How to Underwrite a Business Loan?

The lenders use several factors to determine the amount of debt that your business is able to repay. In the process of underwriting business loans, both human expertise and technology are used.

Cash flow, your credit score, cash on hand, revenue, profit, current debt, and the amount of loan requested are important factors in determining your current financial situation. By considering these major aspects, we will learn how to underwrite a business loan in this blog post.


Choosing a loan and understanding the terms that come with it can seem overwhelming if you’re new to applying for a loan. The loan underwriting process, which can involve a lot of paperwork and complicated steps, will be the same whether you’re looking for a mortgage for your home or invoice financing for your small business.

Underwriting refers to the actual process that lenders go through to decide whether or not to approve your loan application. When you know what to expect from the loan underwriting process, you can be better prepared and possibly even improve your chances of being approved.

What does loan underwriting mean?

A loan is underwritten by evaluating whether an applicant is eligible for a loan and if they are, which loan terms they qualify for. Loan underwriters’ decisions during the loan underwriting process won’t be purely yes-or-no, but rather will determine what loan amount, interest rate, and repayment term lengths qualified borrowers to receive.

All about commercial loan underwriting

The loan underwriting process for business loans will now follow this general underwriting definition. As such, the commercial loan underwriting process evaluates both your personal finances and the finances of your business. Consequently, the underwriting process for commercial loans can be thorough, document-intensive, and time-consuming.

Does every borrower go through underwriting?

In spite of the fact that underwriting will be a universal experience for all borrowers-both consumers and businesses-the commercial underwriting process is a whole other beast. The purpose of this guide to loan underwriting is to shed light on this complex process by concentrating on loan underwriting for business loans.

Different aspects your small business underwriters look for

  1. Income Statements

When underwriting small business loans, lenders will use your income statements to verify your revenue and determine your ability to repay your debt. Your income statement may also be used by lenders to determine your loan amount based on cash flow. A small business can get about 10% of its revenue at most in funding, though amounts vary.

2. Credit Report

Your credit report will be checked for any late payments and delinquencies by lenders to determine how likely you are to pay them back. There are some businesses with financial means that do not always follow through with their payments. Any potential risks will be highlighted in your credit report, particularly your credit score. 

3. Business plan

During the review of your application, lenders will consider these questions and look to your business plan for answers. In general, banks require this, but not fintech lenders like National.

4. Collateral 

In order to ensure their repayment, lenders can enforce a collateral requirement. This could include pledging business assets or even personal assets as collateral.

5. Debt-to-Equity Ratio 

In the case where your lender isn’t requiring collateral, they’ll almost certainly be looking at the debt-to-asset ratio of your business. Underwriting this part of a small business loan is important, as it will tell them whether your business has enough assets to cover the loan if it defaults. 

Aspects that can affect your small business loan underwriting process

As important as knowing what lenders are looking for is knowing the deal-breakers. These include: 

  • You haven’t disclosed recent merchant cash advances or other loans on your bank statements 
  • Low personal credit rating
  • A criminal record check 
  • Unreported tax liens discovered
  • Bankruptcy recently (within the last year) 
  • Unsatisfactory judgments are discovered
  • You must maintain more than 50% ownership
  • A decrease in revenue of a significant amount
  • A business loan that has been defaulted on or restructured that has not been disclosed

These factors may not all be red flags for all lenders. If you have bad credit or a recent drop in revenue, some lenders may still approve you for a business loan. Many online lenders are more flexible than traditional lenders.

How to Survive the Underwriting Process and Get the Loan You Need

You should be aware that different lenders have different requirements. Get in touch with National if you’ve been rejected for a business loan or would like to consider your options before signing on the dotted line. 

Our goal at National is to help small businesses secure the funding they need to succeed. We provide you with the best business loans and credit lines on the market, no matter what your needs are. 

Also Read

What Happens To Small Business Loan If Business Fails?

What Happens to PPP Loan if Business is Sold?

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