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Underwriting Process Guide

Underwriting Process Guide
Small businesses need funding every now and then to stabilise their growth. At 365 Business Finance, we take pride in demystifying the funding process so that SMEs can quickly, affordably and reliably source small business funding in the UK.
 
Underwriting is a critical part of the application process. Still, its function isn’t always easy to understand, especially for first-time lenders or if you’re new to our type of business funding. This detailed guide covers why the underwriting process is critical and what you need to prepare for the application.
 
 
What is Underwriting?
Underwriting is the process by which someone agrees to take on financial risk for a fee. In the context of a business loan, a company agrees to provide funds to a business upfront and accept repayments over time.
 
The term itself originates from the traditional practice of each risk-taker in an enterprise writing their name underneath the amount of risk they’re willing to take on.
 
Underwriters are essential to the application process, as they ensure legitimacy and inspire confidence between business parties.
 
 
The Next Stage of Your Business Funding Application
After completing the registration form, we’ll assign you a relationship manager. This will be your personal contact at 365 Business Finance, who will guide you through the process.
 
The relationship manager acts as a liaison between you and the underwriter working on your case. This structure helps make the process more streamlined, allowing the underwriting process to happen as quickly as possible.
 
 
What Does an Underwriter Do at 365 Business Finance?
Our underwriters are responsible for performing background and due diligence checks on your business. It’s important to understand how the underwriting process works so that your business funding application has the best chance of success.
 
The most important thing to understand about underwriting is that honesty is crucial. Our underwriters are trained to interpret dishonesty or inconsistencies as warning signs of a much larger problem. Any documents you’re required to submit as part of your application must be included.
 
Even if your business has been unfairly rejected for funding in the past, trust is the foundation that our underwriting team base their recommendations. If there are inconsistencies in an application, underwriters will have no choice but to raise red flags or even possibly decline your business funding request.
 
So what do underwriters look for in an applications?
 
 
Do You Have Any CCJs, Business Structure Changes, Or Poor Credit History?
This question can seem intimidating and judgemental, especially for small businesses that have been declined funding in the past. However, at 365 Business Finance, none of the above precludes you from getting small business funding. We designed our company around the understanding that plenty of legitimate small businesses can struggle to secure the funding they need to grow.
 
What would prevent you from securing funding with us is not being honest about your situation. As a result, we urge you to disclose any CCJs, business structure changes or poor credit history at the start of your application. With context, our underwriting team can feel confident about your business and help your application to progress rapidly. Remember: we want to help as many business owners like you as possible.
 
But what does the underwriting process look like?
 
(Underwriters are responsible for performing background and due diligence checks on funding applications.)
 
What’s involved in the Underwriting Process?
Let’s break the underwriting process up into three stages.
 
Pricing Stage
First, we’ll ask you to submit 12 x months of your business card sales and information about your current card processor or provider. Next, you’ll need to fill out our Online Fact Find Form. Your relationship manager will send you this via email.
 
Once you’ve done the above, our underwriting team will then:
 
- Evaluate your business’ credit and debit sales and trading history (are you seasonal, are sales consistent, how long have you been trading?)
 
- Apply a soft credit check (one that doesn’t affect your credit score)*
 
- Run a business background check (board of directors checks, other business information)
 
- Search for and assess CCJs or business structure changes.

 

*365 Business Finance will never run a hard credit check.
 
Our team will either move your application forward with a preliminary approval at this point or decline the application. Your relationship manager will be in contact to let you know either way.
 
A preliminary approval will include an initial offer, detailing the amount of funding we’re prepared to provide to your business.
 
Full Underwriting Stage
Once you’ve secured a preliminary approval, we’ll move on to the Full Underwriting Stage. At this point in the underwriting process, we’ll require some more documentation from you, including:
 
- Proof of ID (passport or driver’s licence)
 
- 3 x months of business bank statements
 
There may be times when our underwriting team will need to request more documents from you. In those instances, our team will make it clear which documents you need to supply.
 
