Elements Necessary to Underwrite a Business Loan

Have you ever applied for a business loan and been turned down? Or maybe you were offered a loan, but at a higher rate than you had anticipated? 

There are many reasons why the loan approval and underwriting process can be different for every business. 

However, according to Henry Gonzalez, Beach Bank’s Tampa Bay Market President, there are a few simple ways to ensure your business gets the best loan possible.

Collateral and capacity to repay the loan are key elements, but bankers also want the loan request to fit the specific capital strengths of the business. 

In other words, Gonzalez suggests, “Don’t finance a piece of equipment for 20 years that might be obsolete in two years. A good community banker will help you structure the loan so that duration of the loan and purpose of the loan match up.”

Also, a bank will request your personal and business income tax returns for the past two years, as well as all IRS schedules. “They will also want to take a look at the person standing behind the business,” Gonzalez says.

The bank will also likely want to see a current income statement, a list of accounts receivable and payable, and their agings. If your company is a distributor of products, your banker will also want to take a look at the age of your inventory. 

Banks like to see accounts with stable, high-average balances. A constant churn of cash, even in large amounts, doesn’t carry the same weight when underwriters are looking at a loan application. “There’s a huge difference between having $3 million go through your accounts and having an average balance of $3 million,” Gonzalez says. 

When you have your financial house in order and are ready to seek a loan, Beach Bank can be a resource. It offers commercial and industrial loans that can be used for real estate and owner-occupied properties. According to Gonzalez, “Banks love to do that.” 

Other options include lines of credit to provide working capital, and loans for purchases of equipment and to acquire another business. SBA loans are a good option for newer companies that don’t have a lot of collateral to offer, but the tradeoff is higher fees.