Implementing Business Loan Brokers – Has it been Worth their expense?
Many entrepreneurs attempt to avoid loan brokers when seeking financing for his or her companies. And, it’s, in part, understandable given the bad reputation that numerous brokers have (especially in the commercial loan and commercial mortgage industry).
In many borrower’s eyes, business loan brokers are only 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 – an actual deterrent to businesses seeking outside financing which can be on it’s own an extremely 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 could focus more on creating and developing their loan programs to higher meet business borrower needs in addition to focus on the underwriting (which is what their business is truly all about).
Lenders also prefer loan brokers as they provide an additional degree of filtering applicants. In talking to several lenders in the unsecured business loan industry, it seems that only 1 in 10 applicants will in truth qualify for a small business loan product. Thus, these lenders have to pay both time and effort in pre-screening potential applicants which could really increase their overall costs – Remember that as their costs increase, so does the costs to the potential borrower as all costs get past on – thus, most lenders choose 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 the industry can not merely save the business owner time (and time is money) but will help a small business owner determine and identify which products and which lenders may be best for his or her business – products or companies that numerous business owners may not know about.
Plus, brokers can do much of the leg benefit the business owners – freeing the owner’s time to carry on to focus on running and growing their business. The trade off and potential cost saving is just a balance involving the increased fees or increases costs of utilizing a business loan broker and the expense (expense of the owners time) of being drawn from the business and finding and working with lenders on the own.
Most business loan brokers are honest, hard working people who actually desire to simply help your business get the capital its needs. But, similar to industries today, you can find always bad apples.
When seeking to hire a loan broker, listed below are five questions you must remember when you sign any contract, pass along any business financial information or pay any fees:
Look for references then actually follow up with those provided. Now, remember that most brokers will pass along their finest references which can be a little misleading. So, either try to look for a few other companies which have used the broker in the past or ask the listing of references when they know of other businesses who have used that broker.
Ask the broker what your business could reasonably expect and then try to obtain that in writing. The key listed here is to listen. Listen to what is being said and to your personal instincts. When you have any doubt or simply just believe that the offer is too good to be true, then walk away.
Enquire about the full time it will require for your business to actually receive funding. Most business owners seeking capital usually need funds immediately – not four or five months down the road. This can not merely allow your business to judge the worthiness of the broker but to also impress upon them your own time frame requirements – remember, you are actually hiring them and should expect results that meet your needs and not theirs.
Enquire about costs – not only the fees involved but different overall costs which are associated with different business loan products. For example, most secured or unsecured business loans are pretty self-explanatory given a stated annual interest rate sme loan broker. But, other products, like account receivable factoring or business cash advances, aren’t require to state their rates like traditional business loans. Thus, a 5% rate for an advance against your business’s invoices could possibly cost much greater than a traditional term loan over exactly the same period. If the broker cannot reasonably explain the financing costs for you in terms which are easily understood, then your broker may not possess a firm grasp on the products that they’re brokering in your behalf.
And, lastly, fees. Ask if they might need a fee from your business or will they receive their payment from the lender? Will these fees, especially if from your business, be required upfront or when the loan is obviously 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 deal with serious businesses. Keep this in your mind, an upfront fee is OK as long as it’s accompanied with some kind of guarantee – like being refunded if the broker cannot obtain your business the agreed upon quantity of funding or offset against other broker or lender fees when funding does occur.
Also, it is definitely beneficial to take some time researching the countless different products which are available to new or growing businesses. In this manner, you can 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 most effective for the broker.
While brokers may be just middlemen, they are also becoming more prominent in this industry and a brand new link in the financial chain that appears to be here to stay. But, brokers don’t need to be an Achilles heel for your business when seeking capital in the event that you and your business concentrate on using them to your advantage. If you’re able to pull this off utilising the tips outlined above, brokers could possibly be worth using as they then become the eyes, ears and legs for your business through your business loan pursuit – allowing you, the business owner, to carry on building the profitable business you have always dreamed of.