What kind of closing conditions might lenders require before funding a transaction?

• A. Evidence of proper corporate authorization, no default, satisfactory financial statements, proper perfection steps completed, and compliance with covenants.
• B. A signed personal guarantee is required.
• C. The borrower must supply a letter of credit.
• D. No conditions are needed.

Answer: (A)

Closing a loan hinges on conditions that protect the lender before funds are released. The most likely set of closing conditions covers verifying the borrower has authority to enter the agreement, confirming there’s no existing default, reviewing financial health, ensuring the lender’s security will be enforceable, and guaranteeing ongoing compliance with agreed covenants. Evidence of proper corporate authorization shows the loan documents are signed by someone with the right authority, which prevents later disputes over who can bind the company. A clean default status at funding time reduces the risk of an immediate breach. Satisfactory financial statements give the lender a current, verifiable view of the borrower’s ability to meet obligations. Perfection steps completed, such as filing the appropriate security documents and ensuring collateral is legally perfected, protect the lender’s lien rights if the borrower defaults. Compliance with covenants ensures the borrower will maintain financial discipline and adhere to agreed limits.

Some options aren’t routinely required as closing conditions. A personal guarantee is not universally demanded; it depends on the deal and borrower profile. A letter of credit can be used in some transactions as additional credit support, but it’s not a universal closing condition. Saying no conditions are needed ignores the risk controls lenders put in place to protect themselves and ensure enforceability of the loan.