There appears to be a huge amount of misunderstanding between the terms “prequalified” and “preauthorized” in terms of loans. Many small business owners believe they are approved for a loan only to find that they are not! It is important to understand the vast difference between those two terms because a slight misunderstanding may have a huge impact on your small business’s creditworthiness.
A Look at the Main Difference
In short, when you prequalify for a loan you are most often asked to give a whole host of information in order to substantiate your creditworthiness. Among the things you will be asked to provide will be your credit score or history. Being preauthorized for a loan means that a lender has found you creditworthy and is willing to lend you a specified amount of money. However, there are lenders that will take you through the prequalification process regardless of your credit history. AdvancePoint Capital is one company that will research your credit but may prequalify your small business regardless of your credit.
Other Options on the Table
One of the reasons why lenders like AdvancePoint Capital can get you through the prequalification process quickly is because they offer other kinds of loans not based on your, or your company’s, creditworthiness. With loans available like cash advance discounting, your credit doesn’t weigh as heavily because loans are based on accounts receivable as well as in projected business in the prespecified future. These types of loans don’t rely on your credit but rather the amount of business expected and so credit isn’t as great a factor.
Avoid the Dreaded Red Flag
Sometimes the simple process of going through prequalifying for a loan can turn up a lender that is willing to preauthorize a specific sum of money. Bear in mind, however, that every time a lender runs a search, your credit score will take a hit. No matter how slight those hits are, they will eventually add up and lenders may begin questioning why you have made an application to so many lenders. This immediately raises a red flag. Isn’t it better to find financing options that are easier to prequalify for so that the dreaded red flag isn’t raised?
Preauthorization Isn’t Always Best
Here’s a word about those ‘preauthorized’ offers you might get in your inbox after going through a prequalification process. Preauthorized loans are not always your best option because some lenders are simply willing to take on greater risk. They will have extremely high interest rates and in so doing, make it harder for you to repay the loan timely and in full. It might be worth your while to check out loans like the above-mentioned cash advance discounting where you are charged competitive rates and the funding is accomplished quickly with a minimal application process.
Don’t be confused between the two terms because they mean different things entirely and can have you paying more than you bargained for. Check out alternatives from a lender that isn’t as concerned with your creditworthiness as with your forecast sales/profits. Small business loans are available for owners with less than perfect credit, so take the time to prequalify and you’ll be surprised what you might find.