When applying for a business loan, it’s important to be as prepared as possible. Lenders and loan specialists often look at every piece of documentation with a fine-toothed comb. If they need more information from you, don’t take it personally! They’re just trying to build a full picture of your small business so they can better understand and assess potential risk.
The process of reviewing your loan application is called business loan underwriting, and it’s a crucial part of the approval process. During underwriting, your loan application will be double-checked by an expert who will appraise the business and determine if it’s eligible for credit. They’ll also weigh the potential risks of your application and set a risk value for the company.
Business Loan Underwriting Process: Best Practices for Lenders
While the specific details of a business loan underwriting process can vary between online lenders and traditional bank lenders, there are several things you should keep in mind. For example, many lenders require a personal guarantee from the borrower or owners of the company. This means that if your company defaults on the debt, the owner or owners will be responsible for repaying it. It’s also common for lenders to request your annual revenue or monthly revenue, as well as a debt service coverage ratio (DSCR).
If your small business doesn’t meet these requirements, the lender may not approve you for financing. However, some online lenders are known for being more flexible with these requirements and may be willing to work with you even if your business has high debt or bad credit.…