Why be a commercial lawyer? First realize that commercial law really is a category heading that describes many different types of lawyers… There are commercial lawyers who do real estate work, commercial lawyers who do Mergers & Acquisitions work , Commercial lawyers who do Corporate law work. Overall the term commercial law is interchangeable with a career in business law, and describes lawyers who do not practice litigation (or filing lawsuits and arguing in court) and instead work on business deals of one form or another. We have an explanation of all types of lawyers including all types of commercial lawyers on our “Types of Lawyers” page. However, in this article we will focus on one type of commercial lawyer, the Commercial Lending Lawyer (otherwise referred to as a Secured Transactions Attorney).
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Of course the first question on everyone’s mind is what is the commercial lawyer salary? I chastise you for thinking this way (follow your passions and you will make money), but that is another lecture for another time. The commercial lawyer salary for this type of commercial lawyer, the commercial lending lawyer, with some experience (and not necessarily right out of law school) is easily in the lower to middle six figures. But I warn you that this salary can vary depending on what geographic area where you practice law.
There are multiple reasons. For example:
1) You will not be required to go to court and be subject to the court’s (sometimes) cruel scheduling demands and timing requirements.
2) You will be able to focus on business law matters and work with sophisticated clients.
3) You will gain an enormous amount of business knowledge after practicing for a few years (light years beyond any MBA graduate).
4) With some experience you will be able to transition to an in house position (working for a corporation) and thus will not be subject to mandatory billable hours as most other lawyers.
5) It is great training for going into business for yourself, or if you have an entrepreneurial spirit.
6) You will have the opportunity to hone your negotiating skills.
7) You will receive a very comfortable salary (but see the caveat below).
Again, to answer the question of why be a commercial lawyer, do not rely solely on the salary of commercial lawyers, look instead to the type of work and whether or not it appeals to you, which is the main goal and content of this article.
A simple explanation of what commercial lending lawyers do is this: Commercial lending lawyers prepare all of the documentation to finalize a commercial loan. A commercial loan is a commercial transaction where the borrower’s obligation to repay a loan is secured by an interest in the borrower’s assets. Commercial lending lawyers draft the documents, negotiate the language in those documents, conduct due diligence reviews, bring it all together and finalize (or close) the loan and ensure that the collateral is properly “secured”. These are often referred to as Article 9 transactions, because the guiding law comes from Article 9 of the Uniform Commercial Code (or “UCC” for short… this is a law designed to standardize commercial sales and commercial transactions in all 50 states in the United States of America). The UCC applies to transactions where a security interest is created in personal property or fixtures such as goods, documents, instruments, general intangibles, chattel paper, or bank accounts. Therefore, to work in this field a lawyer must be familiar with Article 9 of the UCC, state law nuances/differences, and the due diligence associated with perfection of the lender’s interest in the collateral.
Though of course a borrower may default on loans and litigation is the result, overall this work is 100% transactional.
Term Loan - A Term loan is a loan for a specific amount, that has a specified repayment schedule and usually has a floating interest rate. What this means is that the interest is not fixed at a certain amount such as 7% but is in fact tied to a market index plus additional percentage points, and the loan lasts for a set # of years, hence “term” loan.
Line of Credit - With a line of credit, the lender establishes a maximum loan balance that the borrower may borrow. The borrower can borrow money periodically, but the full amount borrowed can never exceed the maximum. The borrower gains an advantage for this type of loan because they only pay interest on the money they actually borrow, or draw down.
Revolving Loan - A revolving credit loan or “revolver” is where a borrower has the option to draw down on the amount of the loan, repay it, then re-borrow. This type of loan is great for people who are in a seasonal type business or for those businesses who need to purchase raw materials at a particular time of the year when they are cheapest.
Convertible Loan - A convertible loan is the type of loan that usually starts out as a short term interest only loan (interest only means the principal amount is not reduced and borrower only pays interest payments), and then if the borrower meets certain criteria, the borrower may opt to convert the balance of the loan into a term loan. These are often used in construction financing where the loan converts upon completion of the construction (among other requirements).
There are many others but for now just familiarize yourself with the above.
What are the day to day activities of a commercial lending lawyer?
If you are interested in a career in commercial law representing lenders/borrowers, realize that new lawyers are often assigned the responsibility for due diligence tasks in connection with the perfection of a security interests in these types of transactions. You will be assigned to maintain the files of information, communicate with other lawyers, clients, governmental officials and 3rd party consultants to obtain the necessary information (generally concerning the status of the borrower and any third party interests in the collateral). Further, you will be required to follow up with all of these other people to make sure the transaction is progressing under the proper timeline. After or concurrently with the due diligence period, you will be expected to create first drafts of all closing documents. But what exactly are these commercial loan transactions all about? Let’s review the global process.
Overall the progression of the duties of a commercial lending lawyer can be summarized as follows:
STEP #1 = Negotiate the terms of the deal
STEP #2 = Execute commitment letter
STEP #3= due diligence review and document negotiation
STEP #4 = Loan Closing (where the loan funds are actually distributed).
