- May 1, 2024
May – June 2024: Entity Borrowers: Getting the Signatures and Getting It Right

In this issue of Community Banker, we revisit one of our most-requested topics: ensuring proper signatures when lending to business entities.
YOU ARE ASKING …
Q: When lending to an entity borrower — such as a corporation, LLC, partnership, or trust — how can we be sure the person signing the loan documents is truly authorized?
A: A borrower’s legal name should always be confirmed through its official formation documents (Articles of Incorporation, Organization, etc.) and good standing certificate. Beyond confirming the entity itself, lenders must verify that the signatory has authority under the governing documents. For example, an LLC operating agreement may require unanimous consent of members for certain transactions, or a corporation’s bylaws may require two officer signatures on a note. If a person executes loan documents without proper authority, the enforceability of those documents can be challenged. Best practice is to conduct due diligence on each obligor and review governing documents before closing.
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