What are a borrower’s rights when alender approves a loan and then reduces the amount of the loan after a capital investment has been made?
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What are a borrower’s rights when alender approves a loan and then reduces the amount of the loan after a capital investment has been made?
My partner and I received notice that our small business loan of $50,000 was approved. We then signed our lease agreement for our business. The bank then sent us a letter stating we were only approved $2,400. Can we hold the bank accountable for there mistake or are we just out of luck? We would have not entered into the lease if we had not secured the loan.
Asked on March 11, 2011 under Business Law, Ohio
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 13 years ago | Contributor
You are, unfortunately, probably out of luck. Banks are not obligated to loan in the first place, and their various paperwork, documents, disclosures, etc. almost invariably say that nothing is certain or committed until the underwriting is done and completed and the loan is actually extended. The "approval" for a certain amount really means that without doing the hard work or analysis, the bank thinks that you "may" be eligible for a loan of up to a certain amount, but the loan has not yet been made. The bank is not committed to anything until the loan offer is official made, the loan accepted, and all the paperwork signed by both parties.
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