Anyone had a certificate of good standing hold up an SBA loan? - Searchfunder

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by a searcher from University of Portsmouth
in Houston, TX, USA

2yrs ago

Anyone had a certificate of good standing hold up an SBA loan?

I am closing on a 7a SBA acquisition loan and going through the final closing checklist with the lender.

One of the requirements is a Certificate of Good Standing from the sellers state of taxation. In my deal, that is the State of Virginia.

Seller wrote to obtain the cert back in August and the State replied a month later that there was a missing tax year fromredactedthe entity is 30 years old). They didn't issue a certificate, but didn't admit any taxes were unpaid, either. Weird, right.

Lender is seeking counsel on how to handle the issue as we don't have the certificate, seemingly, cannot obtain it, either. We have tried to articulate that: A) Statute of limitations is 7 years in Virginia and 10 years Federally. B) Asset purchase agreement indemnifies me as buyer from unpaid taxes. C) Me the buyer is using a new entity in a different State to buy the business.

It just seems to me that this should be an issue that pragmatic minds can overcome. But at the same time it feels like a torpedo and my anxiety is through the roof.

Has anyone faced a similar issue before? How did you overcome it? Any help appreciated. Thank you

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reply by a searcher 2yrs ago
from University of Portsmouth in Houston, TX, USA

Thank you, Roger. Great tip and one I'll remember if this pops up on a future deal. As it would happen, I was able to pull a cert of good standing from the State Commission website which validated the corporation satisfactorily. Of course, this differs from the cert that would come from the tax dept, but in a surprising turn of good fortune for me, the banks attorney accepted that SCC cert along with the original letter that was issued by the tax dept which basically said (we aren't going to issue a cert, and btw 2012 appears to be missing, but otherwise there is no tax owed). Honestly, a week before closing, this was a racy day or two as I was very worried it would be yet another delay for closing, but we dodged this one!

reply by a lender 2yrs ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Roger's advice is great. Unfortunately the Bank has to verify the business is in good standing legally to be sure the business is available for sale. It seems a bit weird as every other document covers it, but if the Bank closes, the deal goes bad, and they did not have that, the SBA could refuse their guarantee. Hopefully you can find a solution.

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