How the Small Business Underwriting Process Works at Lending Club

Eric Goldschein

Eric Goldschein

Eric Goldschein is a freelance journalist who covers entrepreneurship, small business trends, emerging technologies, culture and sports. He was previously the managing editor of SportsGrid.com, and has written for Business Insider, Trep Life, the Huffington Post and more.

You can contact him at ericgoldschein.com, or on Twitter at @ericgoldschein.
Eric Goldschein

Applying for a small business loan through Lending Club, one of the pioneers of the marketplace lending space, is a straightforward endeavor. The application process—discussed in-depth in the first part of our series on working with Lending Club—takes place entirely online and can be completed in a matter of minutes. The next step is to go through the underwriting process.

In commercial banking, “underwriting” refers to the process of assessing how creditworthy a borrower is and agreeing to provide them a loan based on that assessment. That’s essentially what Lending Club does when they provide instant offers at the end of the application process. This instant underwriting decision is what makes the Lending Club process quick, compared with traditional lenders and even other online lenders.

Following the acceptance of one of these instant offers, you’ll go through the checkout process and see your account summary. This account summary will have the to-do list for next steps in the process, including any requested documents and verifications necessary to confirm the information stated in your application.  

The average funding time—the amount of time between when a customer submits an application to when their loan is approved—is usually 3 – 10 days. Here’s what you can do to make this process as smooth as possible.

Speak with your dedicated Client Advisor at Lending Club

In order to secure a loan through Lending Club, small business owners don’t need to open their business’ doors to appraisers or provide business plans and projections. They do need to fill out Lending Club’s online application, which asks for basic information on the business and the business owner (guarantor), including names, addresses, legal structure, and hard numbers like gross sales, net profit, and monthly payments for other loans, rent, and/or equipment.

The application information is self-reported, but those numbers don’t go unverified: The next step is to upload your requested documents on your account summary and talk with a Lending Club client advisor about your specific situation.

“A dedicated Client Advisor takes each applicant through the entire process,,” says Linda Li, Director of Business Development and Marketing at Lending Club. “That person is the business owner’s single point of contact throughout the entire life of their time with Lending Club. They come to rely on our Client Advisors for financial information and correspondence.”

Soon after a small business owner selects a loan offer—say, a $50,000 loan with a 3 year repayment plan—they’ll be contacted over the phone by a Client Advisor to walk them through the process and help you get to know Lending Club better.

Explaining what documents are needed is perhaps the most important information gleaned from that first conversation. This is where the true underwriting process begins.

What documents will you need?

If you’ve gone through this process with a lender before, be aware that Lending Club might require different documentation than what you’ve previously supplied.

“Every lender does something different,” says Li. “At Lending Club, we show you what documents are needed based on each individual situation. It could be no documents at all, or potentially the last three months’ bank statements and/or last year’s tax returns and a 4506-T IRS form.”

The first two types of documents are familiar to any business owners and should be readily available. The 4506-T IRS form is to order a tax account transcript of returns from previous years’ filings, which can also be sent to a third-party—in this case, Lending Club. According to the IRS, and pertinent to your dealings with Lending Club:

A tax return transcript shows most line items from the tax return you originally filed. It also includes items from any accompanying forms and schedules you filed.

The 4506-T is a one-page form with instructions for how to fill it out as it pertains to sharing the information with a third party. Any questions on what specifically to request can be directed to the client advisor.

Why does Lending Club need these documents?

While the online application process is efficient and easy, the underwriting stage is for verifying that everything applicants enter into the forms matches with their financial statements.

“The online application is a way for customers to get something quickly, rather than feeling like they have to supply information to someone they don’t know, and then wait to hear back on something they may or may not get,” says Li. “Regardless, we still have to input the numbers into our decision engine to understand what the offers will look like.”

How long will this take?

As mentioned above, the average decision time for a loan through Lending Club is around 3 – 10 days. You’ll spend most of this time communicating with Lending Club about the documents you’ll need to hand over.

“As soon as we get all the information in place, it takes us about 2 days to do everything. But oftentimes the client advisor is on the phone, talking about the loan, explaining to customers what documents they need, and then [the customers] go back to their accountant and say this is in the information I need, so there’s a lot of back and forth in there,” says Li.

Knowing the documentation you need ahead of time—preparing to share copies of your financial statements, filling out the required IRS form, and even making sure that your original application has the correct information in the first place—is a good way to cut down on the underwriting process’ unnecessary waiting.

As Li sees it, this is all one big process that leads to your successful loan:

“I feel like for all the businesses that I’ve spoken to, it feels like one single process—it’s not like first you do this, then you do that,” she says.

Once the information has been verified, your Client Advisor will confirm the final details or work with you on any counter offers. After confirming the final offer, the loan proceeds will be disbursed into your linked bank account.

As to how to translate your offer through Lending Club, check out the third part of our series: translating a small business loan offer through Lending Club.

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Because Lending Club has already served as the platform for billions of dollars in loans, it’s unlikely you’ll run into a situation that you and your Client Advisor can’t figure out together. The best advice is to have all the information discussed above on hand to get the most accurate offer for your business.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Eric Goldschein

Eric Goldschein

Eric Goldschein is a freelance journalist who covers entrepreneurship, small business trends, emerging technologies, culture and sports. He was previously the managing editor of SportsGrid.com, and has written for Business Insider, Trep Life, the Huffington Post and more.

You can contact him at ericgoldschein.com, or on Twitter at @ericgoldschein.
Eric Goldschein

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