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Common Commercial Underwriting Guidelines

Before an entrepreneur can get financing for a business, he or she must meet the approval of financial lenders and investors. This approval is often determined by commercial underwriting guidelines that are imposed by financial institutions.

Credit Worthiness

A business loan can be obtained to start a new business or to improve an existing one. When a business has yet to be developed or show any profits, a financial lender is likely to take the business owner's credit history into consideration. Overdue bills or unpaid loans may result in disqualification from business financing.

Property Analysis

The location of a business is just as important as the items or services being offered. A business on the "wrong side of town" or in a low-quality building could fail. In business it is all about location. Financial lenders are likely to examine the proposed location of the business. Building appearance, features, and adjacent properties as well as competing businesses in the area are taken into consideration.

Loan to Value

With property loans it is not uncommon for a loan applicant to be required to pay a percentage of the purchase price. This stipulation is commonly seen in mortgage loans; however, it can also be found in business loans. The amount of financial backing for a business will depend on the lender in question. It is not unheard of for full business financing to be awarded, but it is uncommon. Loan to value is a predetermined percentage of the purchase price of a business. To successful qualify for a loan, all borrowers must be willing to pay out-of-pocket a percentage of the business's purchase price.

Financial Analysis

The overall financial outlook of a business or a proposed business plan is examined by lenders. Business revenue and expenses will be scrutinized. The higher the profit the more likely it is for the borrower(s) to be approved for financing.

Credit worthiness, property analysis, loan to value, and financial analysis are commercial underwriting guidelines used by a large number of financial lenders. A lender has the ability to impose additional commercial underwriting guidelines if they wish to do so. Since financial institutions operate under different rules and regulations it is possible to get financing from one lender, but not another. By learning and understanding how different lenders use these common commercial underwriting guidelines, borrowers can increase their chances of successfully obtaining business and commercial financing.

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