What Lenders Want: The Ultimate Guide to Small Business Loan Underwriting

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For many borrowers, the small business loan underwriting process feels like a complete mystery. After submitting your application, you’re often left wondering what’s happening behind the scenes.

But here’s the thing—underwriting is a critical step that can make or break your chances of getting approved for financing.

If you want to maximize your chances of success, you need to understand how underwriting works. That means knowing what lenders are looking for and using smart strategies to strengthen your application. 💡

Loan Underwriting Explain: Everything You Need to Know

Underwriting is how lenders decide if your business qualifies for funding by reviewing key documents and credit details. Some lenders still handle this manually, while others use automated systems for faster and more efficient decisions.

At the very least, lenders evaluate your business revenue, credit profile, and time in business. But they often go deeper, looking into things like outstanding debts, ownership structure, and other critical business details. The goal? To determine how likely your business is to repay the funds you’re borrowing.

The time it takes for underwriting varies widely. Traditional banks and credit unions are known for lengthy processes that can take months, while non-bank lenders often deliver decisions in just hours or days.

How Loan Underwriting Works

Just like personal loans or mortgages, small business loans go through an underwriting process. After you apply, lenders use a mix of technology and human expertise to decide if your business qualifies for funding, how much you’re eligible for, and at what interest rates.

During underwriting, lenders focus on three main factors to determine your eligibility:

1️⃣ Your ability to repay: Lenders want to know if your business has the financial stability to handle loan payments, including interest.
2️⃣ Your willingness to repay: Showing a history of on-time payments demonstrates that you take your financial responsibilities seriously.
3️⃣ Your resilience: Lenders assess how your business could handle unexpected challenges—like a fire, economic downturn, or revenue disruption—and still stay on track with payments.

These factors help lenders gauge your business’s overall reliability. Depending on how you score in these areas, you could unlock a variety of funding options. 💼💸

The Information Underwriters Need About Your Small Business

When you apply for a business loan, lenders will dive into your application and request specific documents to assess whether your business qualifies for funding. The exact requirements may vary depending on the lender, but most will focus on reviewing these key areas:

Factors that Impact Your Business Loan Approval (And What Won't Matter)

When applying for funding, there are certain red flags that can raise concerns for lenders and potentially hurt your chances of securing a deal. It's crucial to be aware of these deal-breakers as they can directly impact your approval odds.

Here are some of the common red flags lenders look for:

• Unreported merchant cash advances or loans not reflected in your bank statements

• Poor personal credit score

• A criminal background history

• Uncovered tax liens

• A recent bankruptcy (within the last year)

• Unresolved judgments

• Owning less than 50% of the business

• A significant drop in revenue

• Discovery of an undisclosed, defaulted, or restructured loan

That said, not all lenders will see these as deal breakers. Some may still be open to working with you even if you have a poor credit score or have experienced a dip in revenue. Online lenders and fintech companies, in particular, are often more flexible with their requirements. So, don't get discouraged—understand what could raise a flag, but also know that other options may be available.

Essential Tips to Ace the Small Business Loan Underwriting Process

To boost your chances of approval, it’s essential to take the right steps both before and during the underwriting process. Implementing these strategies early can make all the difference in ensuring your application gets the green light and your business secures the funding it needs.

Why Every Dollar Should Flow Through Your Business Bank Account

If you’re not depositing all your income into your business bank account, you’re holding your revenue back. 💸

Make sure every dollar—credit card sales, cash payments, and any other earnings—flows into your business account. This shows lenders you have the cash flow to handle repayments, boosting your credibility.

Another win? Keeping your account deposits consistent helps ensure your balance stays positive. Overdrafts or negative balances during the underwriting process? Big red flags! Stay ahead by keeping those accounts in the green. 💪📊

Boost Your Liquidity for Better Loan Approval Odds

When it comes to underwriting for small business loans, liquidity is everything. Lenders want to see that your business has a solid amount of liquid assets—like cash, stocks, accounts receivable, or inventory—that are easily accessible. Showing strong liquidity demonstrates that your business has the financial resources to repay the loan, even if unexpected challenges come your way. 💼✨

Keep Your Revenue Flowing Smoothly

Lenders love to see a steady stream of revenue over time, even more than those occasional spikes. Consistency signals stability—and that’s exactly what lenders are looking for!

Double-Check Your Details: Accuracy Matters

Lenders are skilled at reviewing documents, spotting discrepancies, and ensuring every detail checks out. 🤔 Don’t think you can outsmart the process—underwriters will uncover the truth!

To stay on the right track, be upfront about your debts, revenue, and every bank account tied to your business. Honesty is critical. If an underwriter finds something you’ve tried to conceal, it could derail your approval and your chances of securing funding. 🚫✨

Key Factors Lenders Evaluate Before Approving Your Loan

When it comes to securing a loan, there are three key factors that lenders are always going to evaluate: time in business, annual revenue, and your credit score.

• Time in Business: Lenders love established businesses because they come with a track record. More experience means more stability, which translates to a higher chance of repaying borrowed funds. Startups don’t always have that advantage, but they can still secure funding with the right strategies.

• Annual Revenue: Simply put, if your business isn’t generating enough revenue to cover loan payments, you're already starting off on the wrong foot. Lenders want to know that your cash flow is strong enough to support the debt you’re taking on.

• Credit Score: While not as critical as it used to be, your credit score still matters. It gives lenders a snapshot of how well you manage credit. If your credit history is messy, it raises a red flag and could hurt your chances of getting approved.

Some lenders prioritize one of these factors more than the others, but it’s crucial to keep all of them in mind when you’re starting your application. Set yourself up for success by preparing each of these areas before you reach out for funding.

Navigating the Small Business Loan Underwriting Process

Here’s what you can expect during the underwriting process for small business loans. The timeline can vary depending on the lender, with online lenders often being quicker than traditional banks.

Make sure to ask your lender about the estimated timeframe, so you can stay on top of things. To maximize your chances for approval, be sure to follow the tips we’ve shared throughout the entire process.

In general, the small business loan underwriting process consists of five key steps:

1. Application

2. Review

3. Approval

4. Negotiation

5. Funding

These steps outline what lenders will be looking for as they assess your business’s ability to repay the loan. Stay on track, and you’ll be in a better position to secure the financing you need.

Navigating the Underwriting Process: Tips to Secure the Loan You Need

Different lenders have different criteria, and rejection isn’t the end of the road. If you’ve been turned down for a business loan or want to explore your options before locking into a deal, reach out to us at DFX.

At DFX, we specialize in helping small businesses secure the funding they need to grow and succeed. Whether you're looking for a loan, line of credit, or other financing options, we’ve got the best solutions available in the market.

Fill out our quick 60-second application, and one of our expert Business Financing Advisors will be in touch to guide you through your options! 🚀💼

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from DominoFX (DFX) and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.

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