When it is time for you to apply for a business loan for your small business, you need to understand what underwriting is so you can improve your chances of approval. Although it may seem overwhelming at first, here we will help you understand how the process works for lenders underwriting small business loans.
Underwriting is the process a lender uses to decide whether they should loan you money and under what conditions. The most important factor that lenders look for are people who can pay them back.
They review all the required documentation that you provided from your personal to business financial history. Both your personal and business credit scores determine the level of risk. If you are high risk, the lender will charge higher interest rates in the case that you do not pay back the loan they do not suffer a huge loss.
The three main things lenders want to accomplish during small business underwriting is
Typically, lenders require the following when underwriting an application:
The first step is you start filling out an application for a business loan. You can do this in person or filling out an application online. Online applications are generally simpler than filling out the application in person.
Businesses are asked to provide financial history and business performance information during the application process. Be sure to have all business documentation assembled in advance. Different lenders have different requirements but here are some of the common requests:
The lender begins the loan underwriting review once the application has been filled out and completed. If you applied at a bank, the lender would look at your financial history to make sure that you are not high risk. If you applied through an online lender, you can be approved instantly if they have an automated process.
After the online lender approves your loan, you can see your funds as soon as the same day depending on the lender.
If you used a traditional bank, the lender would write a report saying why you are approved or not for the loan.
There are several different business loans to choose from and the documents required will vary on the type of lender. Here is a checklist of some of the common required documents.
As you can see there are a ton of variables that play in the part of the underwriting process and it can be overwhelming. Communicate with your lender whether in person or online to give you their insights and help you get your chances of being approved increased.