Welcome, small business owners! If you’re looking for a way to take your business to the next level, getting a small business loan may be the answer. However, before you start the application process, it’s important to understand the concept of pre approval. In this article, we’ll guide you through the ins and outs of small business loan pre approval, including what it is, how it works, and its benefits. Let’s get started!
What is Small Business Loan Pre Approval?
🔑 Key Point: Pre approval is a preliminary process that determines if a borrower is eligible for a loan.
Small business loan pre approval is a process where lenders evaluate a borrower’s creditworthiness and determine if they’re eligible for a loan before they officially apply. It’s important to note that pre approval is not the same as a loan offer, and it doesn’t guarantee that a borrower will get a loan. Instead, it’s a way for borrowers to get a rough estimate of how much they can borrow based on their credit score, income, and other financial factors.
How Does Small Business Loan Pre Approval Work?
🔑 Key Point: Pre approval typically involves a soft credit check and doesn’t impact a borrower’s credit score.
The process of small business loan pre approval varies depending on the lender, but it usually involves filling out an online application or speaking with a lender directly. During the pre approval process, lenders will evaluate a borrower’s creditworthiness by looking at factors such as their credit score, income, debt-to-income ratio, and business revenue. This evaluation typically involves a soft credit check, which doesn’t impact a borrower’s credit score.
If a borrower is pre approved, they’ll receive a loan offer that includes the loan amount, interest rate, loan term, and other important details. However, it’s important to note that pre approval doesn’t guarantee that a borrower will get a loan. Once a borrower officially applies for a loan, the lender will conduct a more thorough evaluation of their financial situation to determine if they’re eligible for a loan.
Benefits of Small Business Loan Pre Approval
🔑 Key Point: Pre approval can help borrowers determine how much they can borrow and gives them more negotiating power.
There are several benefits to getting pre approved for a small business loan, including:
1. Determine How Much You Can Borrow
Pre approval gives borrowers a rough estimate of how much they can borrow based on their creditworthiness. This can help borrowers determine if they need to look for alternative funding sources or if they can comfortably move forward with the application process.
2. Save Time
By getting pre approved, borrowers can save time by eliminating lenders who aren’t a good fit for their financial situation. This can help borrowers focus on lenders who are more likely to approve their loan application.
3. Improve Negotiating Power
When a borrower is pre approved, they have more negotiating power when it comes to the loan terms. They can use their pre approval status as leverage to negotiate for better interest rates or longer loan terms.
4. Boost Confidence
Finally, pre approval can boost a borrower’s confidence in their business and their financial situation. Knowing that they’re pre approved for a loan can give them peace of mind and help them make more informed business decisions.
Small Business Loan Pre Approval Table
Loan Provider |
Loan Type |
Pre Approval Process |
Minimum Credit Score |
Interest Rate |
Loan Term |
|---|---|---|---|---|---|
Chase |
Small Business Loans |
Online Application |
680 |
Starting at 6.5% |
Up to 5 years |
Bank of America |
Small Business Loans |
Online Application |
670 |
Starting at 4.75% |
Up to 7 years |
OnDeck |
Short-Term Loans |
10-Minute Online Application |
600 |
Starting at 9.99% |
Up to 18 months |
Small Business Loan Pre Approval FAQs
1. Is pre approval necessary for a small business loan?
No, pre approval is not necessary for a small business loan, but it can be helpful. It gives borrowers a rough estimate of how much they can borrow and can help them determine if they need to look for alternative funding sources.
2. Does pre approval guarantee a loan?
No, pre approval does not guarantee a loan. It’s a preliminary process that determines if a borrower is eligible for a loan, but lenders will conduct a more thorough evaluation of a borrower’s financial situation before approving a loan.
3. How long does the pre approval process take?
The pre approval process varies depending on the lender, but it usually takes a few days to a week. However, some lenders offer instant pre approval through their online application process.
4. Does pre approval impact a borrower’s credit score?
Pre approval typically involves a soft credit check, which doesn’t impact a borrower’s credit score. However, if a borrower officially applies for a loan, the lender will conduct a hard credit check, which can have a negative impact on their credit score.
5. Can pre approval help me get a better interest rate?
Yes, pre approval can give borrowers more negotiating power when it comes to the loan terms. They can use their pre approval status as leverage to negotiate for better interest rates or longer loan terms.
6. What happens after pre approval?
If a borrower is pre approved, they’ll receive a loan offer that includes the loan amount, interest rate, loan term, and other important details. However, it’s important to note that pre approval doesn’t guarantee that a borrower will get a loan. Once a borrower officially applies for a loan, the lender will conduct a more thorough evaluation of their financial situation to determine if they’re eligible for a loan.
7. Can I get pre approved for multiple loans?
Yes, borrowers can get pre approved for multiple loans from different lenders. However, it’s important to note that each pre approval will involve a soft credit check, which can impact a borrower’s credit score if done frequently.
8. Can I get pre approved for a loan if I have bad credit?
It’s possible to get pre approved for a loan with bad credit, but it may be more difficult. Borrowers with bad credit may need to look for alternative funding sources or work on improving their credit score before applying for a loan.
9. Can I apply for a loan if I’m not pre approved?
Yes, borrowers can apply for a loan even if they’re not pre approved. However, it’s important to note that they may be less likely to get approved for a loan if they don’t go through the pre approval process first.
10. Are there any fees associated with pre approval?
Most lenders don’t charge a fee for pre approval, but it’s always important to read the fine print to make sure.
11. What documents do I need for pre approval?
The documents required for pre approval vary depending on the lender, but they typically include financial statements, tax returns, and other business-related documents.
12. Can I get pre approved for a loan if I’m a new business?
It may be more difficult for new businesses to get pre approved for a loan since they typically have less financial history. However, it’s still possible to get pre approved by showing proof of income and a solid business plan.
13. How often should I get pre approved?
There’s no set rule for how often borrowers should get pre approved, but it’s generally recommended to only go through the pre approval process when necessary to avoid a negative impact on their credit score.
Conclusion
🔑 Key Point: Small business loan pre approval is a preliminary process that determines if a borrower is eligible for a loan before they officially apply.
Now that you understand small business loan pre approval, you’re one step closer to getting the funding you need to grow your business. Remember, pre approval is not the same as a loan offer, and it doesn’t guarantee that you will get a loan. However, it can be a helpful tool for determining how much you can borrow and giving you more negotiating power when it comes to the loan terms. If you’re ready to take the next step, start exploring your pre approval options today!
Closing Disclaimer
This article is for informational purposes only and does not constitute financial advice. Before making any financial decisions, it’s important to consult with a financial professional who can guide you through the process and ensure that you’re making the best decisions for your specific situation. The information provided in this article is accurate to the best of our knowledge at the time of publication, but lenders may change their pre approval processes and loan terms at any time. Always read the fine print before signing any loan agreement.