Questions to ask your legal team

Your outside counsel bills $800-1,500 per hour. Whether you extract $800 or $1,500 of value from that hour depends entirely on the questions you ask. Generic questions get generic answers. Specific, well-framed questions get actionable advice that protects your economics and prevents problems you would otherwise discover only at closing or, worse, during a workout.

This guide provides the questions to ask at each stage of an ABF transaction, organized by phase and by role. Use it as a checklist before every counsel interaction.

Counsel can only advise on what you ask about. Gaps in your questions create gaps in protection. The worst outcome is paying full rate for half the value because you didn’t know what to ask.

Pre-engagement questions

Before you sign an engagement letter, get clear answers on experience, availability, and economics.

Experience and fit

“How many [asset class] warehouse facilities have you closed in the past 24 months?”

The specific number matters. “We do a lot of structured finance” is not an answer. You want names, structures, and volumes. If they hesitate, they don’t have the experience.

“Who specifically would staff this deal?”

Get the partner name and the senior associate name. Ask what percentage of their time this deal will receive. If the answer is “it depends on our workload,” that’s a flag.

“Have you worked with or against [capital provider’s typical counsel]?”

Counsel pairs that know each other negotiate more efficiently. If your counsel has never opposed Latham’s structured finance team and that’s who the capital provider uses, expect a longer documentation phase.

“What do you see as the key structuring issues for [our asset class]?”

This question tests real expertise. A counsel who knows consumer unsecured should immediately mention state licensing, true lender risk, and rate cap exposure. If they ask you to explain your asset class, find different counsel.

“Any regulatory considerations specific to [our state mix / asset type]?”

Equipment finance has UCC Article 2A questions. Consumer loans have state-by-state licensing requirements. Healthcare receivables have HIPAA and assignment-of-proceeds issues. The right counsel knows these without research.

Timeline and availability

“What’s your realistic timeline estimate given your current workload?”

Lawyers underestimate timelines like everyone else. Push for the realistic number, not the optimistic one. Ask what other closings they’re committed to in the next 90 days.

“Do you have capacity to staff this as lead priority?”

A firm with three closings in the next month may not be able to prioritize yours. Better to know now than to discover halfway through documentation that your deal is in queue behind others.

Budget and economics

“What’s your estimated fee range for this transaction?”

Get a range, not a non-answer. For a bilateral warehouse, expect $150K-350K for originator’s counsel depending on complexity. If they can’t estimate, they haven’t done enough comparable deals.

“Will you work under a cap?”

Capped fees provide cost certainty while preserving hourly incentives. Typical caps for a first warehouse are $250K-400K with a defined scope. Ask what scope limitations apply to the cap and what would restart the meter.

“How do you bill for diligence calls and quick questions?”

Some firms bill in 6-minute increments; others in 15-minute blocks. Five separate two-minute calls could cost you 1.5 hours of billing. Understanding the billing mechanics lets you batch questions efficiently.

Term sheet stage questions

The term sheet sets the framework for everything that follows. Ask questions that surface issues before you commit to documentation.

Market context

“Is this spread / advance rate / structure within market range for comparable deals?”

Your counsel sees dozens of deals per quarter. They know whether SOFR+275 at 80% advance is tight, wide, or typical for your asset class and credit profile. This context is worth more than most negotiation advice.

“What terms here are unusual or aggressive compared to recent transactions?”

Some capital providers use standard forms with provisions that have become out of market. A 10-business-day cure period might have been standard five years ago but is now routinely negotiated to 30 days. Counsel should flag these.

“What terms would you expect to negotiate off this term sheet?”

A good counsel will have a short list immediately: “We’d push for longer cure periods, carve-outs on the concentration limit, and a higher threshold for the DSCR trigger.”

“Have you seen similar structures from this capital provider before?”

If counsel has closed deals with this lender, they know which terms are truly firm and which are posturing. This intelligence is invaluable for prioritizing your asks.

Red flags and risk assessment

“Which provisions create the most operational risk for us?”

Translate legal terms into business impact. A cross-default provision that triggers your facility on any $100K+ obligation default might seem remote until you realize it includes your office lease.

“What’s the worst-case scenario under these covenant triggers?”

Walk through the mechanics. If you trip the DSCR trigger, what happens? Cash trap? Amortization event? Immediate maturity? Understanding the cascade helps you calibrate covenant headroom.

“Are there any unusual definitions that could create problems downstream?”

“Eligible Receivable” definitions have 15-20 criteria. One overly restrictive criterion can exclude 10% of your portfolio. Ask counsel to flag any definitions that are tighter than typical.

