The most frequently asked question I receive by far is how long does the loan application process take to complete from start to finish. The quick answer is 45 – 60 days. The honest answer is it takes as long as necessary to complete all steps in the process.
The next logical question is what are the steps. Here is a list of each step in order with an explanation.
The Clock Starts
Before I begin, I want to emphasize the timeline starts from the day the lender receives the monetary Deposit, usually $2,500 or $5,000 and the signed Letter of Interest or Term Sheet.
Steps 1 – 11
Step 1: Loan Application Needs List. This needs list is sent to the Applicant by the Lender in preparation for underwriting. Included are General Application Forms and SBA Forms 1919, 413 and 912 if necessary. It typically takes 2 – 4 days for the lender to generate this needs list from receipt of the monetary Deposit and signed Letter of Interest.
Step 2: Underwriting. The amount of time to underwrite the loan is 1 – 3 weeks depending on the lender’s pipeline density, available underwriters and support resources and outstanding information required by the underwriter to render a decision.
Step 3: Credit Decision. The credit decision is announced upon completion of underwriting or the conclusion of ”loan committee.” Some lenders shepherd loan requests through individual underwriters in an underwriting loan center. Other lenders maintain a decision making body referred to as “loan committee.” It takes 5 – 10 days for an underwriter to review a loan application and either return to the applicant with questions or a credit decision, meaning the loan is either approved or declined. Loan committees decide a loan in the committee meeting which is typically held one day per week or every other week.
SBA 504 loan requests require a separate SBA Approval called an Authorization which may add an additional 5 – 10 days to the entire application process.
Step 4: Commitment Letter. The commitment Letter outlines conditions required to close the loan and is sent to the Applicant 2 – 4 days after loan approval. This step begins the process of ordering third party reports and the collection of closing documents.
Step 5: Third Party Reports & Closing Documents. A real estate appraisal is ordered by the lender to be performed by an SBA approved third party appraisal company. The appraisal may take 2 – 3 weeks to complete with an additional 2 – 5 days for lender review. If a business acquisition is included with the real estate purchase, a business valuation is also ordered which also takes 2 – 3 weeks with an additional 2 – 5 days for lender review.
Step 6: Quality Control / File Audit. Once all closing documents and third party reports have been completed and approved the lender conducts a final review of all required documents and reports necessary to close the loan which takes 2-5 days. The lender orders loan documents to be prepared for signature when the file is deemed complete.
Step 7: Loan Document Preparation. This step takes 1-3 days before loan signing may be scheduled.
Step 8: Loan Document Signing. Loan signing takes place immediately after escrow receives lender instructions and loan documents.
Step 9: Bank Funding. Loan is funded after the lender receives signed loan documents from escrow and escrow confirms all requirements to close the loan have been met by the Applicant and Seller.
Step10: Recording. Recording is the process of formally recording deeds of trust with the appropriate municipality and documenting the transfer of all assets of the business if a business acquisition is included with the real estate purchase.
Step 11: Close of Escrow. Escrow officially closes and the Applicant takes possession of the property when escrow notifies all parties via email bank funds have been disbursed and escrow is complete and closed.
It’s important to note that SBA 504 loans require an additional 90 days to fully fund and close the SBA portion of the loan. This step will not delay recording and the close of escrow.
Steps 8-11 are typically completed in 1-3 days.