How Commercial Loan Processing Works

Understanding how the commercial loan processing system works can help reduce your anxiety while you wait for approval. Here are the main steps lenders take after you apply.

When you submit your business loan application, it may seem like it disappears into a black hole. But understanding how the commercial loan processing system works can help reduce your anxiety while you wait for approval.

Some lenders like to prequalify potential borrowers to determine how much they can afford. This will also give you and your lender and opportunity to see which loan program would be most appropriate for your needs. The lender will gather basic information such as your income and existing debts. To initiate the loan process, you must then complete and submit a loan application. Read more about Bank Loans for Small Businesses.

Once your application is received, a loan officer or processor will review your credit reports, the amount of available collateral, and your income. Your loan officer will determine if any additional documentation is required, such as personal financial statements. If you are purchasing real estate, you may also need to submit preliminary environmental reports, area maps, title reports, property appraisals, and lease summaries. If you are going through a broker, he or she will package your loan request and submit it to several lenders for approval.

After your commercial loan package is submitted to the decision makers -- either a loan committee or underwriter -- the processor will present you with a letter of intent or term sheet. A letter of intent or term sheet is a formal document intended to ensure all parties involved (the lender and your company) are on the same page. The letter of intent may include the names of involved parties, amount of financing, type of security (collateral), and other key terms. Decisions are usually made in one to five days. During the underwriting process, you may need to furnish additional documentation.

If you are using a broker, he or she should be helping you negotiate the best terms, fees, and conditions from various lenders. The next step is choosing the most attractive offer and signing and returning the final letter of intent along with a check, if required, for a deposit, and to pay for third-party reports, such as appraisals.

After all third party reports are successfully completed and underwriting conditions are satisfied, the final loan package is resubmitted to the loan committee for final approval. Be wary of the Top 10 Mistakes When Applying for a Business Loan. At this point the lender will issue a final full loan commitment. If your loan is approved, your closing agent, who may be an attorney, a title company, or escrow company representative, will receive closing documents. Your closing agent will record or file deed transfers and mortgages, order title insurance, coordinate the exchange of funds, and arrange for you to sign the loan documents. Closing can take place within days of approval or underwriting. At the closing, the lender funds the loan with a cashier's check, draft, or electronic wire transfer.

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