“Do these financial covenants give us reasonable headroom based on our projections?”

Share your base case and downside projections. Counsel can assess whether a 1.25x DSCR covenant with your projected 1.35x coverage gives you enough cushion, or whether you’ll spend the facility life managing to the covenant.

Negotiation leverage and strategy

“Which terms do we have the best chance of improving?”

Some terms are genuinely firm (advance rate is usually set by credit, not negotiation). Others are starting positions (cure periods, concentration limits, fee amounts). Counsel should know the difference for this capital provider.

“What do we need to give up to get [specific term]?”

Every negotiation involves trade-offs. If you want 85% advance instead of 80%, expect tighter triggers, lower concentration limits, or wider spread. Ask counsel what the typical trade is.

“How should we prioritize our asks given this capital provider’s typical positions?”

Experienced counsel knows that Bank A is immovable on DSCR covenant levels but flexible on cure periods, while Fund B is the opposite. Use this intelligence to spend negotiating capital where it will work.

Documentation stage questions

Documentation turns the term sheet into binding obligations. This is where details matter and mistakes become expensive.

Key protections to verify

“Where exactly in the docs are our cure rights?”

Don’t accept “you have cure rights.” Get the specific section reference, the cure period length (calendar days or business days?), and what events are curable vs. incurable. Some defaults have no cure right at all.

“What events allow them to sweep cash without our consent?”

Cash trap provisions can redirect all collections to a reserve account, starving your operations. Understand exactly what triggers a cash trap: performance triggers, covenant breaches, or discretionary lender concerns.

“Under what circumstances can they terminate the facility before maturity?”

Events of default that accelerate the facility are one thing. But some facilities have provisions allowing the capital provider to decline to fund new advances without any default (typically in a “commitment period” structure). Know your exposure.

“What discretionary powers does the capital provider retain?”

Language like “in Lender’s reasonable discretion” or “satisfactory to Lender” creates optionality for them and uncertainty for you. Identify all discretionary provisions and understand their practical scope.

“How are ‘material adverse change’ and ‘eligible receivable’ defined?”

These two definitions control more economics than any other provisions. MAC triggers can arise from industry conditions you don’t control. Eligibility criteria that are too narrow will exclude assets you thought would qualify.

Operational flexibility

“Can we modify our underwriting criteria without consent?”

Most facilities allow minor modifications within bounds (e.g., 5% change to credit criteria) but require consent for material changes. Know where the line is and how consent requests are processed.

“How much concentration is permitted before triggering issues?”

Geographic concentration, obligor concentration, and product concentration limits affect your portfolio management. A 15% state concentration limit might seem reasonable until you realize your Texas volume is 18%.

“What reporting deadlines are we committing to, and what happens if we miss one?”

Missing a monthly servicer report deadline by one day shouldn’t trigger a default. But some documents have strict reporting covenants. Understand grace periods and consequences.

“Can we add new origination channels or products to the facility?”

A facility for unsecured consumer loans may not easily accommodate secured products or point-of-sale lending. If your business is evolving, understand what requires an amendment.

“What approvals do we need for portfolio management actions?”

Substituting collateral, releasing liens, settling delinquencies, modifying loan terms with borrowers: all of these may require lender consent. Map out your operational actions against consent requirements.

Common pitfalls

“What provisions in this draft are out of market?”

Every capital provider’s first draft favors them. Counsel should identify provisions that have drifted beyond current market terms, either because the form is old or because the capital provider is pushing.

“Where have you seen originators get caught by language like this?”

Experience teaches lessons that precedent documents don’t. If your counsel has seen an originator lose servicing rights because of a “for cause” termination provision that was too broad, they can help you narrow it.

“Are there cross-default or cross-collateralization provisions?”

A default on another facility could trigger this one. Collateral pledged here might secure obligations elsewhere. These provisions create interconnections that can accelerate problems.

“How does the most-favored-nation clause work?”

MFN clauses require you to offer better terms to this capital provider if you give better terms to another. Understand the scope: does it cover only similar facilities, or all credit arrangements?

What’s negotiable

“What in this draft is boilerplate vs. actually negotiable?”

Representations about corporate existence are boilerplate. Cure period lengths are negotiable. Counsel should distinguish between standard language that everyone accepts and terms that are starting positions.

“What’s the maximum cure period you’ve seen in comparable deals?”

If you’re asking for 30 days and they’re offering 10, knowing that 20-25 is market helps frame your ask. Counsel can provide these reference points.

“Can we get this covenant measured quarterly instead of monthly?”

