How does the Loan Underwriting work?

Every small-scale business person wishes to flourish in his arena which demands two major aspects: skills and capital. Along with a handful of expertise, an individual also requires an adequate amount of investment to run his business successfully. When the hour arrives for an individual to apply for a loan, he/she must possess the requisite knowledge of loan underwriting process flow to undergo a smooth approval of the loan.

Read along to understand how the loan underwriting works and on what factors does the customer’s eligibility to receive a loan depends.

What factors does the Underwriter examine?

Although the criteria vary for different moneylenders, the small business administration (SBA) follows the standard regulations whose basis are:

Credit Score: 

An individual’s credit score reflects how responsible and circumspect he has been in managing and repaying past loans. A high credit score(at least above 750) indicates you as a supervised borrower and helps you to avail the loan at competitive interest rates.


The moneylenders do not usually lend below a certain income because they want to ensure that the customer will repay the loan positively. Moreover, the source of income is also considered by the underwriter hence the salaried employees get an edge over self-employed due to the regular flow of income.

Debts and Liabilities:

If the customer is in too much debt and liabilities to serve, the underwriter is compelled to give second thoughts to your loan requests because of the unavailability of the capital for loan repayment.

Collateral Value: 

In some types of loans, the customer needs to pledge some of his valuable assets as collateral which can be used to recover the loan amount if any default occurs. The value of the collateral is mostly lower than the loan amount.

Be it a home loan, car loan, or a loan for a business, you always have to get ready in advance for the loan underwriting process. Be prepared to convey your strengths to the underwriter and assemble explanations for any weaknesses you might have. You must have the contingency plans in hand if you encounter any business obstacles as the underwriter would want you to still make the loan repayments despite all the financial hurdles.

The better you can present your ideas and assets to the underwriter, it is more likely to receive the loan amount without any disruptions.

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