What to Expect During Business Loan Underwriting
Understand what happens during business loan underwriting, what underwriters evaluate, how long it takes, and how to avoid common underwriting delays.
Underwriting is where your loan application gets serious scrutiny. An underwriter reviews every aspect of your business and personal finances to assess risk and make a lending decision.
Understanding this process helps you prepare properly and respond effectively to requests.
What Underwriting Involves
Underwriters analyze your application across multiple dimensions:
- Credit analysis: Personal and business credit history review
- Financial analysis: Revenue, profitability, cash flow, debt levels
- Collateral evaluation: Asset values and lien positions
- Business analysis: Industry, management, market conditions
- Character assessment: Payment history, stability, integrity
- Capacity verification: Ability to repay from business cash flow
The Five Cs of Credit
Underwriters evaluate the classic five Cs:
| Factor | What Underwriters Look For |
|---|---|
| Character | Payment history, business experience, stability |
| Capacity | Cash flow to service debt, DSCR ratio |
| Capital | Owner equity, down payment, skin in the game |
| Collateral | Assets to secure loan if default occurs |
| Conditions | Industry trends, economic environment, loan purpose |
Documentation Deep Dive
Expect underwriters to scrutinize:
- Tax returns: Verifying reported income matches bank statements
- Bank statements: Cash flow patterns, average balances, overdrafts
- Financial statements: Comparing to tax returns for consistency
- Accounts receivable aging: Quality of outstanding invoices
- Accounts payable: Are you paying vendors on time?
- Legal documents: Corporate filings, leases, contracts
Consistency Matters
Underwriters look for discrepancies between documents. If your tax return shows $500K revenue but bank statements show $600K in deposits, expect questions.
Common Underwriter Questions
Be prepared to explain:
- Large deposits: Source of any unusual deposits
- Revenue fluctuations: Why revenue increased or decreased significantly
- Customer concentration: If one customer is more than 20% of revenue
- Legal matters: Any lawsuits, judgments, or legal issues
- Personal credit events: Explanation for any late payments or collections
- Use of funds: Specific details on how loan will be used
Underwriting Timeline
Typical timeframes by loan type:
| Loan Type | Underwriting Time | Factors Affecting Speed |
|---|---|---|
| Online term loan | 1-3 days | Automated decisioning |
| Bank line of credit | 1-2 weeks | Relationship, documentation |
| Bank term loan | 2-3 weeks | Complexity, collateral |
| SBA 7(a) | 2-4 weeks | Documentation completeness |
| SBA 504 | 3-6 weeks | Two lender involvement |
What Causes Delays
Common issues that extend underwriting:
- Missing documents: Incomplete file stops review
- Unexplained discrepancies: Numbers that do not match up
- IRS transcript delays: Can take 2-4 weeks to receive
- Appraisal delays: Real estate appraisals require scheduling
- Verification issues: Cannot reach references or verify information
- Underwriter backlog: High volume periods slow everything
How to Help Your Application
Accelerate underwriting by:
- Submitting complete documentation upfront: Do not wait to be asked
- Providing explanations proactively: Letter explaining any credit events
- Responding same day: Do not let requests sit in your inbox
- Being available: Answer phone, check email frequently
- Keeping records organized: Find documents quickly when asked
- Being honest: Underwriters appreciate transparency
Single Point of Contact
Designate one person to handle all underwriting communications. Multiple contacts create confusion and delays.
Conditional Approvals
Most approvals come with conditions that must be satisfied before closing:
- Documentation conditions: Additional paperwork needed
- Verification conditions: Third-party confirmations required
- Prior-to-funding conditions: Must be cleared before disbursement
- Post-closing conditions: Required after loan closes
- Ongoing covenants: Requirements throughout loan term
If You Are Declined
A decline is not the end:
- Request the reason: Lenders must provide adverse action notice
- Address the issue: Fix credit problems, gather documentation
- Try another lender: Different lenders have different criteria
- Consider alternatives: Different loan types may fit better
- Wait and reapply: Some issues resolve with time
Decline Reasons
Common decline reasons include insufficient cash flow, weak credit, inadequate collateral, limited time in business, or industry restrictions. Knowing why helps you address it.
Underwriting Checklist
Prepare these items before underwriting begins:
- [ ] Three years business tax returns
- [ ] Three years personal tax returns (all owners)
- [ ] YTD profit and loss statement
- [ ] Current balance sheet
- [ ] Six months business bank statements
- [ ] Accounts receivable and payable aging
- [ ] Personal financial statements (all owners)
- [ ] Business licenses and registrations
- [ ] Lease agreements
- [ ] Equipment list with values
- [ ] Debt schedule (all existing loans)
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
Third-Party Lenders: All loan products are offered by independent third-party lenders. Liminal Lending Co. is an Independent Sales Organization (ISO) and receives compensation from lenders for successful referrals. Terms and conditions of any loan are between you and the lender.
Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.