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Ask an underwriter: an insider’s look at getting funded

3 min read

getting a small business loan
You might feel optimistic when you apply for a business loan or line of credit, especially if you know you meet the initial revenue and credit requirements. But when you send that loan application into underwriters’ hands, getting approved is really all about the details.

We chatted with QuickBooks Capital small business underwriter, Kim Krzemien, to see what goes on behind the scenes after you submit your loan application. Here are some of the top questions and concerns she sees every day.

1. How does a lender decide on your loan amount?

When you apply for funding, you might get approved for the amount you asked for. But one recent study shows you’re more likely to get less.

According to the Federal Reserve Board’s 2019 Small Business Credit Survey, 43% of small business owners polled applied for financing last year. Less than half of those who applied (20% of respondents) got approved for the full amount. But over half of those who applied either received less than what they asked for (14% of respondents) or nothing at all (9%).

It may be frustrating to get a smaller loan amount or get declined. But even if you meet the basic revenue requirements upfront, underwriters will look at your entire financial picture, including how much money is coming in – and going out, Krzemien said. Once underwriters dig deeper into your finances, they might find issues (ex: high debt) that outweigh the stronger aspects (ex: high revenue), and determine that a smaller loan is a better fit for your ability to repay.

What could you do with flexible business funding?

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What could you do with flexible business funding?

Get started
Desktop version or call 800.556.9145

2. Why do you get turned down for bad personal credit if you think you have a high score?

When you apply for business funding or credit, many lenders also look at your personal credit (in addition to many other factors, like your finances and industry). For example, QuickBooks Capital requires applicants to have at least a 620 personal FICO Score.

Krzemien said sometimes an applicant who thinks they have good credit actually gets declined for bad credit. This is a common misunderstanding. “You may not be looking at the same score the lender is seeing,” she said. “Lenders use different versions of FICO.”

There are dozens of personal credit scores out there, and many of them have different definitions of what’s considered an “excellent,” “good,” “fair,” or “poor” score. If you check the free scores you get through your credit card issuer, for example, it could get confusing. That’s likely a different model than what your lender uses, meaning you’ll see a different number – that may have a different definition of “good.” (You can read more here on the various types of credit scores.) Ask the lender what type of credit score they’re using; you might be able to check the same score for your knowledge.

It’s important to work on your personal credit so it’s in the best shape possible when you apply for business credit. Pay your bills on time, and check your account statements and credit reports regularly so you can resolve errors and spot fraud or identity theft.

3. Why does it take so long to approve my application?

QuickBooks Capital typically funds your loan within 1-2 business days after approval, but applicants have asked why it takes that long, Krzemien said.

The reason: It takes time to gather and analyze your data.

“We carefully review and consider your history in QuickBooks, your business banking records, and your FICO score,” she said. They also look at your revenue and weigh it against your debt, your employee expenses, cost of goods, and all other expenses.

“We do a deep dive on all the data to figure out how your business is really doing,” she said. “An applicant may say, “I make $70,000 a year.” But you [might] spend $80,000 to make that $70,000.”

4. Do you look at seasonality?

Yes, lenders do consider seasonality when making a loan decision. By proving your business is strong enough and you can afford loan payments during slower times, you have a better chance of getting approved, she said.

If you’re looking to manage cash flow during a slow period, she strongly recommended planning ahead when applying for funding.

If you apply 3 months into downtime and expect to get approved – and your finances aren’t looking good – you might get an offer that’s lower than the full amount you applied for,” she said.

The best way to approach funding

Revenue is important, but so is the bottom line, Krzemien said. Profitability of your business really matters. Aim to stay in a stronger financial position by keeping your debt at levels that allow you to sustain your business. You’ll be in a stronger position to maintain your livelihood, and you’ll be able to access more capital when you need it too.

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