The Underwriting Process on Business Loans

Posted at 05:30h in Small Business Financing by Kelly Hillock

The underwriting process when taking a business loan is a series of five steps and generally includes three parties: the borrower, the loan specialist, and the underwriter. The entire process can be done in as quickly as 24 hours with alternative and online lenders but may take a week or longer with traditional banks.

The five steps in the underwriting process are:

The borrower fills out an application. They may also need to set up an appointment at a local branch if they’re using a traditional bank.

A loan specialist talks to the borrower to learn about their needs and shares the financing options available. During this step the specialist will also verify that the borrower is who they say they are and provide information about the documentation that is required.

The borrower then submits the required information to the loan specialist who checks it for errors and sends it to the underwriter for review.

The underwriter reviews the application and does one of three things:

Asks for more details if paperwork is missing or something is not clear.

Approves the application and moves the borrower to the next step (signing and release of funds).

Declines the loan and shares the reason why so that the borrower can apply again or search for a different lender.

The borrower reviews the decision from the underwriter and acts, based on whether they’re approved or declined.

If declined, the borrower can try to resolve the issue that caused the decline or look for a different lender.

If approved, the borrower has three options:

Agreeing to the terms and signing the loan agreement so that funds can be released.

Redlining the loan agreement and negotiating terms like interest rates, payback periods, deposit amount, and collateral, if the borrower is creditworthy.

Declining to sign and looking for a different lender.

Need more info? Below you’ll find in-depth breakdowns of each of the five steps. Prefer to connect with one of our dedicated specialists? With QuickBridge, you can apply for a small business loan online with no cost or commitment and our team will guide you through the process and explain your financing options, hassle-free.

Step 1: Fill Out the Application or Set Up an Appointment

The first step is to fill out the online application form on the lender’s website or to set up an appointment with a local branch if you’re choosing a large bank or traditional lender. Make sure to include all required information if you’re using the online application forms regardless of the type of lender.

A complete and accurate application will help the loan specialist be prepared with the right questions and options for you when you have your initial call or meeting. This speeds up the meeting and gets you to step two faster.

Step 2: Meet With a Loan Specialist

You’ll now be meeting with the loan specialist who will ask questions about how you plan on using the financing, any assets you have to use as collateral (like equipment, stocks and bonds, or inventory), the history of your company, and your plans for growing the business.

By knowing your company’s financial situation, market conditions, and what you can offer as a safety net for the lender in case you default, they can share the types of business loans that make sense for your needs and how to put together the right documentation for the underwriter.

For example, if you’re buying a piece of equipment to replace old equipment or increase production and you need to hire more staff to handle the increased production, a working capital loan can cover both financing needs (versus an equipment financing loan, which is specifically for the machinery or equipment).

Meanwhile, if you need a quick infusion of cash to close a time-sensitive deal and are waiting on a larger loan that’s going to take some time to fund, the specialist may recommend a business bridge loan rather than a standard small business loan, as these are designed to fund more quickly and be paid back over a shorter period of time.

Step 3: Put Together and Submit Your Loan Documentation Package

Now you put together your loan documentation package. This typically includes:

A business loan business plan that focuses on the usage of the financing and growth opportunities (versus a standard business plan about company goals and operations).

Financial statements including bank account information, tax returns, and your balance sheet.

The collateral, personal guarantee, and deposit you’ll be offering.

Letters of intent, accounts receivable, and other assets that show your revenue will be strong if the financing is approved.

Any other documents that the loan specialist recommends adding.

The loan specialist will now give the package a quick review. If everything is in order, they’ll send it to the underwriter.

Step 4: The Loan Application Gets Reviewed

The underwriter reviews your application and determines your risk level for defaulting. They work directly for the lender and want to ensure the lender’s money is being used wisely.

If your documentation shows your company is stable financially and will be able to pay the business loan back, you’ll be deemed creditworthy or low risk and will likely be approved. If there are concerns, like having only a fair credit score or a few shaky months of revenue, they may approve the loan but ask for a larger deposit or more collateral. Or, they may approve the loan but not for the full amount you applied for.

In cases where the business owner applying has poor credit, not enough of a financial history, or low cash flow, the underwriter may feel that the borrower is high-risk and decline the application. They will provide the reason for the decline so that the applicant can fix the issue and apply again or apply with different lenders.

In other cases, the application package may be missing key details or documents, like an extra year of financials. So, don’t panic if underwriters ask for more information. This is normal. It means they’re still considering you as a viable borrower. Simply submit the additional information/documentation to receive a decision.

Step 5: Approval or Decline

The underwriter will normally approve or decline the application within a day or two. It depends on their workload and how easily they can find the information needed to make a decision on your request. If you’re approved, you will go to the signing table. If declined, you’ll get the reason why and you can either reapply with them or apply with a different lender.

When you get approved, you can agree to the loan terms and sign. Funds can be released in as quickly as 24 hours with some lenders, but each will have a different policy and timeframe. If you’re not in a rush and you’re creditworthy, try negotiating terms like a lower deposit or better interest rate so you can save money.

In rare situations or when you don’t get the amount you need in the negotiations, you can reject the terms and find a different lender. If you want to use the lender in question but you want a higher amount, try offering more collateral or a larger deposit, or you could agree to longer payback periods and higher interest rates.

Underwriting is an easy, 5-step process and can be completed by some lenders in as little as two or three business days. If you’re looking for customized options and flexibility suited to your needs, fill out our short online form to apply for financing with QuickBridge. A specialist will reach out promptly to guide you through the process and create financing options tailored to your needs. The best part? There’s no cost or commitment. You can check out your options fast and hassle-free.

QuickBridge does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.