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Unraveling the Business Loan Process

Many times loan applications can be a daunting process. All the forms you have to fill out and make sure you sign can be very confusing. Sometimes, the loan process the lender has set up is different from the other procedures that they conform to, thus making it difficult for the borrower to understand the practices.

As a potential borrower, your expectations of the loan process should be clear. Any questions you have should be answered. If there are any questions about the loan application or the loan itself, this should be answered prior to the loan being granted. The loan officer and lending group are responsible for walking you through the loan process from the application until its approval. The process allows the lender to decide if you are worthy of the loan. The process includes the initial interview with the lender, the application, the review of your credit and the application, qualifying, processing all the documentation, underwriting the loan and a closing process.

The initial interview will allow you to explain your case to the lender. It will also give the lender a chance to interview you for your “character”. This is an important part of qualifying for the loan. The lender will help you work through your needs, answer your specific questions and find the loan that will work best for your situation. Qualifying for the loan is the next step. Your personal credit history is determined, the business’s credit history (if there is one) is analyzed, and your business plan, the amount of money you are willing to invest and your debt-to-credit ratio. All of these things will help determine, if the lender can give you a loan and what kind of loan you can qualify for your business. At this point, if you pre-qualify for a loan, you will fill out the application. As stated before, the lender should go through each step with you.

Included with a loan application, you may be asked to provide tax documentation records. The processing part of the loan includes the gathering and checking to make sure all the information is correct, accurate and available. This is to make the loan underwriters process simple. All the information is measure by the loan underwriter to determine the loan the borrower will receive. There are four features that the underwriter is looking for in a borrower: character, collateral, capacity and capital.

Character is important tool the underwriter uses to measure how willing you are to make your payments promptly. If there are issues with this part of your processing, your loan officer will assist in ways to make this meet their standards.

When funding a business or getting any other form of a loan, it is important that the borrower show that he/she has something to support the loan, if there is a default on the loan. Underwriters look for collateral to process the loan. Capacity is your ability to make the monthly payments on the loan. Pay stubs, income and cash flow statements will support this best. Capital is determined by the amount of money you have to put a down payment on the loan and covering any fees and closing costs.

Once the underwriter is complete in evaluating your documents, the loan is either approved or denied. If the loan is approved the loan officer will keep you abreast of all the process that follow, including signing and dating all the documents. If your loan is denied you will be informed in writing.