make up the difference of a $25 monthly payment if the bank with a lower interest rate had an origination charge that was $2,000 higher than another (without considering the time value of money, that’s 80 months, or almost 7 years). Keep in mind that in addition to origination fees, there are the additional costs of the bank obtaining your credit report, an appraisal and tax certifications.

In addition to selecting a lender, you also have the ability to select a title company. Banks require title insurance to be obtained on their mortgages, and this requires a title company to issue the insurance. Many borrowers do not know they have the ability to choose their title company. While the price of the title insurance premium is set by the state and therefore will not vary between title companies, the service a borrower receives will. Some title companies offer the added benefit of a lawyer reviewing and explaining your loan documents and answering any questions you may have at closing.Continue Reading The Anatomy of a Refinance

I often hear people say they need to do "their will" when they refer to estate planning. Of course estate planning involves making a will, and most people see the will as the most important aspect of estate planning.  Choosing to establish a power of attorney, however, may be the most important decision that a person makes when creating their estate plan. The person who is giving the power of attorney is known as the principal.  The person to whom the power of attorney is given is referred to as the agent.  Although the law has many provisions to protect individuals from unscrupulous agents, the damage an untrustworthy agent can do may be difficult or impossible to fix, and it directly affects what is left when a person passes away that can be given to beneficiaries under their will.

The duties Pennsylvania’s Probate, Estates and Fiduciaries Code places on an agent is to act as a fiduciary, or a person who must act with a high standard of care for the benefit of another, to the principal.  What this specifically means is that the agent must:

            1.         Act for the benefit of the principal;

            2.         Keep the agent’s money and other assets separate from the principal’s;

            3.         Exercise reasonable caution and prudence when acting on behalf of the principal; and

            4.         Keep accurate records and receipts of deposits, withdrawals and deposits.

Choosing the right agent who will dutifully follow the law is critically important because powers of attorney in Pennsylvania are generally durable, meaning they continue to have effect when the principal becomes incapacitated or disabled.  Therefore, your agent must act for your benefit in handling your financial affairs when you are no longer able.  Your agent will have full access to your bank accounts, stocks and other property. Continue Reading Pennsylvania Power of Attorney: One of the Most Important Decisions in Your Estate Plan

I must admit that as a lawyer I pay very little attention to most decisions of the United States Supreme Court. Very few decisions seem to have an impact on my life or practice, and generally these cases tend to come down with little fanfare. Today was different, however, as I found myself tracking minute-by-minute the news coming in from the Court. I went to bed  thinking about the case, and it was the first thing I thought about in the morning. I realized that this case actually has an effect on my life and family, and I was watching one of the biggest Supreme Court decisions to come down in my lifetime. I counted down the time until 10 a.m. when the Court began reading the opinions that were released today from the Supreme Court building in Washington D.C.  From ten o’clock on I followed the SCOTUS blog. The first line I saw on the SCOTUS blog stated the individual mandate was a tax, then the next line stated that the law would be upheld. Who knew the United States Supreme Court could be so interesting as to keep me on the edge of my seat?

I was likely not alone as the interest over National Federation of Independent Business, et al v. Sebelius, Secretary, Secretary of Health and Human Services, et al, gripped a good part of the nation in anticipation. And now that the Opinion came down I enjoy looking back at all of the speculation that turned out to be incorrect. I think a lot of commentators learned that they can’t judge how the Court will rule based on the questions at oral argument. Much of this misguided speculation was due to the fact that this case captured national attention as it spoke to the broader question of the role of Congress in our lives, and it led many people to look for the first time at questions such as Congress’s power under the Commerce Clause and give their opinions.

I wanted to write an article on the case that wasn’t bogged down in legal theory, until I downloaded the opinion and realized it was almost a 200 page  document. That type of thing happens when the Court has a majority, concurring and two dissenting opinions (the dissenting opinion alone is 66 pages). I had to laugh at the many points in the opinions when the Justices commented on the length of the Patient Protection and Affordable Care Act, colloquially referred to as "Obamacare", in light of the length of their own opinion.   Continue Reading Reviewing the Supreme Court Decision on Healthcare Reform – Thoughts from a Lancaster Lawyer

Tomorrow, the Supreme Court will make one of the biggest decisions in American legal history as it weighs the constitutionality of President Obama’s Patient Protection and Affordable Care Act (Affordable Care Act for short). This means that the Court will decide whether or not the Act as a whole, or in part, can legally be put into effect according to the U.S. Constitution. To many people, what the Supreme Court does is a huge mystery. There is a lot of tradition and procedure that goes along with the hearing of a Supreme Court case, and despite the fact that no cameras are allowed into the courtroom, much of the public’s interest lies in what decision will come out of the nation’s highest court on Thursday.

