Sponsored: Need for Speed – Don’t Let Escrow Account Delays Hold Up Your Offering Launch
By Sponsored
By John Deleray
Even when an offering doesn’t require investor funds to be held in escrow, investors may insist on it. We have even seen some offerings get to the halfway point and have to pause and relaunch because some investors decline to participate until an escrow account is in place.
Escrow-Related Delays
In our conversations with industry participants, we hear most about timing-related pain points in these three areas:
Offering launch. An offering can take considerable time to plan and launch; the last thing you need is for your escrow agent to take more than a few days to establish the escrow account. A delay in establishing the escrow account can significantly impact the launch of your offering. Realize you may need your documentation amended as your offering evolves. Ask to work with a dedicated relationship manager to ensure the process doesn’t get stuck on procedural snags.
Capital deployment. Your escrow agent should be prepared to provide a daily accounting of all incoming investor funds. If your escrow agent doesn’t provide real-time reporting, then you run the risk of not being able to deploy investor capital as quickly and efficiently as you would like.
Project funding. Once the terms of the escrow account allow for funds to be released, your escrow agent should have the ability to release funds same day. Any delay in the release of the escrow deposits can significantly hinder the project timeline.
We also suggest establishing your escrow account as soon as possible in the securities offering process. In addition to avoiding any potential bottlenecks, the escrow arrangement itself contributes to a comprehensive, prepared pitch to potential investors.
Escrow Account Setup Can Happen in as Little as a Day, but It Pays to Be Ready
To help keep the process pain-free, use the checklist below to help avoid unpleasant surprises. Keep in mind that escrow account setup can happen quickly.
As escrow agent, our first step is to create an escrow agreement, usually working from an existing template based on the escrow type. With that, we can then carry out our responsibility to know the parties involved. Like other bank services, escrow arrangements are subject to “know your customer” standards and other rules under the Patriot Act and Bank Secrecy Act.
To fulfill requirements under these rules, be ready with the following information and documents:
- Current W-9 form (W-8 for foreign entities);
- Business description;
- Copy of stamped formation documents (or, for U.S. entities, a current state-issued certificate of good standing);
- Certification of Beneficial Owners; and
- Copies of individuals’ government-issued IDs and other individual-specific information, both for owners and designated representatives to the escrow agreement.
Speed and Safekeeping
To protect your interest, the process should be expedited quickly, including thorough review by legal counsel. Once that’s complete, your escrow agent can accept and hold funds in safekeeping in accordance with the agreement. Often, the next step is timely disbursements of escrow funds to the seller, typically via wire (or SWIFT payments for international transactions).
As you prepare for your offering, help keep things moving smoothly by arranging escrow in advance. As you consider an escrow provider, look for nimble account administration, responsive teams, and dedicated communication processes.
John Deleray is senior vice president and national head of new business development for UMB Bank Corporate Trust.
UMB is a nationally recognized and ranked provider of bond trustee and agency services to the corporate and municipal marketplaces. Our services reach beyond traditional offerings to service aviation, reinsurance and funeral trusts, and our agency business provides efficient escrow solutions. Our tenured and specialized teams understand the complexities of how you do business so we can provide tailored solutions to meet your needs.
UMB is a sponsor of AltsWire, and the article was published as part of their standard directory sponsorship package.
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