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Commercial loan processing can be an exhaustive and complicated process, but it doesn't have to be one shrouded in mystery. In fact, in many ways, it is not dissimilar to applying for a personal loan.
Lenders typically begin the process by pre-qualifying potential borrowers. They do this by evaluating the individual's financial history and income. They also take other factors into account, such as existing debt and the purpose for the loan. Once the pre-qualifying stage is complete, the borrower must then fill out a loan application form.
Applying for a commercial loan requires a significant amount of paper work and documentation. If the purpose of the loan is to fund a new or existing business, for example, the petitioner may have to provide background information on their business or a business plan for the future that includes projected earnings and profit. Other standard requirements may include personal tax returns dating back at least three years, liabilities and personal financial statements including all assets.
Once the application has been completed, the loan officer will review the applying individual's credit history, available collateral and income. Collateral for such loans typically includes real estate, stocks, bonds, and other guaranteed items of high value. Collateral is of course required to provide the lender with confidence that the borrower will be able to repay the loan even in the event that loan obligations fail to be met.
Once the paperwork has been considered and approved, the loan application is forwarded to a loan underwriter or loan committee. It is their sole purpose to approve or deny the loan based on the information provided.
Shortly thereafter, a processor presents the loan applicant with a letter of intent or term sheet which must be approved and signed. This documents includes all pertinent information regarding the terms of the loan, including the total amount to be financed, the type of collateral applied to the loan, and the terms of repayment. The primary purpose of this document is to ensure that all parties involved have in fact agreed to the same terms and conditions.
The decision to approve or reject the loan usually takes about five days, during which the applicant may be asked to provide additional documentation to the loan committee should they require it.
Once the letter of intent has been submitted, the lender may also ask for a check intended to serve as a deposit or to cover the costs of generating certain reports necessary for the loan approving process.
The complete loan application package is then resubmitted to the loan committee for final approval. If and when the loan is approved, the applicant will have to sign the finalized loan documents. If the applicant has a closing agent (such as an attorney, escrow representative or title company), all closing documents will be sent to them. It is then up to the agent to file and complete all the remaining paperwork (i.e. deed transfers and mortgages, title insurance, exchanging funds, etc.).
Closing generally takes place within days of final approval, at which time the lender provides the loan in the form of a draft, electronic wire transfer to the applicant's bank account, or cashier's check.
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