Challenges of commercial loan underwriting

November 1, 2023

Getting a commercial loan can be difficult due to several factors that lenders consider when evaluating loan applications. These factors are aimed at assessing the risk associated with lending money to a business. Here are some reasons why obtaining a commercial loan can be challenging:

Risk Assessment

Lenders need to assess the risk associated with lending to a business. They evaluate factors such as the business’s financial stability, credit history, business plan, market conditions, and industry trends. If the lender perceives too much risk, they may be hesitant to approve the loan.

Business Viability

Lenders want to ensure that the business has a solid plan and is likely to generate enough revenue to cover the loan payments. If the business plan is unclear or lacks feasibility, lenders might be hesitant to provide funding.


Just like individuals, businesses have credit histories. If the business has a poor credit history, a history of late payments, or outstanding debts, it can negatively impact the chances of getting approved for a loan.


Many commercial loans require collateral, which is an asset that the lender can claim if the borrower defaults on the loan. If the business lacks sufficient valuable assets for collateral, it can make securing a loan more challenging.

Financial Documents

Lenders require detailed financial information about the business, including income statements, balance sheets, tax returns, and cash flow projections. Preparing and providing accurate financial documentation can be time-consuming and complex.

Regulations and Compliance

The lending industry is heavily regulated to protect both borrowers and lenders. Lenders need to ensure that they are compliant with various laws and regulations, which can lead to a lengthy and thorough application process.

Industry and Market Factors

The lender may consider the industry in which the business operates and its overall market conditions. If the industry is volatile or facing challenges, lenders might view the loan as riskier.

Loan Purpose

The purpose of the loan matters. Some loan purposes, such as expanding a business or purchasing equipment, might be seen as more favorable than others, like refinancing existing debt.

Interest Rates and Terms

Lenders set interest rates and loan terms based on risk assessment. If the lender believes the risk is high, they might offer less favorable terms, making it more difficult for the borrower to afford the loan.


Depending on the economic climate and the lender’s current portfolio, they might be more selective about the loans they approve. If there’s a high demand for loans, lenders might have the luxury of choosing businesses with lower risk profiles.

To improve your chances of obtaining a commercial loan, it’s crucial to have a solid business plan, a strong credit history, well-organized financial documents, and a clear understanding of how the loan will be used to benefit the business. Working with financial advisors and building relationships with lenders can also be helpful in navigating the complex loan application process.