Private business finance loans are an option when you need to fund a business. They are important for starting, running or growing a business. But getting a business financing loan is more than just filling out an application. It’s a process that involves a detailed review called the “Business Loan Underwriting Process,” where lenders check if a business is eligible for finance.
In this article we’ll cover everything you need to know about private business finance loans and how the small business loan underwriting process works. Let’s get into how you can navigate this process and get approved for the funds you need.
Best for large business loans
- 3 Months in Business
- $10,000 in Monthly Rev
- Minimum Credit Score 550
4.9
Best for large business loans
- up to $1.5 million
- APR range Not disclosed
- Minimum Credit Score 570
4.7
Best for Small business loans
- Apply in Minutes
- No Hidden fees
- Wide range of Options to choose from
- Get funded in as little as 24 hours*
4.8
- Real-time pre-approvals for those who qualify
- Time in business: 6+ months
- Average repayment terms by loan product
4
What is Business Loan Underwriting?
Business loan underwriting is the process lenders use to check if a business is financially sound enough to get a loan. Lenders look at the business’s credit history, financials and other key details. They do this to make sure the business can pay the loan back on time without major financial stress.
The underwriting process is the backbone of any business loan. It allows lenders to make informed decisions so they can lend to businesses that will succeed and pay back the loan as agreed.
How the Loan Underwriting Process Works
The loan underwriting process involves:
- Application Submission – The business submits an application.
- Document Review – Lenders review financials and bank statements.
- Credit Check – The business’s credit history and credit report is checked.
- Approval Decision – The underwriter or loan officer decides to approve or decline the loan.
- Funding – If approved, funds are released to the business.
Each step is crucial for the lender to make a decision on the business loan.
Creditworthiness Counts
A business’s creditworthiness is a big factor in the underwriting process. Lenders want to see that the business has a good financial history and of managing its finances. This can be shown through a good credit report and responsible use of credit over time.
Good credit can help get a business approved for a loan. Bad credit history or outstanding debt can hurt approval chances. Many lenders will also look at the personal credit score of the business owner as part of their overall assessment.
Get Ready for the Underwriting Process
Getting ready for the underwriting process involves:
- Gather Financials – Financial documents like income statements, cash flow statements and balance sheets should be in order.
- Check Your Credit – Review both personal and business credit scores as these will impact the approval decision.
- Business Plan – A good business plan will show how the loan will be used and the business’s ability to repay it.
Being prepared and organized will make the insurance underwriting process easier.
Loan Application Documents
To apply for a private business finance loan you will need:
- Bank Statements – Recent statements showing financial activity.
- Credit Report – Credit history and score for the business and possibly the owner.
- Tax Returns – Last few years tax returns to show income stability.
- Financial Statements – Income, balance and cash flow statements to show financial health.
- Business Plan – Business goals, strategy and expected use of loan funds.
These documents provide the lender with a full picture of the business’s financials and repayment ability.
Business Loan Underwriting Factors
The underwriting process looks at:
- Good credit means good financial behavior.
- Strong cash flow means loan payments can be made regularly.
- Positive financials mean the business can manage debt.
- Existing debt can impact the business’s ability to take on more debt.
- Lenders consider the stability and growth of the business’s industry.
These factors help the loan underwriter determine the business’s financial stability and ability to make loan repayments on time.
Loan Officer’s Role in the Underwriting Process
Loan officers are key to the underwriting process. They review the application, the business finances, assess the business’s financials and make recommendations. If more information is needed they may contact the business owner to clarify or request more documents.
A loan officer’s job is to support the underwriter and the business owner through the application process together. They are knowledgeable and can answer questions, help the business prepare for any underwriting requirements.
Best for large business loans
- 3 Months in Business
- $10,000 in Monthly Rev
- Minimum Credit Score 550
4.9
Best for large business loans
- up to $1.5 million
- APR range Not disclosed
- Minimum Credit Score 570
4.7
Best for Small business loans
- Apply in Minutes
- No Hidden fees
- Wide range of Options to choose from
- Get funded in as little as 24 hours*
4.8
- Real-time pre-approvals for those who qualify
- Time in business: 6+ months
- Average repayment terms by loan product
4
Underwriter’s Risk Assessment
During underwriting the underwriter will perform a risk assessment which looks at:
- Risk Value – How much risk is there in lending to the business?
- Financial Health – Can the business repay the loan?
- Credit Scores – How has the business managed credit in the past?
This risk assessment will determine whether the loan is approved or declined. It’s about the likelihood of the business succeeding and repaying the loan as agreed underwriting guidelines.
Industry and Market Trends
Industry and market trends also come into play in the loan decision. If the business is in a stable or growing industry the lender will view it as a low risk investment. If the business is in a declining industry the lender will see it as higher risk and may impact the loan approval.
By considering industry trends lenders get a sense of how external factors will impact the business’s ability to repay the loan.
Underwriting Challenges
Business owners may face:
- Incomplete Applications – Missing or incorrect information will slow down the process.
- Poor Credit History – Low credit scores or outstanding debt will get declined.
- Insufficient Documentation – Missing tax returns or income statements will be a barrier.
By knowing these potential hurdles businesses can prepare.
Tips for a Smooth Underwriting Process
- Submit Full Information – Fill out all forms correctly.
- File Financials – Keep financials, bank statements and tax returns up to date.
- Good Credit – Good credit history will increase the chances of approval.
- Work with the Loan Officer – They can explain requirements and provide guidance.
A smooth underwriting process is all about preparation and attention to detail.
Technology in the Underwriting Process
Technology has made the mortgage underwriting process much faster and more streamlined, especially for online lenders. Automated systems can review credit reports, financials and cash flow in seconds, reducing time and human error in manual underwriting.
Many online lenders use algorithms to assess loan applications so you can get approval or feedback faster than traditional banks.
Loan Amount and Terms
Loan amount, interest rates and terms are determined by:
- Higher credit scores will get larger loan amounts.
- Strong financials will get better terms.
- Businesses in low risk industries will get better terms.
By knowing these factors businesses can apply for loans within their means and increase their chances of approval.
Small Business Loans vs Personal Loans
Small business loans and personal loans are used for different purposes. Small business loans are for business expenses, personal loan and loans are for personal use. Business loans have a more detailed and thorough underwriting process.
While personal loans are easier to get, business loans have more funds and are tailored to business needs so many small business owners prefer business loans.
Knowing private business finance loans and the underwriting process will help businesses get funded. By knowing what lenders expect, preparing documents and good credit, businesses can increase their chances of approval. Underwriting small business loans may seem complicated but with preparation businesses can glide through each step and get the funding they need.
Frequently Asked Questions
What documents are required for a loan application?
To apply for a loan you’ll need your bank account statements, tax returns, credit reports, financials and a business plan.
How long does underwriting take?
Varies. Traditional banks can take weeks, online lenders can provide decisions in days.
How does credit history affect underwriting?
Good credit will increase chances of approval, bad credit will get declined or less favorable loan terms.
Can I get a loan with bad credit?
Yes but it will be harder. Some lenders offer loans for businesses with low credit but terms will be tighter.
How does industry impact loan decisions?
Lenders look at industry trends and financial institutions to assess risk. Businesses in stable or growing industries are considered lower risk.
