After a successful preliminary underwriting, the next step in the SBA 7(a) loan process is pre-qualification. This step consists of a discussion and negotiation about the loan and its terms, and ends with a conditional framework for the loan being established. Sometimes, but not always, this framework will be detailed in a pre-qualification letter that must be signed by both parties.
The purpose of the pre-qualification discussion is two-fold: first, to allow both parties to ask questions and address any concerns before moving forward, and second, to negotiate the terms of the loan.
The framework established in this step signifies the lender’s conditional interest in completing the loan on those terms. However, these terms are dependent on a successful full underwriting process.
The Pre-Qualification Discussion
The pre-qualification discussion determines what conditional loan terms will be established. Here is an overview of the typical topics of discussion:
• Asking Questions and Addressing Concerns
The pre-qualification discussion offers an opportunity for both parties to ask questions and address any concerns they may have. For the lender, the purpose of this is to ensure they fully understand the borrower and the business and are ready to pre-qualify the loan. This discussion is less of an opportunity for the borrower, but it’s still a chance to ask questions and ensure they and the lender are on the same page.
• Negotiation of Loan Terms
This is the most important negotiation in the 7(a) loan process, as this is where the outline of the loan takes shape. The interest rate, down payment, loan amount, loan term, repayment schedule, and more are all determined here. Importantly, however, the terms determined in this step are conditional. They can change later based on the results of the full underwriting process.
