What are stips in lending?

How lenders use it

Stips are used in merchant cash advances, equipment finance, small business loans and auto lending. A lender gives a conditional approval and sends a list of stips. The funding team tracks each item as requested, received, reviewed or cleared.

The list depends on the product and the risk. A merchant cash advance may ask for the latest three months of bank statements, a driver's licence and a voided check. An equipment deal may ask for the vendor's invoice, proof of insurance and a copy of the lease on the business premises.

Stips are where deals stall. The applicant sends the wrong month, a blurred photo or a statement from the wrong account. The funding team writes back, waits and checks again. Each round adds days. A good file names exactly what is missing and why.

Reviewers also use stips to catch fraud. They compare the name, address and account number across documents and check that bank statements look unaltered. Klarefi's intake step can ask the applicant for each missing stip in the same conversation. The lender's team still reviews and clears each one.

Worked example

Example only. A funder approves a $40,000 equipment lease subject to four stips. They are the last three months of bank statements, a photo ID for the owner, a certificate of insurance and the vendor's invoice for the machine.

The applicant sends the statements and ID on day one. The insurance certificate names the wrong business. The vendor's invoice arrives on day three. The deal can fund only when all four are cleared, so the wrong name on the certificate holds it up until a corrected one arrives.

Common confusions

A search for stips often returns STRIPS, which stands for Separate Trading of Registered Interest and Principal of Securities. That is a bond product. It has nothing to do with stipulations.

Stips are not covenants. Stips are items to deliver before funding. Covenants are promises the borrower keeps during the loan.

In the UK the same idea is called conditions precedent, or the conditions of an offer. Stips is a US trade word and is less formal. A conditions precedent list in a facility agreement is a legal term. See the conditions precedent entry.

Questions lenders ask

What does stips mean in lending?

It is short for stipulations. These are the documents or conditions a lender requires before it funds an approved loan or advance, such as bank statements, ID and proof of ownership.

What are common stips for a small business loan?

Recent bank statements, a government-issued ID, a voided check, a signed application, proof of business ownership, a lease or proof of address and sometimes tax returns. Equipment deals add the vendor invoice and insurance.

Are stips the same as conditions precedent?

They do the same job. Both must be met before funding. Stips is the informal US word. Conditions precedent is the legal term in a UK facility agreement and usually covers legal documents and security.

Can a lender fund before the stips are cleared?

Usually not. Some lenders allow a waiver or a delay for a low-risk item with approval from a senior person. The credit file should record who allowed it and why.

Conditions precedent: What the borrower must deliver before the first draw
Merchant cash advance: Cash today for a share of future sales
Credit memo: The lender's written case for a credit decision
KYB (know your business): Checks that a business is real and who owns it

This page is general information for lenders. It is not legal, tax or credit advice.