As a small business owner, obtaining financing can be a challenging process. However, understanding the loan application process can help alleviate some of the uncertainty and make the process smoother. In this article, we will discuss what to expect from the loan application process, from the initial application to closing.
The loan application process can vary depending on the financial institution you choose. Generally, it can take anywhere from two weeks to six months to complete the process after submitting the loan application and related documents to the bank. The timeline can be influenced by factors such as the bank’s experience with lending to the borrower’s industry, the borrower’s responsiveness in submitting the necessary documents, and the accuracy and completeness of the information collected.
The loan application process typically consists of three stages: application, underwriting, and closing.
In the application stage, a loan officer will work with you to gather all the information needed to prequalify your loan request. During this stage, you will discuss your plan for the loan proceeds, whether you are looking to refinance existing debt, acquire an existing business, or expand your current operations. If you are buying or expanding, have the purchase price details available.
To submit a complete loan application, the lender will need to understand your business and your plans for the future. You will need to provide information such as a description of your new and/or existing business, the local market, your experience in the subject business and the industry, and present and future revenue breakdowns. Additionally, you will need to submit corporate tax returns, current financial statements, contact information, resume, and personal tax returns.
Once all necessary documentation is submitted, the bank or institution involved will send you a loan proposal. After the proposal is accepted, you will move into the underwriting stage.
In the underwriting phase, you will work directly with the underwriter assigned to your loan. The underwriter will verify and analyze documents submitted during the application phase to determine accuracy and creditworthiness. The underwriter will complete a cash flow analysis and full review and analysis of other pertinent financial information related to both the business and the individual(s) seeking the loan.
Additional financial details may need to be submitted to the underwriter analyzing the business. This information will be part of the credit memo, which is presented to the credit officer who ultimately approves or rejects the loan request. Specific questions regarding paperwork can be addressed directly to your underwriter.
By understanding your story, how you got where you are today, and your plans for the future, your underwriter will be your advocate and assist you throughout the review process. When your loan is approved, you will receive a commitment letter with the terms and conditions of the loan. Once you provide your signature, you will move into the final stage of the loan process.
Once a commitment is made by the institution providing financing, the loan closing specialist, or closer, will prepare a closing checklist of all required documentation needed on your loan prior to closing. He or she will contact you to schedule a kick-off call to explain the checklist in detail. All parties involved in the loan, including the borrower, the borrower’s legal consultants, and the lender, will be included on the call.
Your closer will then review and approve all documents received off the checklist and move the loan into the last phase of closing. At this point, final loan documentation, including the Note, Deed of Trust, Security Agreement, is prepared and reviewed by your closing team prior to you signing to ensure all necessary information is included.
Throughout the financing process, you will work with a group of specialists who bring your small business dreams to reality