In representing a lender as a commercial loan lawyer you will be required to conduct proper due diligence to make sure that the lender’s interest in the collateral is properly secured and protected. When dealing with companies and corporations, know that these entities have documents that specify how they are supposed to operate.
So if the borrower is a corporation, you as lender’s counsel will have to review the corporation’s bylaws and possibly any shareholder agreements to make sure that there aren’t any requirements regarding taking on new loans. If there are requirements, then you have to make sure that those requirements are followed and authorized by the correct people.
This can get very complicated when a major corporation is involved, and when there are multiple subsidiaries then you have to figure out which officers from which subsidiary companies must execute authorizing resolutions to make sure the collateral is properly secured.
If you are in charge of a complicated loan where the borrower is a large company, you better make sure that you get from borrower’s lawyer an ownership diagram of all the companies and subsidiaries of the borrower, this way you have a visual of which companies own which subsidiaries. This is important because as lender’s counsel you need to make sure that you have the correct signatures by the correct people and properly authorized to sign for each company and every subsidiary.
But regarding this type of lawyer, the activities, experiences and contacts are great because you will be able to network with the top echelon of these corporation/companies (large and small) and this in itself is a good reason as to why you should be a commercial lawyer.
Let’s take a look at the documents you will work on daily if you choose a career in commercial law focusing on borrower/lender representation.
Document #1: Term Sheets & Commitment Letters.
So the parties begin their discussions usually without the commercial lawyers, and produce a term sheet or letter of intent. The term sheet is not legal contract, it is merely a recorded reflection of business and economic terms. Internally the bank or lender then takes the term sheet and asks its internal review committee for approval of the loan terms.
Commitment letter – The commitment letter is really the first significant legal document. What is a commitment letter? A loan commitment letter is a legally binding contract between the lender and the borrower. The lender agrees to make a loan on certain terms, and the borrower agrees to borrow on certain terms… and this contract may be enforced if need be.
After the parties have executed the commitment letter, the lawyers will negotiate the language of all loan closing documents, and complete a full due diligence review.
Document #2: Closing Checklist- Once the commitment lender has been signed and delivered to the lawyers, the lender’s counsel will draft a closing document checklist which specifies all the documents that will be required to close the loan.
Document #3: Promissory Note.
One of the most important documents in any loan closing is the promissory note. A promissory note or “note” is a written, dated and signed two-party instrument containing an unconditional promise by the borrower to pay a definite sum of money to a lender by a specified future date and at a specified interest rate.
Document #4: Loan Agreement. The loan agreement will contain information about the terms of the loan, responsibilities of the borrower, when the lender can consider the borrower in default, and how the lender will be paid upon default. More specifically the loan agreement will include the following:
Loan amount. When does the loan expire or mature? Representations and warranties of the borrower. How are disputes resolved? Can the borrower prepay the loan without penalty? If not what is that penalty? Is the collateral fully secured or partially secured? What is the collateral? And other information…
Document #5: The Security Agreement. What is contained in a security agreement that is not already stated in the loan agreement? The security agreement sets out the rights the lender will have with respect to the collateral itself, contains a description of the collateral, and specifically states that a security interest is being created in that collateral.
Document #6: Resolutions. A resolution is a written statement made by the board of directors, or members of a company stating that the governing board or majority of members authorizes the transaction, and states which officers are authorized to execute the documents on behalf of the company at closing.
Document #7: Guarantees. There are other documents that you may come across while practicing as a commercial lending lawyer that are not a part of every loan. One such example of this is the Guarantee. A guarantee is an agreement where a third party agrees to make necessary payments on the loan if the borrower cannot or fails to make payments. Guarantees can be made by LLCs, corporations, trusts, partnerships, and individual people.
Document #8: UCC Financing Statements. This is the public notice document. The UCC financing statement lists and describes any personal property and collateral that is provided by the borrower. The form reflects who the lender is, who the debtor is, and then what the collateral is. Usually these UCCs are filed in the state of the debtor’s location and additionally, often where the collateral is located. These go into the public record for everyone to know that the lender has a security interest.
Document #9: Closing statement. The closing statement is the document that reflects how and where the money is being distributed at closing. For example, the closing statement will specify that of the loan proceeds being received, $10,000 is going to the state government to payoff a certain lien, $25,000 is going to a bank to payoff another loan, and $10,000 is going to the lawyers, and on and on for all closing payoffs and costs.
Once the lawyers agree to the form of all loan closing documents, and due diligence has been completed a closing date will be scheduled.
What actually happens at a closing? All the parties will meet in a room, all documents will be executed, everyone will get a copy of the documents, and then the lender will release the funds to the borrower. At that juncture the loan is considered closed and finalized.
In conclusion, why be a commercial lawyer who focuses on lender/borrower representation? You will not be required to go to court, you can focus on business matters, transition to an in house position (corporation) and thus will not be subject to mandatory billable hours as most other lawyers. It is great training for going into business for yourself, or if you have an entrepreneurial spirit. Further, you will get to work on and negotiate financial documents, complete due diligence investigations, and close loans.