The underwriter is the individual or company body that analyzes an applicant’s business plan and credit history when they apply for a small business loan. It is the job of the underwriter to assess the information that was provided by the applicant and take into consideration several different aspects before coming to their final decision.
When it comes to applying for a small business loan, once you have a plan ready to take to the investors, the underwriter(s) will overlook a few things. We plan to share a few of them, to help you know what most businesses are both looking for and looking to avoid.
Underwriters will look at every part of your personal and professional life. You’ll have supplied them with personal data and attributes already, as they’re all part of the application process. They will look at your credit rating, employment history, and relationship statuses, as well as the more technical information such as how much the loan you are applying for is and any proof of turnaround time you may have.
The cash flow and revenues of your business will be taken into account. This is so that the underwriter can assess the risk of putting money into your small business loan. It’s going to serve you well to have good bookkeeping as well as records of your expenditures such as what goes in and what comes out of the business. If you’re spending more than you’re making, for example, this would count as a red flag to the under writer.
Put simply: why would you put your company’s money into a business that is not going to be lucrative?
This one is simple enough. You will have been building your credit rating for quite a while. Don’t worry if you’ve had personal loans in the past if you’ve paid these back in due course and with the interest required, that will go down as well as if you have a clean rating. Underwriters are looking to give small business loans to business owners that have a good reputation. They want to know that you can keep your word.
It might also be worth getting a credit report. Everybody is, by law, entitled to one free credit report per year and it can be worth your weight to go into the underwriter with this. Some underwriters do consider other traits when it comes to a small business loan, so again, don’t worry if your credit score isn’t perfect. As long as you have a record of it, you can work through those kinks.
Underwriting at the bare bones of it is about trust between a client and a lender. Collateral will help to build that. In the event of being unable to pay back your loan, your collateral will cover that. People have been known to put up their houses and their most treasured belongings just to show their investment and belief. Underwriters love that.
Be prepared. Have a solid business plan that covers all of the above within it. Think about your documentation, testimonials, and trust. Think about it like you’re the underwriter. What would you want to see if a startup came to you and asked for a small business loan?
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