What Borrowers Need to Know about Approval in Principle
As a business owner, having sufficient funding is to running a startup or established company. You may have applied for a loan or any type of financial transaction to achieve that goal. However, you still have quite a ways to go, especially when being under approval in principle.
Many people head to the bank hoping to walk out with the money they need, only to leave empty-handed. They overlook the phrase approval in principle when it should serve as a disclaimer. There is no guarantee you will be getting the loan even if you are qualified for it. Use this article as your guide to the legalities of this matter.
What Is Approval In Principle?
Approval in principle refers to the first formal step with a lender, meaning you may have talked to a bank representative during the application process. The banker will interview you, but they will not ask for the necessary documents to back the information up. Afterwards, they will ask how much you want to loan and how many years you will require to pay it back.
This stage is done to determine if you are qualified for a loan. It even comes with many names: pre-approval, pre-qualification, and principle in approval. The banker believes that you can receive the loan in principle or based on the information you provided.
What Are Some Questions to be Asked?
Approval in principle requires you to send all information to the lender, and they will perform a credit and responsible lending assessment to ensure that you are a trustworthy borrower. Here are some questions the lender will likely ask you during the process:
Who are you?
Do you have a valid ID?
Do you meet the residency or visa criteria?
How much do you earn?
What are your assets and liabilities?
What are your living costs and other financial obligations?
What product are you applying for?
Many lenders do the initial assessment based on the details you give them using software with no manual review. In other words, expect the approval in principle to be issued very quickly.
What Does It Mean If I Get an Approval in Principle?
Getting an approval in principle means having the assurance of a pre-approval. Therefore, you don’t have to worry about the bank lowering the amount they are willing to give you for a loan. In addition, getting pre-approved helps you develop a budget and plan your finances for your business ahead of time.
What Are the Conditions for Getting an Approval in Principle?
An approval in principle has conditions attached. It is subject to a full assessment of the financials and credit file to check whether everything has been disclosed, ensure all documents provided meet the lending policy and see if your credit history is in good order. All details mentioned have to be shared as they can affect your borrowing position.
Applying for a loan can be stressful because it is a big financial move for your business. To get the money you need as soon as possible and be prepared before signing any contracts, remember the importance of approval in principle and other information in this guide. In addition, consider consulting business accountants for further assistance.
Whether you are starting out or planning to scale your business, you can turn to New Wave, an established accounting firm in Gold Coast. We provide end-to-end accounting and bookkeeping services and create other solutions tailored just for you. Book a free 30-minute strategy session today!