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Updated: Jan 6, 2020
The process of applying for business funding is multifold. After you consider your loan options, prepare your financial documents, draft a business plan, and submit your application, you have to wait.
During this waiting period, your application goes to a team of underwriters. To refresh your memory, business loan underwriting is the process a lender goes through to determine a loan applicant’s creditworthiness. Every lender has a slightly different approach to the commercial loan underwriting process. But, most lenders weigh several main factors in assessing your eligibility. Think: a cash flow statement, your business’s balance sheet, and your personal credit score.
So, how long does it take to get a business loan? Depending on the lender you choose, the waiting period can be fast or tedious. For bank loans and loans backed by the Small Business Administration, for example, it’s common to wait 90 days before you receive an initial response. The process doesn’t end there, either — many traditional lenders will request in-person meetings or additional documentation before making a final decision.
On the other hand, if you’re applying for a merchant cash advance, you might hear back within just a few hours. This speedy turnaround comes with a price, though. Short-term lenders like this typically charge excessive interest rates as insurance against the businesses that inevitably default on their payments.
At Funding Circle, we aim to keep how long it takes to get a business loan and the process as fast and pain-free as possible. However, we strive to still be thorough with your application and careful with your personal information. Here’s what that looks like:
After you’ve filled out your application and sent in your supporting documents, we pass your application to our underwriting team to evaluate your business and determine whether or not you’ll be able to repay the loan.
The commercial loan underwriting process depends on which lender you choose. Many traditional lending institutions still review loan applications manually. This guarantees that an underwriter is looking at every document you send in, but it also takes much longer. Plus, there’s the risk of human error; without the help of software, underwriters might miscalculate formulas or overlook critical numbers in your financial documents.
Other lenders rely solely on underwriting software to assess an applicant’s information. Though technology can expedite the approval process, it also fails to capture the humanity of a business owner. Without someone reviewing the nuances of your application, certain aspects of your business plans and goals might go unnoticed.
At Funding Circle, we believe in a two-pronged approach to business loan underwriting. We don’t rely on one person to make decisions, nor do we use a computer algorithm that spits out a one-dimensional answer.
Our expert underwriting team reviews and finalizes all transactions, but we also leverage technology to help with our overall credit assessment.
Our method gives us more flexibility than traditional lenders. Additionally, it doesn’t impact how long it takes to get a business loan. Our underwriting software gathers relevant information from a business owner’s application. It presents it in an easy-to-read format, freeing up our underwriters to devote more time to the analytical demands of decision-making. That’s how the human element remains central to our underwriting.
We like to think our commercial loan underwriting process is the best of both worlds: you get the benefit of an individual’s deep lending expertise and problem-solving insight. Plus, we use a whip-smart credit model that makes necessary calculations.
There are several factors we consider when reviewing your application. These include your business’s financials and the overall customer support for your business. Here are some of the areas we look at in the commercial loan underwriting process:
Some alternative lenders are quick to approve applicants without evaluating the business from multiple angles. While this option can diminish how long it takes to get a business loan, the price of these fast approvals tends to be higher interest rates. For merchant cash advances, for example, the average APR ranges from 12% to 200%.
Meanwhile, traditional lenders generally offer premium interest rates (ranging from 4% to 9%), but their eligibility requirements can be rigid. Also, the commercial loan underwriting processes outdated and slow. As a result, applicants usually have to wait many months for a response and may not receive funding.
At Funding Circle, we believe in examining a variety of areas, both quantifiable and not. During the business loan underwriting process, we consider not only your business’s financial health but also your long-term goals and passion for your work.
Our objective is to assess your application in enough detail to get an accurate picture of your business’s strengths and unique needs, so we can figure out how to help. Though we look into a handful of different areas, including your personal financials, business loan underwriting isn’t akin to a background check — we don’t call your friends and family for references.
Every once in awhile, though, your underwriter might have an additional question or two about your business. If this happens, we’ll reach out to you directly and relay the questions. Don’t worry — questions don’t automatically mean there’s an issue or that it will take longer to get a business loan. Usually, there’s just something our underwriter needs to know that wasn’t clear in your initial application. Think: exactly how you plan to use your funds or why you only have a few months of revenue in the bank.
Because we leverage both technology and a team of experienced underwriters, we can usually make decisions on your loan application reasonably quickly. You may hear back with a decision in as little as 24 hours; other times, the process can take a few days.
During that time, you’ll be assigned a dedicated account manager who can answer questions and provide any additional information you might need. When we arrive at a decision, you’ll receive an email or phone call from your account manager.
We know applying for a loan can be stressful, so we make every effort to keep you in the loop about where your application is in the process. If you ever have questions while awaiting a decision, feel free to reach out to your account manager directly.
We’re passionate about helping business owners take their operations to the next level, which is why we’re focused on continually optimizing our application and commercial loan underwriting processes to better serve businesses like yours.
When you apply for a Funding Circle business loan, we guarantee a simple, straightforward application. We also ensure an efficient and fair underwriting process to help you get the funding you need with less hassle.
Chris Capecelatro is Funding Circle's U.S. director of underwriting. Previously, he managed credit risk for a global casualty insurer in addition to working in commercial lending for a local bank.