Financing the First Time Business Buyer
Acing the Underwriter Interview
By David Madison
Last month we discussed business plans. Preparing a business plan isn’t just a necessary step, a box to check off along the way to obtaining financing. Far more important, it is one of the best opportunities a first time business buyer has to demonstrate to an underwriter that they’ve done the work to understand the new business and the industry in which it operates, and they are now ready to take on all of the responsibilities of business ownership.
The underwriter interview is the other best opportunity to accomplish this. If your buyer/client nails the interview on top of preparing a solid business plan, they’re likely in great shape to get their loan approved. But if the interview doesn’t go well, everything changes and you and your client are in for a challenging recovery effort.
So, how do you help your first time buyer client make it through the underwriter interview successfully?
First, something not to do… You might remember a big warning from last month’s article about business plans, that you as the business broker should not do them for your client, no matter what. You can help provide some of the information that’ll go into the plan, but make sure that your client does the real work. Here’s why — the loan underwriter will quickly figure that out during the interview with the borrower. Your client likely will not be able to answer his or her questions, nor be able to demonstrate an understanding of the business. Your approval chances greatly diminish.
Next, make sure that your client is working with a lender whose entire staff is dedicated and incented to getting good loans approved and closed. That sounds simple, but far too often we hear of underwriters who interpret their responsibility to weed out bad or unacceptably risky loans as a mandate to find reasons to kill deals. They see the borrower interview as their shot to trip up your client rather than as an opportunity to identify good people who’ve done their homework and are ready to become business owners. At Diamond, we work only with the most active and motivated lenders and their staffs who’ve demonstrated over and over to us their desire to get loans funded.
During the conversation with the underwriter, your buyer/client’s voice should show confidence (but not arrogance or cockiness) that they will be successful in their new business. This calm and assured confidence is a very important thing to convey to the underwriter. At the same time, make sure to tell your clients never to make up or guess at an answer if they aren’t 100% sure. The best, and only, response to a question they aren’t sure of is “That’s a great question. Please let me research the answer and I’ll get right back to you.” And then make sure that they do!
And finally, work with the loan officer and get some intel about the areas of concern that the underwriter might have and therefore bring up during the interview. That requires your having a close working relationship with the lender, and then having enough pull within their organization to get that information from the underwriter.
We at Diamond take this last step very seriously. In fact, we take it so seriously that in order for a lender to have the opportunity to work with us and our clients, we require that the underwriter provide in advance a list of the questions that he or she will be asking during the interview. A big part of that is working with top loan officers who manage and control their transactions, including participating on the calls. There’s no way that we’ll allow an underwriter to trip up one of our borrowers. No surprises!
When everything is set up correctly, the underwriter interview is beneficial for everyone. We frequently hear from our clients that the underwriters did all they could to make them feel comfortable, and that the interview was actually a positive experience. It’s a big step in the loan approval process that provides important information and confidence to the underwriter. And, our clients often realize useful insights about things to consider as they take on business ownership.
AskDiamond@easysba.com is always available for specific questions regarding all SBA rules.