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Ask an underwriter: What’s with all the questions?

Term loans

Ask an underwriter: What’s with all the questions?

Updated: Jan 6, 2020

Ask an underwriter: What’s with all the questions?

Why do you ask so many questions and require so much documentation?

Applying for a business loan may seem daunting. There a variety of factors to consider before applying, like thinking about what type of loan and lender would be best for your business. But, there are also business loan requirements and countless questions to answer during the application and underwriting processes. 

As a reminder, underwriting is how a lender determines whether or not an applicant is eligible for a loan, and under what terms. To facilitate the underwriting process, lenders usually ask applicants to answer a handful of different questions that shed light on their business needs and ideas. So, you may be asking: “What do I need to get a business loan”? 

What types of questions can I expect during a business loan application?

Applying for a business loan requires sharing a lot of personal information with a lender, like your credit profile, bank statements, tax returns, and more. Giving lenders access to such sensitive documents may seem unnecessary. However, these are part of the requirements for a business loan because they play an essential role in an underwriter’s decision-making process. 

Depending on the loan you’re applying for and the lender you choose, you may be asked a number of questions, including:

  • What is your business?
  • Why do you need/want funding?
  • What do you plan to do with your funding?
  • How will funding help your business grow or thrive?
  • What is your current business debt?
  • Do you have any business assets?
  • What is your personal credit score?
  • What is your business credit score?
  • How much revenue does your business bring in per month and per year?
  • How much cash flow do you have?
  • How fast do you need funding?
  • Can you afford to put down collateral if it’s required?
  • Can you afford to pay back your loan in full plus interest?

The business loan application may ask you to submit a wide range of documentation, including a business plan, cash flow statement, revenue forecast, balance sheet, and profit and loss statement. Lenders can also request bank statements, personal tax returns, and legal documents like proof of insurance and incorporation certificates. 

Why do you ask so many questions and require so much documentation to get a business loan?

Applying for a business loan is a big deal. When it comes to what you need to get a business loan, lenders need to know who you are, how your business operates, and whether or not you’ll be a reliable borrower. 

Traditional lenders like banks and the Small Business Administration usually ask for more documentation than alternative lenders. In addition to a detailed business plan, tax returns, and bank statements, traditional lenders also ask for profit and loss statements, balance sheets, cash flow forecasts, debt schedules, and collateral. However, while traditional lenders have a thorough review process and more business loan requirements, they typically take three or more months to respond to loan applicants. 

On the other end of the spectrum are online lenders who offer merchant cash advances and other short-term loans to business owners looking for immediate funding (think: within hours). If the question of “what do I need to get a business loan?” arises, you should consider an alternative option that requires less from you and provides an answer in a shorter time. These lenders require minimal documentation and information from business owners. But, they also demand sky-high interest rates to help compensate for the businesses that inevitably default on their payments. In fact, the average APRs for merchant cash advances range from 12% to a whopping 200%.

What do I need to get a business loan that’s fair, quick, and comprehensive?

At Funding Circle, we work to strike a balance between thorough underwriting and quick funding. We strive to keep the business loan application process a smooth, fast one while making sure your information is safe and secure. Our requirements for a business loan are as follows: We ask for two years of business federal tax returns, six months of business bank statements, your current business debt information, and one year of personal federal tax returns for each individual who owns 20% or more of the business. The information you provide helps us understand your business’s overall story and better assess how a loan can help your business grow. 

To keep our business loan interest rates fair, it’s crucial that we underwrite our loans carefully and make sure we’re lending to business owners who can repay the money. Here’s more information on what we typically look at and why:

Bank statements

One of the reasons we request bank statements as a business loan requirement is that they give us a real-time look at your business’s cash flow. Healthy, consistent beginning, and ending balances usually indicate a business’s ability to support loan payments, expenses, and additional forms of debt. 

If the credits into your business are higher than the debits out, it shows that your business is growing. This is an excellent sign that a loan will help maximize your business potential and profits. We also watch out for red flags like overdrafts and returned items, since these can suggest poor cash management.

Personal credit history

Although we lend only to businesses, we also weigh a business owner’s personal credit history in our evaluation of a business loan application. If you have a strong personal credit history — with few or no late payments, few credit inquiries, and a low credit utilization rate — it’s a great indicator that you’re financially savvy, responsible, and able to pay back a loan without issues.

Debts

Finally, when it comes to what you need to get a business loan with Funding Circle, we take into account your business’s outstanding loans and your monthly payments on these loans. The purpose of this is twofold: 1) If you’re going to use your Funding Circle loan to refinance your more expensive existing debt, it helps us to understand what sort of offer you’d need from us to adequately cover your repayment and 2) Having a clearer picture of your business’s debt position helps us understand your needs and tailor our offer to save you the most money. 

How the Funding Circle loan process works

As underwriters, we’re here to help make the best and fairest decision to determine your creditworthiness. Here’s what you can expect in terms of our business loan requirements and our process:

1. Fill out your business loan application online

Our online loan application is free, easy, and takes about six minutes. All you have to do is fill out a few lines of personal information, upload your documents, and click “submit.” The best part: you can apply with zero obligation. Check your eligibility and our requirements for a business loan here.

2. Hear from us within an hour

No more waiting in nervous anticipation. Within just an hour of applying, you’ll be contacted by one of our personal loan specialists to review your documents, chat about your options, and answer any questions you might have about what you need to get a business loan. 

3. Get a decision in as little as 24 hours

From there, our team of experienced underwriters will work to determine your loan eligibility. To ensure you get the best evaluation possible, we’ll assign just one underwriter to your application. With the help of advanced underwriting technology, your underwriter will review your financials and business plans to assess your creditworthiness. Your underwriter may call to get more information from you along the way, and if everything goes well, you may be able to get a business loan decision in just one day. 

4. Get a business loan in as soon as one day

Our goal is to make business funding as smooth and stress-free as possible — and that includes cutting down waiting time wherever we can. That’s why if you’re eligible for one of our loans, you can receive funds in your bank account in as little as one day. 

At Funding Circle, we’re passionate about helping small businesses grow their operations quickly and sustainably. That’s why we’re committed to streamlining the business loan application and underwriting processes as much as possible. If you have questions about what the underwriting process entails or what it takes to apply for a loan, we’re here to help! Learn more about us or contact our support team at any time.

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