Navigating Commercial Underwriting

Have you considered seeking financing for your business, but not entirely sure where to start or how to put together a package for underwriting? It may seem like a daunting process, however, it's fairly straightforward when working with a competent banker that can clearly outline the necessary steps.?Although each lending institution is likely to have their own process, there is a general outline that most will follow.?In this article, I’ll provide you with some general guidance that should assist you in navigating the process as efficiently as possible.

One of the most important questions to ask yourself is why does your business want to obtain financing??Is to purchase equipment, bridge short-term working capital, or buy a piece of real estate??While I’m not going into depth on the different loan types and purposes for each, a good rule of thumb is to match short-term needs with short-term financing and long-term needs with long-term financing.?For example, if you need access to working capital to bridge the gap between collecting accounts receivable and covering certain expenses, a line of credit may be your best option.?Whereas if you were seeking to purchase equipment that had a useful life of five years, a term loan of five years or less would be more appropriate.?These are of course, just examples. There are a variety of different loan structures available depending on your specific need.

Now that you’ve determined why you need financing and have a general idea of what loan products fulfill which needs, how do you find the right bank to provide financing.?If you don’t already have an established relationship at a bank, I would encourage you to speak to your accountant, attorney or other trusted advisor. Determine which banks they have had positive experiences with and more specifically, if those experiences were with loans/businesses similar to yours.

Especially with business financing, not every bank will have the same appetite to lend money for your specific need. Speaking with a few banks suggested by your trusted partners will provide some perspective on their lending appetite as well as if a good fit exists.?One of the biggest mistakes I've seen by both bankers and borrowers is attempting to put a square peg in a round hole. A quick "no" is just as valuable as getting an approval. Generally speaking, when a bank has an appetite to lend for your specific need more engaging conversation ensues . When speaking with a banker, I’d keep the following items in mind:

1. Did the banker ask exploratory questions about your business or its goals and how your financing request would help your business?
2. Did they attempt to understand what business opportunities you are exploring or challenges you are facing?
3. Was the banker transparent about the underwriting process, anticipated loan conditions and expectations regarding information required and timing?
4. Was the banker able to discuss a variety of financing options and structures?
5. Did the banker seem confident that your loan is a good fit for their organization? If not, were they able to offer alternative sources for financing?

As part of conversations with a banker, a clearly outlined list of documents needed for the underwriting process specific to their bank should be provided.?This list will generally include requests for financial information, detailed information about what is being financed and bank statements.?While not always required, the following information does greatly assist bank underwriters in understanding who you and your business are.

1. Resumes of business owners and/or key personnel.
2. History of the business.
3. Details on the specific products and services you offer, who are your major local or national competitors?
4. Who are your major customers and vendors?
5. What are the company’s plans for continued success into the future?
6. If the business is a start-up or young, a detailed business plan will likely be required.

Preparing and providing these documents in timely and organized fashion, can have a profound effect on how quickly your loan moves through the underwriting process. ?Your banker is likely to have a list of questions that has come from the bank’s underwriters as information is reviewed.?To maintain the momentum of moving forward, it’s always in your best interest to respond to these questions in a timely and thorough manner. Nothing can cause more frustration and inefficiency than the constant starting and stopping of the process.

As mentioned, all banks will have varying processes, timeframes and requirements to review your financing request. This simplified outline, has hopefully, provided you with important factors to consider when evaluating a bank to work with, removed some of the anxiety about inquiring and applying for business financing and set a baseline of the expectations of many lending institutions.

As a Relationship Manager at First Bank, I'd encourage you to contact me should you have any questions about your specific banking needs. I've counselled both clients and non-clients through underwriting processes as well as evaluated loan structures that have been offered by other lending institutions. As a community banker, it is my goal to provide local businesses transparent and unbiased guidance that aids in navigating the banking and lending world.