An overview of the commercial loan process, including standard agreements, covenants, and collateral documents.

1. Commercial Lending
What you need to know

2. Introduction
Your
presenters:
Michael Gove, Esq.; Cooley, Shrair
P.C.
Rudy D’Agostino, CPA;
Partner, Meyers Brothers Kalicka, P.C.
Luke Kettles, Commercial Lender,
Hampden Bank

3. Hampden Bank
19 Harrison Avenue
Springfield, MA 01102
Established in 1852, Hampden Bank is a full service community bank serving the families and businesses in and around
Hampden County.
• The Bank has ten office locations in Springfield, Agawam, Longmeadow, West Springfield, Wilbraham, and Indian Orchard.
• Hampden Bank offers customers the latest in Internet banking, including on-line banking and bill payment services.
• Hampden Financial offers clients a full array of insurance and financial products and services at all Hampden Bank
locations.
• Key Stats:
• $650 Million in Assets
• $15 Million Legal Lending Limit
• Hampden Bancorp, Inc. is publicly traded under HBNK on NASDAQ
• Commercial Lenders
• Luke D. Kettles, SVP/Chief Lending Officer
• Paul Mitus, Vice President/Credit Officer
• Don Anderson, Vice President
• Mike Grandfield, Vice President
• Dave Chase, Vice President
• Hanny Jabiev, Assistant Vice President

4. UNPARALLELED RESPONSE, UNPARALLELED SOLUTIONS
Established in 1946
1380 MAIN STREET
SPRINGFIELD, MA 01103
P. 413 781 0750
F. 413 733 3042
www.CooleyShrair.com
PETER W. SHRAIR MICHAEL S. GOVE
DAVID A. SHRAIR DAWN D. McDONALD
ROBERT L. DAMBROV SUSAN A. MIELNIKOWSKI
JOHN W. DAVIS DANIELLE I. NICKLAS
JESSICA A. GORDON RONA S. FINGOLD (of counsel)

5. Meyers Brothers Kalicka, P.C. is the largest independent and locally owned and
operated CPA firm in Western Massachusetts. Based in Holyoke
Massachusetts, our firm is comprised of approximately 65 professionals and
administrative staff, including eight partners. Of the above, 39 are woman including
Kris Houghton, Partner and Director of Taxation for the firm. As members of
CPAmerica, an international network of accounting and consulting firms, we
specialize in serving organizations such as yours. Through our accomplished
staff, specialized industry knowledge and extensive technical support, we provide
our clients with not only financial expertise, but with creative solutions to the
broader business issues that will shape their future.

6. Preparation and First Steps
• Startup Business that Needs • Prior tax returns (2-3 years)
Financing • Personal Financial Statements
• Resources for new Businesses • Overview/ Summary of Business
• Business Planning • Niche?
• Pro Forma Financial Information • Competitive Advantage?
• Market Share
• Management Team
• Existing Business with
Additional Financing Needs • Businesses seeking to acquire
• Pro Forma new entities/ opportunities
• Cash Flow Model
• Modeling
• ―It all depends‖
• Pro Forma
• Initial Due Diligence
• Existing Business seeking new • Review with Key Advisors
banking relationship • Non-Disclosure/ Confidentiality
• Prior financial information (2-3
years)

7. Next Steps
Lender Due Diligence
Bank – Key Questions:
• Who is the Borrower?
• Transaction vs. Relationship
• What is the financing request?
• What is the financial condition of the Borrower?
• Other related entities?
• What is the best way to meet the needs of the customer
and the bank?

8. Next Steps
Proposals/ Term Sheets
• General outline of financing transactions
• Rate
• Term
• Amortization
• Recourse/ Non-Recourse
• Pre-Closing Conditions/ Necessary Financial
Condition
• Ongoing Reporting
• Covenants

9. Loan Evaluation Process
• External Environment – Political, legal, regulatory, industry, technological, etc.
• Working Asset – Differentiates businesses. Primary concentration of assets on
Balance Sheet. Assets that generate revenue.
• Operating Cycle – Nature of Financing Need. Level of Financing requirement.
Sources of Repayment. Timing of Repayment. Risk. Management requirements.
• Fixed Asset Cycle – Purchase. Utilization. Depreciation. Replacement.
• Cash Cycle – Outflows (inventory, payables, fixed assets, debt repayment)
Inflows (Receivables, sales of fixed assets, financing-loans).
• Equity -Basic to lending arrangement—owners lose their investment before
lenders. Greater risk, greater equity requirement.
• Evaluation of Management – Character and competence are critical to success.
• Historical Evaluation – analyze prior performance and trends.
• Projecting Future Performance – pro forma cash flow. Valid assumptions.
• Lending Decision