Frequency of measurement affects your operational burden and your risk of technical breaches. Monthly DSCR testing means 12 potential breach points instead of 4.

“Is this rep standard, or can we carve out [specific item]?”

Representations and warranties about “no material litigation” or “no material adverse change” may need carve-outs for known issues. Ask which reps are typically negotiated.

Closing questions

The final push to closing requires attention to conditions, timing, and post-closing obligations.

Conditions precedent

“Walk us through every condition we need to satisfy before closing.”

Get a complete checklist. Conditions include legal opinions, third-party reports (UCC searches, insurance certificates), corporate resolutions, account setup, and perfection filings. Missing any one delays closing.

“Which conditions are most likely to cause delays?”

Certain conditions depend on third parties (rating agency confirmation, trustee acceptance, backup servicer agreement). These need more lead time. Counsel should flag the critical path items.

“What legal opinions are required and who delivers them?”

Your counsel delivers opinions on corporate matters, enforceability, and possibly true sale. Their counsel delivers opinions on security interest perfection and lender protections. Each opinion has a fee ($15K-35K typically).

“Are there any conditions that could fall through at the last minute?”

Some conditions have timing requirements (e.g., UCC searches within 10 days of closing). If something lapses or needs to be refreshed, understand the implications.

Timing and logistics

“What’s the realistic critical path to closing?”

Documentation, diligence, third-party setup, and closing conditions run in parallel but some are sequential. Counsel should map the critical path and identify what’s driving the timeline.

“What signatures and authorizations do we need, and from whom?”

Board resolutions, officer certificates, authorized signatory lists: these administrative requirements take time. Start early on corporate governance items.

“How far in advance do we need to lock the funding date?”

Some closings require 3-5 business days notice for funding. Wire deadlines and cutoff times vary by bank. Understand the mechanics so you don’t miss a funding window.

Post-closing obligations

“What are our ongoing reporting requirements and deadlines?”

Monthly servicer reports, quarterly financial statements, annual audited financials, compliance certificates: build a calendar of all obligations. Missing a deadline, even by a day, can create technical defaults.

“What covenant certifications are due and when?”

Covenant compliance certificates typically accompany periodic financial reporting. Know what certifications you’re signing and on what schedule.

“What triggers ongoing legal opinion requirements?”

Some facilities require updated opinions on amendments or facility upsizes. Understand when you’ll need to pay for additional legal work.

“What events require notice to the capital provider?”

Defaults, material litigation, management changes, material adverse changes: most facilities require prompt notice (often 5-10 business days) of specified events. Know your notification obligations.

Ongoing relationship questions

The facility closes but the relationship continues. Amendments, waivers, and disputes all require counsel involvement.

Amendments and waivers

“What process do we follow to request a covenant waiver?”

Waivers are typically cheaper and faster than amendments. Understand the process: who needs to approve, what documentation is required, and what fees apply.

“What’s the typical timeline and cost for an amendment?”

Simple amendments (extending maturity, increasing facility size) might take 4-8 weeks and cost $50K-100K in legal fees. Complex amendments can take months. Set expectations early.

“Do we need consent from all parties, or just the capital provider?”

Syndicated facilities may require consent from multiple lenders. Note purchase agreements may require bondholder consent. Multi-party consent requirements add time and complexity.

“What amendments require rating agency confirmation?”

For rated deals, material amendments need rating agency review. This adds 2-4 weeks and agency fees. Know which changes trigger rating agency involvement.

Portfolio changes

“Can we substitute collateral, and under what conditions?”

Most facilities allow substitution of non-performing or ineligible assets for eligible assets. The mechanics (notice requirements, valuation adjustments, frequency limits) vary.

“What approvals do we need to change servicers?”

Servicer transition requires lender consent, backup servicer activation, and often rating agency confirmation. It’s a major undertaking; understand the requirements before you need them.

“How do we add a new origination program to the facility?”

Expanding eligible assets to include a new product type typically requires an amendment. The scope of changes (eligibility criteria, concentration limits, pricing) determines complexity.

“What’s required to increase facility size?”

Facility upsizes may be pre-negotiated (accordion features) or require full amendments. Know whether you have expansion rights and what triggers them.

Disputes and defaults

“We think we might trip [specific covenant]. What are our options?”

If you see a covenant breach coming, talk to counsel before it happens. Options include requesting a waiver, requesting an amendment to the covenant level, or restructuring to cure the issue.

“What’s our notice period if we receive a default notice?”

Default notices start the clock on cure periods and acceleration rights. Understand the timeline and what actions are required immediately vs. what can wait.

“What remedies are available to the capital provider, and in what sequence?”

