Loan authorization occurs when a lending institution completes its “due diligence” (comprehensive appraisal of the business) and approves the terms it will offer a borrower.
As part of the loan authorization, the lender will confirm:
- The principal amount to be borrowed, loan type and terms of repayment
- Any security to be pledged (assets offered as collateral by the borrower to secure the loan)
- Reporting requirements and covenants
- Costs and fees
Once the lender confirms a borrower is qualified to receive a loan, the borrower accepts the final terms in writing. This is called loan acceptance.
More about loan authorization
The process for loan authorization differs from lender to lender. Borrowers will typically choose the lender whose process best suits them.