Next in the SBA 7(a) loan process is the lender’s full underwriting. In this step, the lender conducts a comprehensive and thorough review of the loan application. This in-depth scrutiny is aimed at assessing the risk associated with the loan.
Although the lender already possesses most of the documents used in this step – still having them from the initial document submission – they usually ask for new documents before and throughout the full underwriting process. It’s important for the borrower to work closely with the lender and be responsive to any new document requests, questions, or anything else the lender requires.
Before this step, the loan is transferred to the lender’s underwriting department. As such, the borrower’s primary point of contact at the lender changes to their assigned loan underwriter for this step and the remainder of the underwriting process.
Focuses of Analysis
Full underwriting consists of whatever the lender deems necessary, so the exact process will be different for every loan. However, here are the most common focuses of the lender’s analysis:
• The Business’s Ability to Repay the Loan
The lender analyzes the business’s financials to consider whether the business’s current/past levels of cash flow are enough to repay the loan. Typically, this analysis will include looking at financials from the last three full years, as well as the current year (if applicable). If the business’s cash flow is found to be lacking, the lender will put more weight on their analysis of the business’s future prospects.
• The Business’s Future Prospects
The lender analyzes the business’s financials and market position, the borrower’s business experience and business plan, and more to project the business’s future level of success.
• Creditworthiness
The lender analyzes the credit histories of both the borrower and business to help determine the riskiness of the loan.
• Value of Collateral
The SBA requires that all loan assets, i.e. the business, real estate, equipment, etc. that the loan is for, are included as collateral in the loan. The lender analyzes the value of this collateral to determine whether it’s sufficient for the loan. If that collateral isn’t enough (and it usually isn’t), the lender will require more. This typically comes in the form of a life insurance policy on the borrower and/or a lien on the borrower’s house (if applicable).
Tips for Full Underwriting
The full underwriting process can be long and difficult, so here are some tips to help you have the best possible experience:
• Be Responsive and Work Closely With the Lender
To be helpful, speed up the process, and possibly lead to a better outcome, it’s important to be responsive and work closely with the lender. This means promptly answering questions, providing newly requested documents, and whatever else the lender needs.
• Expect New Problems to Arise
The underwriting process can uncover all sorts of things. There are often speed bumps along the way, whether it’s previously unnoticed weaknesses in the business’s financials, your collateral not being worth enough after all, an overcritical lender fixating on a certain point, or anything else. If you’re expecting this, however, you can stay flexible and be prepared to deal with anything that comes up.
• Keep a Good Attitude
This step can be frustrating. New issues coming up, an unreasonable lender, and more can make it difficult to stay level-headed and optimistic. However, it’s important to keep your cool and be courteous to the lender – this is a marathon, not a sprint, and being difficult to work with can be damaging to your loan’s chances of success.
