Why Preliminary Finance Support Is Not Loan Approval
Updated: Oct 24
Preliminary finance support can help a buyer frame an offer. It should never be represented as a lender's final approval unless the lender has actually issued that approval.
Preliminary finance support not loan approval is one of the most important Stage 4 distinctions when a buyer is negotiating an offer or heads of agreement.
A positive early discussion may support the commercial conversation, but it can still be subject to information, credit approval, valuation, security and final transaction terms.
Preliminary finance support not loan approval: the short answer
Early lender or broker feedback can be useful without being binding.
Indicative support may depend on assumptions that can later change.
Formal approval usually requires the lender to complete its own assessment.
The offer or HOA should not be drafted on the assumption that preliminary support is final approval.
Material changes to the deal should be reported because they can affect the earlier finance view.
What preliminary support may actually mean
Depending on the circumstances, preliminary support might mean a lender appears interested, the transaction fits broad policy, an indicative structure looks possible or the broker sees a credible finance pathway.
Those are useful signals, but they do not necessarily mean the lender is committed to fund the final deal.
Why the lender may still change its view
The lender may later receive updated financials, client concentration information, valuation results, security information or final sale terms that differ from the assumptions used earlier.
The document should reflect the real finance status
If the buyer still needs finance approval, the offer or HOA should not describe the funding position in a way that suggests certainty that does not exist.
The buyer's lawyer should advise on the document wording and any finance condition.
Changed terms can invalidate the assumptions behind the support
A higher purchase price, different settlement payment, new vendor finance, changed borrower or shorter finance deadline can all affect the earlier finance discussion.
Questions to ask before relying on preliminary support
Who gave the support—the broker or the lender?
What assumptions was it based on?
What information or approvals are still outstanding?
Has the transaction changed since the support was discussed?
Has the buyer's lawyer been told the actual finance status?
Frequently asked questions
Is an indicative term sheet loan approval?
Not necessarily. The status and conditions should be read carefully and explained by the relevant finance adviser.
Can I tell the seller finance is approved if the broker is confident?
The buyer should describe the finance status accurately. Broker confidence is not a substitute for the lender's actual approval.
Can preliminary support still be useful?
Yes. It can help frame the likely funding pathway and offer structure, provided everyone understands its limitations.
Illustrative Stage 4 scenario
A lender has indicated that an acquisition appears supportable based on a $1.2 million price and a particular buyer contribution. The seller then negotiates the price to $1.35 million.
The earlier support should not simply be carried forward unchanged. The revised terms need to be reassessed. This example is illustrative only.
Which adviser covers which issue?
A finance broker can explain what the preliminary support does and does not mean. A commercial lawyer should ensure the offer or HOA reflects the actual finance position and legal protections required.
What should you look at next?
The next Stage 4 question is what happens when one of the most important assumptions—the purchase price—changes after finance has already been discussed.
Conclusion
Preliminary support is useful precisely because it helps the buyer negotiate before final approval exists. The discipline is to keep that distinction clear and update the finance view when the deal changes.
Considering an Accounting Practice Acquisition?
Your acquisition finance adviser can help you keep the proposed deal terms, finance pathway and transaction timing aligned before the acquisition moves further.
General information only. This article does not constitute financial, credit, legal, tax, accounting, compliance or valuation advice. Finance is subject to lender approval, eligibility criteria, terms, fees and conditions. Consider obtaining independent professional advice for your circumstances before acting.
