Pre-Approved vs. Pre-Qualified: What’s the difference and which is best for your embedded finance product?

Embedded finance can unlock tremendous potential for software companies, enabling them to provide value-added services that deepen customer engagement and create new revenue streams. By leveraging live data, financing offers can be generated automatically, making funds available for your small business customers without the need for extensive applications and waiting periods. However, not all embedded lending solutions are created equal—especially when it comes to funding offers labeled as “pre-approved” versus “pre-qualified.” For software companies, understanding the difference is essential to ensuring your platform delivers the best customer experience while maximizing the potential benefits for your business.

Pre-qualified vs. Pre-approved: The key differences for embedded finance

Pre-Qualified offers

• Definition: A pre-qualified offer is a preliminary assessment based on limited financial data, such as basic income or revenue figures, without detailed underwriting. 

• Limitations: While pre-qualified offers may seem enticing, they’re far from guaranteed. Businesses must often go through additional steps—such as deeper credit checks and income verification—which can lead to significant drop-offs in approval rates.

• Customer Experience: The uncertainty surrounding pre-qualified offers can lead to frustration for SMBs when these offers don’t result in funding or when the offer terms change (e.g. lower offer amount or higher fees). This can damage trust in your platform.

Pre-Approved offers

• Definition: A pre-approved offer is based on a thorough evaluation of a business’s financial health. By completing much of the underwriting process up front, pre-approved offers provide a higher degree of certainty and reliability. 

• Advantages: Pre-approved offers eliminate unnecessary hurdles, ensuring businesses can confidently plan and act on growth opportunities.

• Customer experience: SMBs view platforms offering pre-approved funding as dependable and customer-centric, which fosters loyalty and long-term engagement.

One of the defining differences between pre-qualified and pre-approved is the percentage of offers that go on to be fully approved. To be considered pre-approved, offers need to be much more finalized—the only issues that should lead to a disqualification should be failed fraud or compliance checks. 

As you can see, providers with pre-approved offers may require a bit more data up front (though this should be behind the scenes and seamless from a customer perspective) but leads to less customer disappointment and more final offers. By utilizing more up-front data, offers can be stronger and more customized, based on a better understanding of business health.

Why pre-approval benefits your customers

Speed and simplicity

Pre-approved funding allows SMBs to access capital quickly, which is crucial for responding to opportunities or addressing urgent needs. By significantly reducing friction in the application process, pre-approval ensures businesses spend less time waiting and more time growing.

Trust and confidence

A pre-approved offer signals that a platform has already vetted the business and determined its eligibility. This gives SMBs the confidence to move forward without worrying about unexpected denials or changes to terms.

Real-world impact

Consider a small e-commerce business that needs to restock inventory after an unexpected surge in demand. With pre-approved funding, they can act immediately, ensuring they don’t lose out on sales opportunities. Pre-approved offers enable SMBs to navigate challenges and seize opportunities without financial uncertainty. It also gives them confidence that their offer will hold up, reducing the need to apply for funding from a competitor while waiting for final approval.

Why pre-approval is a competitive advantage for software companies

Higher customer engagement

• Retention: Offering fast, reliable financing strengthens user relationships and reduces churn.

• Repeat usage: SMBs that trust your platform for funding are more likely to return, boosting their lifetime value.

• Higher response rate: Pre-approved offers can drive 30-50% higher response rates compared to pre-qualified offers.

• Lower dropout rate: A frictionless application process significantly reduces drop-off in the funnel.

Stronger revenue opportunities

• Direct revenue streams: Embedded lending solutions with pre-approved offers generate consistent income through transaction fees or interest.

• Upselling opportunities: Offering financing options opens the door to bundling other premium services, further increasing platform revenue.

Market differentiation

• Brand perception: By providing pre-approved funding, software companies can position themselves as innovative, customer-focused leaders in their space.

• Trust as a selling point: Reliable funding solutions enhance your reputation, attracting more SMBs to your platform.

Note: Pipe is not a lender. Pipe Capital is a revenue advance, with a unique underwriting approach that allows us to create pre-approved offers for our partners’ customers without relying on credit checks. Our reliable, unbiased offers result in outstanding customer satisfaction scores with an average NPS of 77. Learn more about Pipe Capital

Conclusion

Pre-approved funding is more than a convenience—it’s a strategic advantage for software companies embracing embedded finance. For SMBs, it means faster, more reliable access to the capital they need to thrive. For software platforms, it translates to higher engagement, stronger revenue opportunities, and a significant edge in a competitive market.

If you’re considering adding embedded capital to your platform, make pre-approved funding a priority. It’s a win-win for your customers and your business.