Underwriters use the additional documents to:
 
- Evaluate business financials and management of accounts (this helps assess the level of risk involved with lending to your business)
 
- Assess affordability and reliability of your business in paying back the funds
 
- Appraise outgoing day-to-day costs, spending habits and ongoing obligations that could impact your ability to repay funds
 
- Set the percentage split
 
The Full Underwriting Stage is crucial for underwriters to understand your business in detail. The goal is to acquire an accurate picture of how likely you are to repay the funds we supply to you.
 
Additional findings can change the amount offered in the preliminary approval. If this happens, our underwriters will attempt to provide a few options and percentage splits. Your business needs and overall reliability will both be taken into consideration.
 
 
What Does Percentage Split Mean?
Repayments are taken as percentage of your credit and debit cards takings. As such, the percent split is determined by our underwriting team.
 
The pre-agreed percentage is automatically deducted from your daily transactions at the point of sale. You will receive the balance of your funds as normal into your regular bank account. The daily amount deducted then reduces the balance outstanding on the business cash advance, and collections stop automatically once the cash advance has been repaid in full.
 
Agreement Stage
The Agreements Stage is the third and final step in the underwriting process.
 
The underwriter will draw up an agreement, which your relationship manager will communicate to you. The relationship manager will be on hand to answer any questions or concerns you may have about your application.
 
After signing the agreement, your small business funding will appear in your account in a matter of days.
 
It is crucial to note that you can’t access another cash advance from a separate business until you’ve repaid your cash advance with us.
 
A cash advance is not the same as a traditional bank loan, so the rules are slightly different. Banks can let you take out multiple loans at once, but cash advances don’t.
 
(Underwriters need to understand your business in detail, as the goal is to acquire an accurate picture of how likely you are to repay the funds.)
 
 
Declined Applications
Applications are declined when our underwriting team feels that the business isn’t creditworthy or that the amount requested isn’t affordable.
 
If your application is declined, your relationship manager will be in touch to let you know why this was the case. As always, they will also be ready and willing to answer any of your questions.
 
 
Verification and Fraud
We take financial fraud seriously. Fraud checks are thorough and responsible. We meticulously verify information and continually review all details to ensure that they are accurate. If 365 Business Finance finds anything suspicious, we will report it immediately and appropriately.
 
It is essential that we maintain the highest possible standards to protect our customers and the small businesses they operate throughout the UK.
 
 
Improve Business Credit Score in the UK
There are multiple steps you can take to proactively improve your business credit score in the UK. Firstly, it’s a good idea to make your personal credit score as strong as possible by doing the following:
 
- Register to vote - you can do this on the UK government website
 
- Pay your bills on time - this includes council tax, but also phone bills or broadband charges
 
- Check who you’re financially linked with - if you share financial assets with a family member or spouse, it’ll affect your score
 
- Pay off existing debt - if you have lots of debt already, lenders will be hesitant to supply you with credit
 
- Keep your credit utilisation low - using up a lot of your available credit (such as an overdraft) will impact your business credit score, so try to use 25% or less of your available credit.
 
To improve your business credit score in the UK, it’s advisable to:
 
- Update information if it changes (such as office address) on Companies House and provide the new details to suppliers and customers
 
- Don’t submit multiple applications that perform hard credit checks - remember, 365 Business Finance only performs soft checks, which won’t impact your business credit score
 
Your credit history goes back six years, after which time it gets wiped. The above steps won’t suddenly improve your business credit score overnight but will help signal to underwriters that you’re more of a legitimate entity.
 
 
Underwriting Your Business Funding Application
The most important thing to remember when making your application is to be honest. We appreciate that in the past, bank loans to your small business may have been declined for any number of the frustrating reasons we’ve covered in this article.
 
Although we pride ourselves on being more flexible than traditional banks, our underwriters can only help if they are armed with the right information. Our business is designed to get your company the support it needs, with a flexible repayment model that mirrors your cash flow.
 
Got a specific question about the Underwriting process? Get in touch with an expert at 365 Business Finance today.