Underwriting

Underwriting is the act of examining the risks of the underlying credit. Many funding sources will except certain types of risks as long as they are mitigated or justified. The primary focus on underwriting is evaluating the many factors that contribute to the probability of default and the loss given default. Understanding the way lenders evaluate loan applications from an underwriting standpoint can help small businesses more effectively present their case for funding in the modern financial marketplace. The U.S. Department of the Treasury recently released guidance regarding the underwriting standards required for participation in the newly created Small Business Lending Fund program. While these underwriting guidelines are not mandatory for those lenders not participating in the program, they can serve as a good starting point for borrowers interested in obtaining business credit arrangements in the current economic environment. The guidelines for this program include a requirement to examine underlying credit histories for owners of small business concerns. Other considerations include the ability of the borrower to repay the loan, the amount of equity already present in the business, the type, quality and value of the offered collateral, guarantees or co-signers to the loan arrangement and any additional income sources available to the business in repaying its debt to the lender. These underwriting guidelines are intended to help lenders prevent high levels of default on their small business loans and were directly prompted by recent events in the U.S. lending industry. Some lenders take a less stringent approach, however, and consider risk versus reward when making a determination on whether to fund a particular lending request. Venture capital investors are a particularly good example of this type of underwriting and offer financing arrangements for businesses that cannot meet the higher requirements for traditional small business loans.

CNF Exchange can help companies acquire business loans through an innovative online interface that allows small businesses to upload funding requests for review by a wide range of lenders. The financial experts at CNF Exchange can even provide insight into the underwriting process and help companies examine underlying credit issues that may affect their ability to acquire funding in today's challenging economic environment.