In-principle approval (approval in principle)
What is an in-principle approval from a bank, and what does it commit the bank to?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
An in-principle approval is a lender's indication that it is prepared to lend on stated terms, subject to conditions such as a satisfactory valuation, due diligence, final credit approval and documentation. It lets a buyer make an offer, sign a conditional contract or show a seller it can fund, but it is usually not a binding commitment: the lender can withdraw or change it if conditions are not met or the facts change. A borrower relying on one reads its conditions and expiry date before going unconditional on a purchase, because only a formal offer or facility letter commits the bank.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WHAT IT IS NOT
A term sheet sets out a facility's proposed terms; an in-principle approval is the lender's conditional statement that it is willing to lend, and it may attach to a term sheet or stand alone.
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