10. Loan Structure
• Purpose – short term/long term. Recurring/non-recurring.
• Sources of Repayment – adequacy of cash flow. (primary source or
repayment).
• Adequate Amount
• Appropriate Term – cash flow, policy
• Adequate Support – Collateral, Guaranty, Loan Agreement, Subordination
Agreement. (secondary source of repayment).
• Monitoring Framework – Loan Agreement (Covenants, Financial
reporting).

11. Key Documents
• Loan Agreement
• Promissory Notes
• Security Document
• Guarantees
• Insurance Agreement
• Collateral Documents

12. Basic Loan Documents
• Loan Agreement - written agreement between borrower and
lender establishing expectations of the bank concerning the
relationship during the term of the loan. This should be a mutual
agreement of understanding.
1. Definitions
2. Loan Terms and Conditions
3. Representations and Warranties - reaffirmation of current
financial condition of the borrower and statements made to
lender.
4. Conditions of Lending – requirements prior to advance of
funds.

13. Basic Loan Documents
5. Affirmative Covenants – defines actions or events the
borrower will cause to action. (i.e. annual financial
statements, DSC ratio requirement).
6. Negative Covenants – defines actions the borrower will
prevent form happening. (i.e. additional borrowing w/o lender
consent).
7. Events of Default – define conditions under which the lender
can declare the borrower in default. (i.e. delinquent
payments, violation of covenants).
8. Remedies – define the recourse available to the lender in the
event of default. (i.e. raising rates, acceleration of payments).

14. Key Documents
• Promissory Note – used to evidence the debt. (“evidence of
indebtedness”)
1. Effective loan date
2. Lender and Borrower
3. Maturity
4. Rate
5. Principal amount
6. Scheduled payments/amortization

15. Key Documents
• Guaranty – legal document binding a third party for repayment of
debt upon default of primary debtor.
1. Personal
2. Corporate
3. Government (SBA, USDA, etc.)
• Insurance Agreements
• Disbursement Authorizations
• Authority Documents

16. Collateralization
Personal Property vs. Real Property
• Personal Property
• Security Agreement (part of Loan Agreement)
• Financing Statement
• Legal name of debtor
• Legal name of secured party
• Identification of collateral (objectively determined)
• Usually, perfection is completed by filing Financing
Statement with the Secretary of State

17. Collateralization
Personal Property vs. Real Property
• Personal Property (cont.)
• Some Common Exceptions:
• Deposit accounts (through control)
• Motor vehicles (filing with Reg. of Motor Vehicles)
• Liquor licenses (filing with local commission and ABCC)
• Intellectual property, airplanes, federally chartered ships
(filing with applicable federal agency)

18. Collateralization
Personal Property vs. Real Property
• Real Property
• Mortgages and Security Agreements
• Refers back to Promissory Note and Loan Agreement
• Assignment of Leases and Rents
• Other documents:
• ALTA / ACSM Survey
• Title insurance
• Certifies title and pre-existing encumbrances
• Can certify access and compliance with survey, among other issues
• Municipal Lien Certificates (MLCs)
• UCC Financing Statement (secures lender’s interest in fixtures)

19. Collateralization
Personal Property vs. Real Property
• Real Property (cont.)
• Other Documents (cont.)
• Counsel opinion letters
• Property and liability insurance
• Flood certification and insurance
• Environmental inspection reports
• Rental Property Issues

20. Post-Closing: Financial
Statement Issues
• Disclosure Requirements • Leverage Ratio
• Terms • Limit on Capital Expenditures
• Covenants • Timing
• Guarantees
• Waivers • Reporting
• Current vs. Long Term
• Compliance with Financial • Interest Rate Swaps
Covenants • Type of F/S
• Tax Motivation vs. • GAAP vs. Income Tax Basis
Compliance
• Debt Service Coverage
• Tangible Net Worth

21. Q&A

22. Contact
Information Michael Gove
mgove@cooleyshrair.com
Rudy D’Agosinto
rdagostino@mbkcpa.com
Luke Kettles
lkettles@hampdenbank.com