In commercial lending, pre-approval is basically the pre-approved for a loan or mortgage, usually of some amount value. This could be in the form of reduced interest rates, extended terms on loans or even the elimination of any fees. There are many lenders offering pre-approval to a person wishing to purchase commercial property. They generally give this service at the time of application for a loan. The lender will request the potential client to submit information regarding their credit history and personal financial matters.
Sometimes this service is offered as a bonus on the purchase of property. This may be because the lender is confident of the investor’s capacity to repay the loan. However, this is not always the case. Pre-approval is often given based on the market value of the property. If you are lucky, you may get pre-approval for as low as 0.60% of your loan amount.
There are different reasons why you may get pre-approval for a commercial property. Perhaps you are buying a part of a multiple unit flat. In that case, the chances of getting the approval before putting the property on the market is high. Or maybe you are looking for a small retail outlet to open your own business. Such properties are also likely to be sold off fast due to the huge demand from existing customers.
There are some disadvantages too. A person cannot sell a property till the deal has been finalized and he receives a full commission from the seller too. This is considered a disadvantage by some people who prefer to have an independent deal done before putting their property on the market. Another disadvantage is that the approval deals are normally very short term. Hence, the buyer is left with almost no time to search for a better deal.
It is advised to look for a good deal when looking for pre approval. The duration should be reasonable enough so that the buyer can make good profits while looking for the right property. Pre-approval does not necessarily mean that you will be left with a property at very minimal prices. It is still very possible to find a good deal despite the absence of the approval.
The main reason why a lender allows a person to apply for pre-approval is because it helps the lender in assessing the risk factor associated with that particular type of loan. A lender might feel more comfortable lending a small amount as compared to a big one. When the borrower applies for the approval, the lender can see how much risk he is taking by lending that amount. Once the pre-approval is granted, the borrower does not really have to go through any rigorous process. He simply needs to present the lender with a very organized and well-prepared plan that will clearly explain the reason for taking the loan.
The major benefit of the approval is that it saves the lenders the hassle of arranging for appraisal of the property, which is a very complicated procedure that sometimes turns out to be quite expensive. When the property is approved for pre-approval, the appraisal takes place earlier in time so that the lender can assess the price properly. This in turn helps him make better offers and therefore more profits on the deal.
There are many benefits of pre-approval. As already mentioned, it saves both the lender and the borrower money in terms of both time and money. The buyer also gets more time to look around and compare various properties before making a decision. Finally, the approval does not really mean that the deal will be signed off on the spot. It is only a very useful method that helps the buyers to negotiate a better deal.