What Happens During Commercial Loan Underwriting

You submitted your application. You handed over three years of tax returns, your financial statements, your personal financial statement, and your business plan. Now you wait. The banker said 3-4 weeks. It's been 5 weeks. You've sent two follow-up emails.

What is actually happening in there?

What Happens at Intake

When your application arrives at the bank, it typically goes through an initial review before it ever reaches a credit analyst. This intake review checks for completeness — are all required documents present? Is the application form fully completed? Are the tax returns signed? Are all pages of the returns included?

An incomplete application package is the single most common cause of delays in the early stage. Missing one Schedule K-1 or a single page of a tax return can stop the process cold while the bank waits for you to provide it. Experienced commercial borrowers submit their packages with a cover letter and a checklist of every document included — so the bank can immediately confirm everything is there.

Spreading the Financials

Once the package is complete, a credit analyst begins "spreading" the financials — the process of entering your financial data into the bank's underwriting software or spreadsheet. This is where your tax returns, P&L, and balance sheets get translated into a standardized format the bank uses for analysis.

Spreading sounds mechanical, but it's where the first analytical decisions get made. How does the analyst handle the depreciation addback? How do they treat distributions to the owner? How do they spread income from a Schedule E with multiple properties? Different analysts — and different banks — make different judgment calls at these points, which is one reason why the same borrower can get different results at different institutions.

The Credit Analysis

After the financials are spread, the analyst writes a credit memorandum — the internal document that summarizes the borrower, the loan request, the financial analysis, the collateral analysis, and the analyst's recommendation. This memo goes to the loan officer, the branch manager, or a credit committee depending on the loan size and the bank's delegation of authority.

The credit memo covers: business description and history, ownership and management, industry analysis and competitive position, financial analysis (3-year trend in revenue, margins, DSCR, leverage, and liquidity), collateral analysis (what's securing the loan and at what advance rate), global cash flow analysis, risk factors and mitigating factors, and the recommendation.

For loans above a certain dollar threshold at most banks, the credit memo goes to a credit committee rather than a single approver. Credit committees typically meet weekly. If your deal misses a committee meeting, you wait until the next one — which can add a full week to the timeline.

Approval, Conditions, and Decline

Credit decisions come in three flavors: approval, conditional approval, and decline.

A clean approval means the deal is approved as submitted. These are increasingly rare for any loan above a certain size — most approvals come with conditions.

A conditional approval means the credit is approved subject to satisfying certain conditions before closing. Common conditions include: updated financial statements (if the ones submitted are more than 90 days old), a copy of the executed purchase agreement (for real estate), evidence of business insurance, a landlord waiver (if the business rents its location), and life insurance on key principals. Conditions are normal — they're not a bad sign. They're the bank protecting itself while moving forward.

A decline is accompanied by an adverse action notice. If you receive a decline, ask for a specific conversation with the credit officer about which factors failed. Not all banks will accommodate this request, but many will — and the information is invaluable for your next application.

What Causes Delays

• Incomplete initial package. Every back-and-forth request for missing documents adds days or weeks.
• Inconsistencies requiring explanation. When numbers don't match across documents, the analyst has to pause and request a letter of explanation.
• Appraisal ordering. For real estate loans, a third-party appraisal is required. Appraisers are often backlogged. This step alone can add 3-4 weeks.
• Environmental review. For commercial real estate, banks often require a Phase I environmental assessment. Another external process with its own timeline.
• Credit committee scheduling. Missing a weekly committee meeting adds 7 days automatically.
• Title search and insurance. For real estate, a clean title is required. Any title issues — old liens, encumbrances, easements — require resolution before closing.

How to Make the Process Smoother

• Submit a complete package the first time. Use the BankLiterate Loan Readiness Checklist to confirm you have every document before submission.
• Include a cover letter with an index. A brief summary of the loan request and a page-numbered index of every document signals a well-organized borrower and makes the analyst's job easier.
• Explain anomalies proactively. If 2022 was a bad year, explain why in a brief memo rather than letting the analyst wonder. Bankers prefer transparent explanations to unexplained numbers.
• Respond to requests within 24 hours. Every day you take to respond to a document request is a day added to your timeline.
• Communicate, don't pester. A weekly check-in email is appropriate. Daily calls create friction without accelerating anything.