Employing Business Loan Brokers – Would it be Worth the cost?
Many entrepreneurs attempt to prevent loan brokers when seeking financing because of their companies. And, it’s, in part, understandable given the bad reputation that many brokers have (especially in the commercial loan and commercial mortgage industry).
In most borrower’s eyes, business loan brokers are simply just middlemen between them and the actually lenders; middlemen who only seem to create a brand new, increased layer of costs to the complete loan process – a genuine deterrent to businesses seeking outside financing which is often alone a very expense and time consuming endeavor in the very first place.
Unfortunately though, many business lenders prefer to utilize loan brokers for two primary reasons:
Using loan brokers allow lenders to cut back their overall marketing expenses. Thus, they can focus more on creating and developing their loan programs to raised meet business borrower needs in addition to focus on their underwriting (which is what their business is really all about).
Lenders also prefer loan brokers as they provide an additional level of filtering applicants. In talking to several lenders in the unsecured business loan industry, it seems that only 1 in 10 applicants will actually qualify for a small business loan product. Thus, these lenders have to spend both time and effort in pre-screening potential applicants that may really increase their overall costs – Keep in mind that as their costs increase, so does the expenses to the potential borrower as all costs get past on – thus, most lenders elect to let loan brokers filter and pre-qualify potential clients.
But, brokers can provide a little value to busy business owners. Contacting a broker who has many contacts within a can not only save the business enterprise owner time (and time is money) but can help a small business owner determine and identify which products and which lenders might be best because of their business – products or companies that many business owners may not know about.
Plus, brokers may do much of the leg work for the business enterprise owners – freeing the owner’s time to continue to concentrate on running and growing their business. The trade off and potential cost saving is a balance involving the increased fees or increases costs of employing a business loan broker and the cost (expense of the owners time) to be drawn far from the business enterprise and finding and working with lenders on their own.
Most business loan brokers are honest, hard working people who actually desire to simply help your company discover the capital its needs. But, like most industries today, you will find always bad apples.
When seeking to hire a loan broker, listed here are five questions you must bear in mind before you sign any contract, pass along any business financial information or pay any fees:
Look for references then actually followup with those provided. Now, bear in mind that many brokers will pass along their utmost references which is often a bit misleading. So, either look for a few other companies which have used the broker in the past or ask the set of references if they know of other businesses who’ve used that broker.
Ask the broker what your company could reasonably expect and then try to obtain that in writing. The important thing here is to listen. Listen from what has been said and to your own personal instincts. If you have any doubt or simply just believe that the offer is too good to be true, then walk away.
Enquire about the time it can take for your company to truly receive funding. Most business owners seeking capital usually need funds immediately – not 4 or 5 months down the road. This will not only allow your company to judge the worthiness of the broker but to also impress upon them your time frame requirements – remember, you are actually hiring them and should expect results that meet your preferences and not theirs.
Enquire about costs – not only the fees involved but different overall costs which can be associated with different business loan products. For example, most secured or unsecured business loans are pretty easy given a stated annual interest rate. But, other products, like account receivable factoring or business cash advances, are not require to mention their rates like traditional business loans singapore corporate loan broker. Thus, a 5% rate for an advance against your business’s invoices could possibly cost much higher than a traditional term loan over exactly the same period. If the broker cannot reasonably explain the financing costs to you in terms which can be easily understood, then the broker may not have a very firm grasp on the merchandise that they’re brokering on your own behalf.
And, lastly, fees. Ask if they require a fee from your company or will they receive their payment from the lender? Will these fees, especially if from your company, be required upfront or once the loan is clearly funded?
Having upfront fees is currently becoming, unfortunately, the norm in this industry – in part due to the financial turmoil in our economy but also because many brokers wish to weed out the looky loos and only handle serious businesses. Keep this at heart, an upfront fee is OK provided that it’s accompanied with some sort of guarantee – like being refunded if the broker cannot obtain your company the agreed upon level of funding or offset against other broker or lender fees when funding does occur.
Also, it is always good for spend some time researching the many different products which can be available to new or growing businesses. In this manner, you are able to better evaluate the broker’s recommendation. For example, you’d favour a broker recommend and pursue a loan product that is best for the company and not alone the best for the broker.
While brokers might be just middlemen, they are also becoming more prominent in this industry and a brand new link in the financial chain that is apparently here to stay. But, brokers don’t need to be an Achilles heel for your company when seeking capital in the event that you and your company give attention to with them to your advantage. If you can pull this off utilizing the tips outlined above, brokers could possibly be worth using as they then become the eyes, ears and legs for your company during your business loan pursuit – allowing you, the business enterprise owner, to continue building the profitable business you’ve always dreamed of.