The 5 basic steps of the loan approval process
Applying for a loan? The unknowns involved in the loan approval process may make the process seem somewhat scary. However, the credit approval steps are fairly straightforward regardless of whether you apply for an operating loan, land loan, equipment loan or home loan. By understanding the process, you will feel more at ease during the transaction.
Application & Required Information is gathered and submitted.
The first step in obtaining any loan is to complete an application and submit the required documents. Required documents will vary based on the type of loan, size and complexity of the operation requesting the loan. Typically, the smaller the loan the fewer documents are required. The most common documents required from applicants include: personal financial statements, authorization to release credit, the last 2-3 years of financial statements or tax returns and copies of legal entity documents. Once the application and required documents are received the loan moves on to the next step in the process, loan underwriting.
When a loan moves into underwriting the analyst assigned to work on the request will typically evaluate the loan utilizing some form of the Five C’s of Credit: character, capital, capacity, collateral and conditions. Items that will be considered when doing this evaluation will include, credit scores, repayment history (both direct and with other lenders), cash reserves available, cash flow / earnings from employment or business operation, amount of personal down payment being offered, overall economic conditions, specific industry conditions and the collateral being offered. The time in loan underwriting will vary based on the complexity of the request, that is, the more parties or entities involved the longer it takes to assemble the information in order to make a decision.
Decision & Pre-Closing
Once a decision is made on the loan request a response is provided to the applicants as quickly as possible. If the loan was approved, the terms and conditions or the approval are also communicated to the applicant at this point. If the terms and conditions are acceptable to both the applicant and the lender the next step is to order an appraisal, survey, title insurance, loan documents and any other required items. Once those items are received they are reviewed to ensure that they meet the requirements of the loan approval. If everything is in order, then closing is scheduled.
Once you make it to this point the anxiety and stress associated with waiting and gathering required items is essentially done. The closing of a loan typically occurs at either the lender’s office, the title insurance company or an attorney’s office. At closing the required loan documents as well as any transaction specific documents are signed and funds are disbursed in accordance with the approval. Typically copies of all the documents signed will be provided to both the lender and the applicant.
Finally, the loan transaction is typically wrapped up and welcome information will be sent. This message will include information about the institution, how to access your account and when and where to make payments. You will also receive post-closing documents that include information about the benefits of being a member of a Cooperative and the benefits of patronage and its impact on your rate.
At Farm Credit of Central Florida, we provide financing for farms, land and homes. For more information visit us at www.farmcreditcfl.com or call us at 863-682-4117.