Now that the lender has the necessary documents, next in the SBA 7(a) loan process is the lender’s preliminary (or “lite”) underwriting of the loan. In this step, the lender uses the provided documents to identify any concerns with the borrower, business, or loan.
The lender wants the loan to work. As such, they don’t identify these concerns to find a reason to reject the loan application, but instead to determine what questions to ask and what to require before they can confidently continue with the loan process. The discussion of these concerns will come in the next step, Step 7: Pre-Qualification.
The borrower should be prepared to continue working with the lender as needed. Whether it’s answering questions, providing more documents, or anything else, the borrower’s responsiveness to the lender is key to the preliminary underwriting process’s efficiency and outcome.
Focuses of Analysis
Although the lender’s analysis will depend on the particular loan, here are some areas lenders typically focus on:
• SBA Loan Eligibility
The lender compares the loan to the SBA’s guidelines for 7(a) loans and makes sure that the loan is eligible for an SBA guarantee.
• The Business’s Ability to Repay the Loan
The lender considers factors like the business’s current and past cashflow, the borrower’s business plan, and more to evaluate the business’s future. However, cashflow is the most important factor, as the lender wants to know if the business is capable of paying the loan back.
If the loan is to buy a business, the lender will put more weight on the borrower’s planned changes to the business and their projected effects on cashflow. This allows the lender to better project the business’s future ability to repay the loan.
• The Borrower’s Creditworthiness
The lender looks at the borrower’s credit score, financial history, and personal finances to see if there are any issues that require further discussion.
