Commercial Loan Processing Explained

It is important to understand the process behind commercial loan processing to gain an insight into how a financing institution assesses and decides on whether or not a loan is granted. While commercial loans provide an attractive source of income in terms of interest, lenders exercise a lot of care in evaluating borrowers to ensure that funds lent out are recovered along with the earnings.

Applying for a Loan

Lenders basically pre-qualify potential borrowers by assessing their background and capacity to pay. The process starts by initial gathering of background and personal information such as purpose for the loan, your income and existing debts. To formalize and commence the loan process, you must then fill-up and complete a loan application form.

Requirements to Expect

Take note of the documentary requirements that will go with your loan application. This may require some consideration and time to gather. A business loan for example, may require a business profile that gives a general background of your business. In addition, a business plan that clearly describes how your business will be run and how it is projected to perform financially will be required.

Standard requirements for different loan types will include personal financial statements listing all personal assets, liabilities, as well as your personal tax return for the past three years. Another fundamental requirement is collateral. Collateral for a loan may include assets such as real estate and stocks or bonds, hard goods such as equipment, and other personal assets and guarantees. This is meant to give the lender some guarantee that you will be committed to seeing your loan repaid. It also offers assurance that should you fail to meet your loan obligations, they can recover from your assets the money that they have lent out.

Processing Your Application

A loan officer will review your application and documentary attachments. Your loan officer will review your credit reports, collateral documentation, as well as your income information. Some additional documentation may be requested in order to support the information in your loan application so that all details may be properly assessed and verified.

Loan Underwriting

Once all documentary attachments are deemed satisfactory, your loan application will then be submitted to a loan underwriter or a loan committee. They will review, assess, and eventually decide whether your loan will be approved.

At this time a processor will present you with a letter of intent or term sheet for signing. This document includes the amount of financing, terms of payment, type of security or collateral, and other key terms. The decision to approve or reject is usually made within five days. Expect some requests for you to provide additional documentation during this underwriting process.

You will be required to sign the letter of intent and along with it, you may be asked to give a check to serve as a deposit, and to pay for some third-party reports used in the underwriting process such as appraisals.

Finally Getting Your Loan

Once all the conditions and requirements are satisfied, the loan application package is resubmitted to the loan committee for final approval. Upon loan approval, you will be required to sign the final loan documents. If you have a closing agent (an attorney or escrow company representative for example), they will receive the closing documents and coordinate the signing of all necessary papers. They will also coordinate the transfer of funds, record the deed transfer and mortgage, and order title insurance.

With all requirements met and all closing documents in order, your loan can finally be released! This can be done in several ways – electronic wire transfer to your designated account, or issuance of a cashier's check or draft in your name.

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