August Brown | All you need to know about Underwriting for Business Loans

What is Underwriting?

When any business applies for a loan, the lender has to evaluate the loan capacity, credit history, and indemnity of the business/applicant. The information gathered is then used to make a lending decision.

What is the significance of Underwriting?

The loan decision leans greatly towards the underwriting guidelines that need to be followed. These underwriting guidelines are formed keeping in mind various factors that will restrict the lending decision made by the lender. The information gathered is thus used to determine the following if the loan is to be approved:

  • Loan amount
  • Credit terms
  • Interest rates
  • Repayment Obligations, etc.

What are some standard Underwriting Guidelines?

The majority of lenders use underwriting guidelines established by the Federal Reserve for Small Business Administration (SBA) loans. However, every lender may make an individual decision based on the findings after completing their underwriting process.
Significant attention is paid to the capacity of the applicant/ business to repay the lent amount. Therefore, the lender considers the current and anticipated future cash flow subject to a diverse set of economic conditions.
This can also be achieved by performing an extensive feasibility study by the lender from the applicant. However, again, only an expert generally conducts these feasibility studies.

Basic underwriting guidelines are based on the following:

  • Regularity in income, adequate enough to meet the debt obligation
  • The value and quality of the collateral
  • Applicant’s credit history
  • Applicant’s equity in the business
  • Additional collateral or assets
  • Business owner’s creditworthiness & credit history

What is the typical Business Loan Application Process?

Once the business decides the lender through which they wish to apply for the loan, there is usually a set process that they will go through with the loan.

  1. Filling out the application form
  2. Submitting required documentation
  3. Loan Underwriting
  4. Underwriting Review
  5. Lending Decision based on the review
  6. Disbursement

What are the standard Documents required for a Business Loan?

Different lenders may request a myriad list of documents dependent upon the borrower’s request for

  • The kind of loan applied for
  • The loan amount applied for
  • The motive behind the loan application

Most common documentation that lenders require:

  • Company’s Business Plan
  • Business Financial Statements
  • Business Owner’s Financial Statements
  • Business Tax Returns
  • Business Owner’s Tax Returns
  • Business License
  • Outstanding Financial Obligations
  • Credit Score/ History
  • Collateral, if need be

We’ll talk more about the business documents in our next blog, stay connected.

Underwriting at August Brown

August Brown is a boutique agency dedicated to accelerating our client’s growth by providing niche consulting services. We provide unmatched depth, unparalleled insight, and exceptional service with the singular focus of exceeding our client’s expectations. We understand that risks accompany every transaction. We acknowledge that our paramount responsibility to our clients is to minimize that risk. As such, August Brown aims to conduct underwriting services at an exemplary standard. Each transaction is assessed thoroughly, with each aspect analyzed in-depth before submitting our results. With August Brown, you can rest assured that the underwriting service you receive will be unparalleled.

We pride ourselves on delivering the highest quality services and returning results in the shortest possible turnaround time, enabling our clients to make confident decisions and swiftly move forward with their business.

After completing the underwriting process, we offer a full suite of consulting services to support our clients. For example, should you require a feasibility study, management consulting, market analysis, or strategic guidance, we can help your business achieve its goals and reach inimitable heights.

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