Lender Compliance

Lender Compliance


This article details how lender compliance items impact the view of lenders towards your business being a high or low risk of business loan default.

Lender compliance is a series of approval guidelines that lenders have selected as part of their decision-making process. Typically these are items that can be easily verified in an automated environment. What this means is that when you submit a business loan application the lender's computer system will check these lender compliance items to see if your business will make it to the next level in the loan approval process.

Lender compliance items can get you declined if your entity has not completed them before you apply. If not completed they can lower the amount you receive and/or increase the rate.

Here are a few examples of lender compliance items:

Having a business address - Lenders will check the address on your application against the US postal service database to verify if it is a residential address or a business address. About 80% of business lenders will decline "home-based" businesses, so if your application tests as having a residential address you have a high probability of being declined.

Operating a business from a cell or residential phone - The phone number you list on the loan application will be checked using the Federal Communications Commission database to verify it is a business phone line, a cell number, or a residentially registered phone number. In many cases, lenders will decline a business loan application where the business does not have a business listed phone number.

Having an entity - In this case, you are applying for a business loan and not a personal loan, but if your business is not its own entity (such as a Corporation or LLC), then there is no business to lend to. Without an entity,  everything is on you personally, because of this it is considered a personal loan and not a business loan. Many business lenders do not make personal loans, so you will be declined.

Business EIN - A Federal "Employer Identification Number" (EIN) is kind of like your social security number, but it is for your business. Lenders will check to make sure it is in place and to make sure that it matches your business legal name exactly.

Secretary of State "Entity In Good Standing" - Many business owners file their first-year documents with their Secretary of State and then forget or fail to update them annually. If that happens, it has little if any noticeable effect. Your business bank accounts still work, your EIN is still active, your phone works, etc. However, when you submit a business loan application the lender's computers will check using your Secretary of State's computers to see if your entity is in good standing. If not you will most likely be declined.

There are about 20 lender compliance items that your business needs to complete. They are all easy to complete and most have a free or low-cost solution.

Most lenders do not check all 20 items, but you don't know which ones they will check. That means to be safe it is best to complete them all. Lenders never tell you which compliance items got your application declined. The agent you are dealing with does not know anything about compliance items. The compliance item checklist was programmed into their system and was never disclosed to them. So it is up to you to get those items completed before you apply.

Run a business success scan, see all your lender compliance items, and how to complete them.