This sixth part in our advanced due diligence series will focus on monitoring a borrower’s business entity status. Be sure to read the prior posts in this series as well for more advanced due diligence tips.
It is important for lenders to learn of changes to a borrower’s name and to learn if the business organization is no longer in good standing in its formation state. Not all borrowers notify lenders of these changes. This is true even though most security agreements include mandatory notification clauses and require debtors to respond to regular inquiries regarding their affairs. However, enforcing these requirements can be a challenge.
Even so, Article 9 of the UCC has very specific rules for continued perfection that require the lender to make certain filings, within certain timeframes, when a debtor changes its name, location, or both, so lenders must stay aware of these changes.
The solution is for lenders to proactively monitor borrowers themselves. Business entity monitoring provides notification to the lenders of name or status changes. In the case of a registered entity debtor, the lender may also monitor new corporate, LLC, etc. filings, and amendments to existing filings. With defaults too prevalent in today’s economy, monitoring is an important best practice.
Check back tomorrow for the seventh part in our advanced due diligence series: monitoring UCC filing activities.