The Supreme Court, which gets requests to hear around 5,000 cases a year, only hears fewer than 150. Multiple cases in the lower courts involving the Affordable Care Act have been appealed to the Supreme Court. In one case, four individual citizens represented by the Thomas More Law Center sued President Obama, the Secretary of the Department of Health and Human Services, the Attorney General and the Secretary of Treasury, thereby challenging the constitutionality of the Act. After the U.S. Court of Appeals for the 6th Circuit upheld a District Court’s ruling of the Act as constitutional, the case was appealed to the Supreme Court. In the case to be ruled on, 26 states, the National Federation of Independent Business and a number of individuals challenged the Act’s health insurance mandate and Medicaid expansion. Continue Reading The Affordable Care Act: Will it Be Upheld or Overturned?

Joint accounts are often meant to make the financial lives of the parties involved easier, such as in the case of marriage or in a caretaker situation. But what happens when one party dies? Does the money automatically belong to the remaining party? For example, let’s say that a man dies and leaves $20,000 to his grandson in his will. Prior to the man’s death, he added his son to the account to help him pay his bills. All of the cash he had was in that account. Who is legally entitled to the money – the son, who was on the account, or the beneficiary who received the gift from his will?

A few years ago my colleague Jon Gruber wrote an article about risks with joint accounts and the law that was enacted in Pennsylvania called the Multiple Parties Account Act (MPAA). This act sets forth the rights of parties to a joint account and applies when an individual dies owning an account jointly with another person.

Under the MPAA, the law presumes that a joint account owner intends his co-owner to take the money in the joint account upon his death, and this presumption is only overcome by clear and convincing evidence to the contrary.

According to the MPAA definition, an account is "a contract of deposit of funds between a depositor and a financial institution, and includes a checking account, saving account, certificate of deposit, share account and other like arrangements." A joint account is "an account payable on request to one or more of two or more parties whether or not mention is made of any right of survivorship." Therefore, unless the grandson initiates a lawsuit and comes up with clear and convincing evidence his grandfather did not intend his father to receive the money in the account upon his death, dad gets the money.Continue Reading What Happens to the Money in a Joint Account After One Party Dies?

This is the second part of a series that covers the most common mistakes people make when trying to form a limited liability company (LLC) themselves. The first part of the series addressed the importance of an operating agreement. This second part will discuss how to avoid common mistakes when filing a certificate of organization.

Unlike an LLC’s operating agreement, a certificate of organization is filed with the Commonwealth of Pennsylvania and becomes available to the public. On the form, which comes with an instruction page, there are seven sections to complete. Although it may seem like there are few ways to mess it up, you should be mindful of certain factors while preparing your company’s certificate of organization. Avoiding common mistakes can help you save money and will make the formation of your LLC a smoother process.

Business Name

If you are forming an LLC, you should pick a name that is distinguishable from other names registered in the Commonwealth. This may seem like a no-brainer, but if you choose a name that is taken by another company, you may end up wasting money, especially if you order branded products, register a domain name or start purchasing marketing items with the unavailable name. Also, the name must include the words "limited liability company," "company," "limited" or some abbreviation of those terms. An attorney can conduct an appropriate search of the name and give you an opinion as to whether or not it is available.

Registered Address

The Certificate of Organization requires your company to have a registered office in the state. This is so that the Corporation Bureau has an address to mail you documents, such as an annual registration statement or decennial filing. In addition, the address becomes public record as a formal address for your business and can be used for legal purposes such as service of process in the event of a lawsuit.

Most people who have a separate commercial space use that address. You can also choose to use a registered agent service and list that company’s address. If you don’t have commercial space, you’ll either have to use one of these companies or your own address. If you’re going into business with a partner or partners and you don’t have commercial space, it may be worth it to use a registered agent service so you’re not relying on a partner to relay your information.Continue Reading Mistakes to Avoid When Forming a Limited Liability Company, Part II: Certificate of Organization