Have you ever received a letter from a commercial leasing or finance company congratulating you because your company has been Pre-Approved for some amount, usually $75,000 or $100,000 or $150,000?
I have and so have most companies that have more than ten employees, annual revenues in excess of $3 million, generally good pay habits and a good Dun & Bradstreet rating. If you have received such a letter the good news is that you made the “A” list but the bad news is that PRE-APPROVED doesn’t really mean anything. The truth is that you still have to fill out an application for credit and still have to qualify for the amount you are seeking to borrow or lease. If you stop to think about it PRE-APPROVED literally means BEFORE APPROVAL although most commercial lenders won’t tell you that.
Companies that use the PRE-APPROVED tactic are misleading you by causing you think you have been approved for credit. That practice is generally frowned upon by most legitimate commercial lenders except credit card companies. These tactics are deceptive and those that use them will likely say or do just about anything to ‘win a deal’.
If you are approved for a commercial lease or a loan the company that has approved you should have no trouble sending you a formal notification stating clearly and absolutely that you are approved and what the exact terms and conditions of approval are. Unfortunately there are several commercial lenders and brokers that will tell you anything and encourage you to send them money or sign a set of documents that requires you to send them money. Once they have your funds they may increase your payments or shorten the term or require a significant down payment or security deposit or insist that your mother-in-law guaranty. They have your money and are now driving the bus.
• When you are told you are approved for a lease or a loan, get it in writing.
• Make sure it is exactly as you understood it to be.
• Make sure all the costs and expenses are identified.
• Make sure it says ALL of your funds will be returned if the lender or the broker doesn’t perform by a specific period of time and make sure it clearly identifies what “perform” means.
• Make sure you are dealing with a reputable company. Check with;
o the Better Business Bureau,
o Ripoff Report (search under company name followed by ‘complaints’,
o NAELB – National Association of Equipment Lease Brokers,
o NEFA – National Equipment Finance Association
o The Leasing News (search company name and complaints)
o Google search under company name followed by ‘complaints’
We offer this informational document as our opinion based on over 40 years of experience in the commercial finance industry and suggest that you to use it as a part of your decision making process. As with all important decisions, especially financial decisions, we also suggest that you consider all aspects carefully and consult with your attorney or accountant or other party who is knowledgeable about financial matters when considering entering into a legally binding agreement.