Closing conditions

What a closing condition actually is

A closing condition is a specific, checkable requirement that has to be satisfied before funds are released and the deal closes. Unlike a negotiated deal term — price, or the working capital peg — which is about what the deal is, a closing condition is about proving a specific fact or completing a specific action before closing can happen at all.

Conditions come from two sources that don't always talk to each other directly: the purchase agreement (seller conditions like delivering clean title, buyer conditions like securing financing) and the lender's own closing requirements, which exist independent of what's in the purchase agreement and have to be satisfied regardless of what the seller and buyer agreed to between themselves.

Because conditions are binary — satisfied or not — rather than negotiable, the real risk they pose isn't disagreement, it's timing. A condition that takes longer than expected to satisfy delays the whole closing, even if every substantive term of the deal is already agreed.

The standard list for an SBA-financed acquisition

Life insurance assignment: the SBA requires key-person life insurance on the buyer — or the buyer and any co-owners with material involvement — collaterally assigned to the lender for the life of the loan, so the loan is covered if something happens to the person the lender is actually underwriting.

UCC filings: the lender files a UCC-1 financing statement against the business assets being used as collateral, publicly recording the lender's security interest. A routine filing, but one more piece of paperwork with its own processing time.

Hazard and other insurance: property and casualty coverage on the business's physical assets, plus flood insurance if applicable, has to be in place with the lender named as loss payee before closing — not something you can defer to right after you close.

Environmental sign-off: required when real estate is part of the deal, typically starting with a Phase I environmental site assessment, and escalating to a Phase II — soil and groundwater testing — only if the Phase I turns up something that warrants it.

Conditions that are easy to underestimate the lead time on

Life insurance is the classic one. Underwriting a new policy can take anywhere from a couple of weeks to over a month depending on the buyer's health and the policy amount, and a buyer who waits until the closing package is being assembled to even apply is often the reason a closing slips.

Landlord consent to assignment of a commercial lease, if the business operates out of leased space, requires the landlord's cooperation, and landlords don't always move at the same pace as everyone else trying to close the deal — worth starting this conversation as soon as the deal is under contract, not once every other condition is already satisfied.

A Phase I environmental assessment itself usually isn't the slow part; a Phase II, if triggered, can take weeks and has real potential to change deal economics if it finds something. Real estate deals deserve extra schedule buffer specifically because of this possibility.

What happens if a condition can't be satisfied on schedule

Most purchase agreements and loan commitments build in some flexibility — a short extension of the closing date is common and usually not controversial if a condition is genuinely close to being satisfied and everyone can see progress.

The harder case is a condition that can't be satisfied at all in its current form — a landlord who refuses to consent to assignment, an environmental issue that surfaces in a Phase II. These usually require actually renegotiating deal structure (a new lease instead of an assignment, a price adjustment or remediation escrow for an environmental finding) rather than just waiting longer, and are worth raising with your attorney and lender immediately rather than hoping the issue resolves itself.

Tracking every open condition explicitly — what it is, who owns getting it done, and its expected date — rather than trusting it'll all come together by the closing date is the difference between a closing that happens on schedule and one that slips repeatedly in small increments that each felt minor at the time.