Getting approved for a loan takes time. Whether you’re applying for a loan from a traditional bank or an alternative lender, you may have to wait several weeks. When running a business, of course, time is of the essence. Your business may not have the luxury of waiting several weeks for fresh capital. Some lenders, however, offer loan prequalification to speed up the approval process.
What Is Loan Prequalification and How Does It Work?
Prequalification is the process of checking a loan applicant’s information to determine whether he or she is a good fit for the loan. As the name suggests, it comes before the actual qualification process. The lender will check the applicant’s information. If the applicant meets the necessary requirements, he or she can move on to the next stage of the application process.
Prequalification is all about qualifying applicants for loans. Some applicants may fail to meet the lender’s requirements for a loan. Maybe an applicant has bad credit or no credit, or perhaps an applicant has insufficient income. Regardless, prequalification allows lenders to assess an applicant’s candidacy for a loan.
How Loan Prequalification Works
Different lenders use different prequalification processes. When applying for a loan, the lender may ask you to complete a prequalification form. Prequalification forms contain fields for information about the applicant — and for business loans — the applicant’s business.
Some lenders perform soft credit inquiries as part of their prequalification process, whereas others perform hard credit inquiries. Soft credit inquiries won’t affect your credit score. Hard credit inquiries, on the other hand, will affect your credit score.
Some of the benefits of loan prequalification include the following:
- Faster approval time
- Smoother application process
- Identify credit or other problems early
Prequalification vs Preapproval: What’s the Difference?
The terms “prequalification” and “preapproval” are typically used synonymously when describing the process of checking an applicant’s information before the complete loan application process. There’s really no difference between them. They both come before the complete loan application process, and they both involve a credit check.
Some lenders offer prequalification for their respective loans. During the prequalification process, the lender will check your information, such as your credit. If you meet the lender’s requirements, you can then proceed with the application process.
This article was brought to you by Intrepid Private Capital Group, a Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.