Know The Structure Of The Commercial Loan Underwriting Process!

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The commercial mortgage underwriting is a structured process that serves a crucial purpose for lenders in many ways. Primarily, it helps the lending institutions to determine whether they should approve a loan request, and if so, what loan amount the borrower is eligible to receive. You need to have a keen understanding of the ins and outs of the Loan Origination System to secure a commercial loan for your purchase or refinance.

Commercial loan underwriter carries out the underwriting process which includes three broad categories of required information and analysis:

1.General Background Data

The underwriter demands the credit history of the business and its principal owners to have a look at your credit score, previous loans, debts, or any other loopholes. It is his duty to check if the loan is applied for valid business reasons as well as the business’s future impacts. The underwriter has a deep understanding of market demands and how your business can get affected by it. The credibility and thoroughness of the financial presentations are very crucial to an underwriter.

2. Repayment ability

Lenders sell money for a profit. If there is no realistic possibility of timely repayment, the loan underwriter may not sanction your loan. The business’s history and future projections are major criteria for the analysis during the loan underwriting process. The expected profits/cash flow of the business is compared with the on-going loan payments that will be required to repay the loan.

The amount of business debt versus the business equity ratio is also calculated to know how much debt that a business has in relation to its equity.

And finally, the ratio of inventory held by a business to the number of products it sells is also calculated to determine the turnover rate. A business’s inventory having a slow turnover indicates that the company is not well-managed. This reduces the chances of a business receiving the desired loan.

3. Security and Other Assets

Lenders look for adequate assets to be used as security in the case of loan default. These assets can be external assets that might be owned such as real estate, stocks, and securities or other business interests. The type of asset to be used as collateral is determined by the risk involved. Riskier loans require more security and hence more ask for higher down payments. A potential borrower must be aware of underwriting criteria so that they can have reasonable assets or security ready while going for an ABL loan for successful money borrowing.

Here are a few critical components of the loan origination process.

 

1. Pre-qualification

During the pre-qualification stage, the potential borrower needs to pull together some documents to submit to the lender. This may include current employment information, total household income, band statements, tax returns, and payment history. This information leads to the pre-approval of the loan allowing the borrower to continue in the process to obtain a loan.

2. Loan Application

The borrower needs to fill loan application online or offline. After the application is received by the credit department, it is reviewed for accuracy and completeness.

3. Underwriting Process

After the application is approved, the underwriting process begins to check on the borrower’s credit score, risk scores, and other criteria.

4. Credit Decision

If the underwriting process goes smooth, the file can be approved, otherwise it is denied or sent back to the originator for additional information.

5. Quality Control

The application is sent to a quality control queue for the final decision and also for analyzing against other internal and external rules and regulations.

6. Loan Funding

After the loan documents are approved, the consumer loans fund shortly.

 

BOTTOM LINE

A borrower must make sure to keep all the original documents and other proofs handy at the time. Also, keep check of your credit scores and other debts before applying for a commercial loan.

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