Before you borrow, understand crucial labor and employment considerations

When seeking commercial loan financing, both lenders and potential borrowers in the loan transaction typically focus on the very important financial metrics, subject collateral, and loan terms and financial covenants. However, labor and employment considerations play a critical role in a lender’s evaluation process and can significantly influence the terms and success of the loan transaction. Understanding and addressing these issues can improve the employer’s negotiating position, minimize risks, and help ensure a smoother financing process. In this article, we will provide a brief overview of a select number of labor and employment issues lenders and employers should anticipate and address when pursuing commercial loan financing.

Due diligence preparation

Lenders spend considerable time performing due diligence on a potential borrower, including a review of their financial condition and the status of the collateral involved as well as scrutinizing their labor and employment practices to assess operational risks.

Additionally, employers looking to borrow should take reasonable steps to: