Underwriting is the process of lenders determining if borrowers meet certain criteria by examining their credit, capacity, and collateral (the 3 Cs). While most HUD multifamily loans, such as HUD 221(d)(4) and HUD 223(f) loans, require a significant underwriting process, the HUD 223(a)(7) loan requires only minimal underwriting. In relation to FHA 232 Financing, underwriting is the lender’s process of determining if a borrower meets their criteria for a loan. In the underwriting process, a lender considers the potential borrower’s credit, capacity, and collateral. During the HUD 232 underwriting process, lenders will consider both the borrower’s financial strength, as well as the borrower’s history of owning and operating similar facilities in the past, in order to determine their suitability for a loan.

Underwriting is the process of determining if a borrower meets the criteria for a loan. When it comes to commercial real estate financing, lenders will examine a borrower’s experience with owning and managing similar properties, as well as their credit, capacity, and collateral. Lenders will also want to see a well-thought-out business plan that shows how the property will be used to generate income. Source and Source

The underwriting process typically involves the following steps:

• Evaluating the borrower’s creditworthiness
• Assessing the borrower’s capacity to repay the loan
• Analyzing the collateral used to secure the loan

For HUD 223(a)(7) loans, the underwriting process is minimal. For FHA 232 financing, lenders will consider both the borrower’s financial strength, as well as the borrower’s history of owning and operating similar facilities in the past, in order to determine their suitability for a loan.

The risks associated with underwriting include the potential for lenders to make mistakes in their assessment of a borrower's credit, capacity, and collateral. This could lead to a loan being approved for a borrower who is not able to meet the terms of the loan, or to a loan being denied for a borrower who is able to meet the terms of the loan. Additionally, lenders may not be able to accurately assess the value of a borrower's collateral, which could lead to a loan being approved for an amount that is too high or too low. Finally, lenders may not be able to accurately assess the borrower's capacity to repay the loan, which could lead to a loan being approved for an amount that is too large for the borrower to repay.

Sources:

• HUD 223(a)(7) Loan Glossary - Underwriting
• HUD 232 Glossary - Underwriting

Underwriting for small businesses can provide a number of benefits, such as faster loan approvals and easier eligibility requirements. For example, with the Freddie Mac Small Balance Loan program, borrowers typically need to have a FICO credit score of at least 650 and the property itself is generally considered to be sufficient collateral for the loan. Additionally, loan approvals typically take less than a few hours and funds are provided in less than a week for smaller loans.

For more information, please see the following sources:

• Small Business Loans Guide: Before You Start
• Underwriting for Freddie Mac Small Balance Loans

Small businesses can prepare for the underwriting process by refining their business plan, understanding their personal and business credit scores, and finding a lender they can have a relationship with. It's important to ask the lender if they understand your business and be ready to share your business plan, profit and loss statements, and other documents to give the lender a clearer picture of what you plan to do with the funds you’re requesting.

For more information, please see the following resources:

• The Steps to SBA Lending: A Small Business Owner’s Guide
• How to Get Your SBA Loan Approved Faster