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Legal Fees for Loan Documentation
A potentially irritating aspect of the loan documentation process comes at the
end, when the legal fees have to be paid, since the typical arrangement is that
the borrower must pay the legal bill for both its counsel and the bank's
counsel. For a standard, uncomplicated term loan, the bank's legal bill alone
may run from $2,000 to $10,000, and could be much higher for larger and more
complicated loans.
Lending officers also find legal fees to be problematic, since frequently they
must stand in the middle between the borrower and counsel for the bank
regarding the fairness of the billing. Use of standard loan documents
simplifies the loan documentation process and can reduce legal fees. Such
documents are most frequently used for smaller, uncomplicated "cookie cutter"
transactions. Banks with legal staffs sometimes modify standard documentation
internally or prepare non-standard documents at a somewhat reduced cost, but
this alternative is not always available, depending on the size of the legal
staff and its workload.
If you find yourself in the position of paying for your bank's legal fees when
negotiating and documenting a loan agreement, here are some tips for keeping
your legal bill to a minimum:
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Learn to read and understand your loan documents. There are courses available
on loan documentation sponsored by the American Institute of Banking.
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Discuss the loan agreement with your counsel and then negotiate any of the
disputed elements yourself, directly with your banker.
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Try to keep your lawyer and the bank's lawyer from talking to each other
without your permission or being present.
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If your bank uses more than one law firm to document its loans, ask your
lending officer for competing quotes on documentation costs.
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Ask your bank to give you a range into which you can expect your legal fees to
fall. Ask for periodic updates on the amount of legal fees incurred to date
with a complete accounting of the time spent.
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Ask your lending officer to use standard documents when possible.
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When talking with any lawyer, make sure you are aware of the clock, keeping
small talk to a minimum. Meet with the lawyers at their offices so that you cut
down on their travel time.
Our experience has been that a good drafting of loan documentation can be
important to both the borrower and the lender. Following the tips noted above,
however, will help to keep your legal bill to a minimum.
To talk with a Dollar Bank
representative about your needs,
click here.
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