What Is Due Diligence in Business Lending? | Business Lending Glossary
Understand what lender due diligence involves, what documents are typically required, and how to prepare for the process.
Definition
The comprehensive investigation and verification process a lender performs before approving a loan application.
Explanation
Lender due diligence typically includes reviewing financial statements, tax returns, bank statements, legal documents, collateral appraisals, and background checks on owners. The depth of due diligence scales with loan size and complexity — a $10,000 MCA may close with bank statements alone, while a $2M SBA loan requires full documentation across multiple years.
Example
During due diligence on a $500,000 term loan application, the lender requests three years of business tax returns, six months of bank statements, accounts receivable aging, and a UCC lien search.
Why It Matters
Borrowers who prepare their documentation in advance can dramatically shorten the due diligence period and improve their approval odds by demonstrating financial transparency.
Frequently asked questions
How long does due diligence take?
Due diligence timelines range from 24 hours for simple alternative products to 30-90 days for SBA and commercial real estate loans.
