A letter from borrower's counsel stating that the borrower is validly formed, that it has authority to enter the loan, and that the documents are enforceable against it.
The longer version
The opinion is a condition precedent on almost every commercial loan. It covers formation and good standing, due authorization, execution and delivery, enforceability, and often no conflict with other agreements or with law. Financing opinions may add perfection and priority.
Opinions are heavily qualified by assumptions and exceptions, and the negotiation is about which of those the lender will accept. Because the letter depends on organizational documents and good standing certificates, it is usually the last item to clear, which makes it a common cause of a delayed funding.
Common questions
- Who gives the opinion letter?
- Borrower's counsel, addressed to the lender. On multi-state deals local counsel may give separate opinions on enforceability and perfection in their jurisdiction.
- Why does the opinion arrive late?
- It depends on final executed documents and current good standing certificates, so it cannot be finished until those are in hand. That dependency puts it at the end of the checklist.
- What are the common carve-outs?
- Bankruptcy and equitable principles exceptions are standard. Beyond those, the negotiation covers assumptions about factual matters and any limits on the scope of the enforceability opinion.