How Long Should Loan Approval Take?

A loan approval process should take anywhere from 1 day to 1 month, depending on the size and type of loan applied for, as well as the credit risk and underwriting needed for the borrower. The loan approval process is determined by the lender and is based on their need to assure themselves that the amount of loan that is being lent is going to a party that demonstrates the necessary responsibility to pay the loan back.

Lender’s Loan Approval Process

In looking at the various levels of credit risk that present themselves when a person or a business applies for a loan, a lender has in place systems to measure the creditworthiness and amount of risk associated with the borrower. These systems are important because they help determine what amount of time is needed to approve the loan and provide the borrower with the requested funds.

Reason for Loan Substantiation

An ideal loan is one that requires a minimal amount of documentation and can be approved instantly, usually within 1 hour of application. Unfortunately, those types of loans no longer exist in the United States in the wake of the subprime lending debacle that led to instability in the banking and financial services industry. Most every lender requires that some substantial verification of a borrower’s income, financial resources and credit history take place before a loan can be approved.

Required Documentation

The documentation used to verify a borrower’s risk takes the form of a person’s social security or business’s federal employer identification number (SS/FEIN), information about current bank accounts and other assets (that may need to act as collateral) and an individual credit score, as reported to the 3 major credit reporting agencies or a business rating maintained by Dunn and Bradstreet (DUNS number). This information, along with any additional requirements is what adds to the length of a loan’s approval and the speed in which this information can be provided makes the difference between a 24-hour, 5 business day or 30-day approval for a loan.

Watching Out for Misleading Offers

Borrower’s seeking a loan from a bank or other lender should be leery of websites that make offers of instant loan approval and investigate further to determine the validity of any such claim. A comparison of fees and loan terms and conditions should be performed in order to determine if the loan could be approved within the time promised. This is especially true of offers for instant loan approval for people with bad credit. Lending standards are more stringent for individuals with low, poor or bad credit and any promise to wave documentary proof or verification should lead to a call to a local better business bureau.