Knowing What Your Bank Approval Letter Means

Borrowers need to beware in the commercial lending market. The regulations are different in the B2B world. Understanding what is “real” and what isn’t can be a challenge for many business owners. Be cautious as you move forward with any lender; even national lenders will set false expectations at times.

I have seen letters of intent, proposals, conditional approvals, commitments and email’s that outline the terms and structure of a commercial loan. Some of these letters will appear as if the lender is committed to funding your loan when in actuality they are not.

A letter of intent, proposal or email with the terms of the loan is NOT an approval that the lender will fund your request. Initially it is a way for the lender to see if the target rates and terms are agreeable to you. Some lenders will only hold a verbal discussion around these items to make sure they don’t set a false expectation. These letters may have an expiration date on them, but they don’t really expire.

A conditional commitment or commitment letter will clearly say your loan is approved and may have some additional checklist items or due diligence that must be completed. Normally, the due diligence items/checklist include appraisals, title work, or other documents they need you to submit. This letter means the lender is ready to fund your deal as soon as the conditions outlined are met. This is a true commitment letter. This you can hang your hat on, but it does expire.

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