Remedies might include cash trap, amortization, acceleration, or enforcement. Some remedies require additional steps (notice periods, cure opportunities). Understand the escalation path.

“What are our rights if we disagree with a servicing termination decision?”

Servicer termination for cause requires grounds. If you contest the grounds, what process applies? Is there arbitration, litigation, or a cure opportunity?

Regulatory and compliance questions

ABF transactions involve securities law, lending regulations, and tax considerations. Get clarity on each.

Securities law

“Do we need to register any securities, or do we qualify for exemptions?”

Most warehouse facilities rely on Section 4(a)(2) private placement exemptions. Term ABS may use Rule 144A or Regulation D. Understand which exemptions apply and what conditions you must maintain.

“What’s our ongoing SEC reporting obligation?”

Registered offerings require ongoing reporting (10-K, 10-Q, 8-K). Rule 144A and Reg D offerings have fewer requirements but still have some obligations. Know your burden.

“Are there restrictions on who can purchase notes?”

Accredited investor requirements, QIB requirements, and ERISA restrictions limit your investor base. Understand who can and cannot buy.

“What Investment Company Act issues should we be aware of?”

SPVs issuing securities need to avoid being classified as investment companies. Section 3(c)(5) and Rule 3a-7 exclusions are common. Make sure your structure qualifies.

Lending and consumer compliance

“Are there state licensing implications for this structure?”

Depending on asset class and structure, the SPV, servicer, or originator may need state licenses. Some states require specific licenses for purchasing or servicing consumer loans.

“How does true lender risk apply to our origination model?”

If you use a bank partner to originate, true lender challenges could void rate exportation. Counsel should assess your program structure against current true lender case law.

“What consumer disclosure requirements apply to these assets?”

TILA, ECOA, FCRA, state disclosure requirements: consumer assets carry compliance obligations. Understand what reps you’re making about compliance and what diligence supports them.

“Are there rate cap or usury considerations for our state mix?”

State usury laws apply unless preempted. Some structures rely on rate exportation from originating bank states. Understand your legal basis for interest rates charged.

Tax considerations

“What’s the tax treatment of the SPV?”

SPVs are typically structured as pass-through entities (grantor trusts, Delaware statutory trusts, or disregarded LLCs). Understand the tax treatment and whether an opinion is required.

“Are there any withholding tax issues with our investor base?”

Non-US investors may be subject to withholding on interest payments. FIRPTA issues may arise on certain transactions. Know your investor restrictions.

“How are the economics reported for tax purposes?”

OID, market discount, and income recognition timing affect your tax reporting. Make sure finance and tax teams understand the treatment.

How to get useful answers

The questions above only help if you ask them effectively.

Be specific

Generic: “Is this term okay?”

Better: “Given our 20% geographic concentration in Texas, does this 15% state limit create immediate problems, and what’s the typical negotiated outcome?”

Specific questions get actionable answers. Context enables counsel to apply their experience to your situation.

Provide context

Before the call, share:

Your business priorities: What terms actually matter for how you operate
Your alternatives: Other term sheets in hand, timeline pressure, fallback options
Your projections: Base case and downside scenarios for covenant headroom analysis
Your constraints: Budget limitations, timeline requirements, board approvals needed

Counsel advises better with complete information.

Organize your questions

Counsel bills in increments (often 6 or 15 minutes). Five separate emails cost more than one consolidated list.

Before every call or email:

Write out all questions in advance
Prioritize: must-answer now vs. can-wait
Put the most important questions first (calls get cut short)
Distinguish between judgment questions (“What would you do?”) and fact questions (“Is this market?”)

Follow up effectively

If you don’t understand the answer, say so. You’re paying for clarity, not jargon.

Ask for:

Business implications: Not just what the provision says, but what it means operationally
Specific language: If counsel suggests a change, get the redline, not a concept
Their view: “What would you do if you were in my position?”

Questions by role

Originators and capital providers share many questions but have different priorities.

Originator priorities

Your core concern is operational flexibility: the ability to run your business, grow originations, and manage the portfolio without triggering defaults or requiring constant consent.

Focus your questions on:

Cure rights and grace periods: How much time do you have to fix problems?
Covenant headroom: How much cushion do your projections provide?
Amendment processes: How hard is it to modify the facility as your business evolves?
Servicing control: What triggers could cost you servicing rights?
Concentration limits: Do they accommodate your actual portfolio?
Cash flow flexibility: When and how can you take distributions?

Capital provider priorities

Your core concern is downside protection: ensuring you can recover if performance deteriorates and that you have the information and control rights to act early.