Tapping the Money Tree: A Brief Guide to the Commercial Loan Underwriting Process

So, you've started a business -- congrats! You're now part of an elite group of 30 million people in the U.S.: the small business owner.

But, you need funding and you need it fast!

You haven't built your business credit yet and you can't wait the months it takes for an SBA loan to come in. You don't even have all the criteria you need for the application paperwork.

So, what do you do? It may feel like your business is in serious trouble. Don't panic!

You may not realize it, but you do have options. Before you go through the loan application process, you should understand what you can expect.

We're going over all of that in this guide, as well as explain the commercial loan underwriting process.

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What Are the Steps of Getting a Commercial Loan?

Getting a commercial loan is a lot like taking out a personal loan. When you buy a house or a car, it's a different process than getting a line of credit from your bank, right?

A commercial loan is along the same lines. But, the steps are a little different:

  1. Know what you need the money for

  2. Understand your commercial lending options

  3. Find out what you qualify for

  4. Start the application process

  5. Get approved or denied

A commercial loan takes a long time from step 4 to step 5. The biggest reason why is the underwriting process.

What Is Commercial Loan Underwriting?

If you own your home, you remember the underwriter. This was the person who, in essence, held all the power to approve or deny your mortgage.

A commercial loan underwriter works along the same lines. They're the person who gathers all your information. They analyze it using specific criteria and determine your creditworthiness.

Based on this data, you'll either receive approval or get denied.

How Does the Process Work?

After the lender receives your loan application, it goes to underwriting. An underwriter starts reviewing your loan.

Now, depending on what loan you're applying for will determine what the underwriter needs to complete your application. We're reviewing the most popular online lending products below.

Merchant Advances

With a merchant advance, you'll receive a lump sum of cash. The loan gets paid back through via a percentage of your daily credit card sales.

For this loan product, the underwriter will require three months of bank statements. If your business doesn't sell a product or you haven't been in business for three months, this isn't a good option for you.

Line of Credit

A line of credit for your business works like a credit card. If you have both strong personal and business credit, this may be an option for you.

You'll receive the requested funds fast and without a lot of paperwork to file. Some underwriters may require three months of bank statements. Others may base the decision off your personal and business credit, especially if it's in the "excellent" range.

Term Loan

Term loans through an online lender are very similar to a standard bank loan. This means that you'll need the typical amount of documentation for underwriting to make their decision.

Not always, but typically, this includes:

  • Income tax returns for the last one to two years -- both personal and business

  • Business bank statements for the last three to six months

  • Business organization documents to prove ownership -- articles of incorporation, LLC agreement, or partnership agreement

  • P&L statement or income statement

  • Business balance sheet

As you can see, this has the most stringent qualifications. That's why it's very important that you speak to an expert that can help determine which loan product is best for you.

After the underwriter reviews all this information, they'll make a determination on your loan status. In a traditional commercial loan, this can take several weeks.

Don't Have Time for Any of That? We Can Help

As you can see, commercial loan underwriting is a long, drawn-out process. Most new business owners don't have time to wait months or even weeks to get the needed funding.

That's where we come in.

At CapFront, we make our decision in as little as a day without needing mounds of paperwork. This means that you could have the needed funds the next day.

What are you waiting for? Learn more about our loan products and our process today and have the money you need tomorrow!