How Long does it Take to Fund a Commercial Loan?

Often, we are asked how long it will take to close a loan. Like all things in life, it depends. If your member asks you this, it is a great opportunity to educate them on the process, so they understand what pitfalls may create hang-ups in getting to the finish line.

First, terms of the loan need to be agreed to. If terms have not been agreed to, the best answer as to when we can close may be never! Simply put, we aren’t even sure if we have a loan we want to close on, until the borrower and lender are in agreement with things like interest rate, maturity, amortization, etc. Then, how long will it take to close on a loan after terms have been agreed to? Well, it depends!

The next hurdle to get over is underwriting. The agreed upon terms are used to process the request and make sure the request is possible, given the proposed terms. In a perfect world, underwriting would only take a couple days, but rarely does. Why is that?

One issue tends to be availability of information. If the underwriter needs to wait on the borrower to provide info, then the underwriting process gets stretched out. Another issue has to do with the experience of the underwriter. If the request is for something the underwriter has little expertise, then the underwriter will need time to research and educate himself or herself. That could take several weeks. And then, there is always the issue of the availability of the underwriter, who may have other requests to complete first.

Now, assume terms have been agreed to and the underwriting has been completed. How long will it take to close? Well, that all depends! The good news is, the finish line is now in sight. If it is a simple real estate loan, it may get wrapped up in a week from now. If the loan has special considerations, perhaps a lawyer will need to prepare loan docs, which will increase the time needed before closing. If the transaction requires some government funding, a government guarantee, or other special sources of funding, that can also delay closing. Again, it all depends on the complexity of the transaction.

As you can see, there is a big window of variability in closing any transaction. I think the quickest I’ve ever seen a large commercial loan closed is in about a month, which was the time it took for the appraisal to be completed. On the other hand, the longest I’ve seen has been over a year. That transaction involved the use of tax credit and government grants.

Ultimately, it is hard to say when a loan will close, but there are things that can be done to speed up the process. Terms can be agreed upon upfront, information for underwriting can be provided in a timely manner, and an experienced underwriter with availability will all help greatly in speeding up the process.