Many entrepreneurs attempt to prevent loan brokers when seeking financing for their companies. And, it is, simply, understandable given the bad reputation that many brokers have (especially in the commercial loan and commercial mortgage industry).
Generally in most borrower’s eyes, business loan brokers are simply middlemen between them and the actually lenders singapore corporate loan broker middlemen who only seem to bring a new, increased layer of costs to the entire loan process – a real deterrent to businesses seeking outside financing which is often alone a very expense and time consuming endeavor in the initial place.
Unfortunately though, many business lenders prefer to make use of loan brokers for 2 primary reasons:
Using loan brokers allow lenders to reduce their overall marketing expenses. Thus, they could focus more on creating and developing their loan programs to raised meet business borrower needs as well as focus on their underwriting (which is what their business is really all about).
Lenders also prefer loan brokers as they provide an additional degree of filtering applicants. In speaking with several lenders in the unsecured business loan industry, it appears that only 1 in 10 applicants will in truth qualify for a small business loan product. Thus, these lenders have to spend both time and effort in pre-screening potential applicants which can 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 decide to let loan brokers filter and pre-qualify potential clients.
But, brokers can also provide a bit of value to busy business owners. Contacting a broker who has many contacts within the industry can not just save the business enterprise owner time (and time is money) but might help a small business owner determine and identify which products and which lenders may be best for their business – products or companies that many business owners might not know about.
Plus, brokers may do a lot of the leg work for the business enterprise owners – freeing the owner’s time to keep to focus on running and growing their business. The trade off and potential cost saving is a balance between the increased fees or increases costs of employing a business loan broker and the expense (expense of the owners time) of being drawn from the business enterprise and finding and dealing with lenders on their own.
Most business loan brokers are honest, hard working individuals who actually desire to greatly help your organization find the capital its needs. But, like most industries today, you can find always bad apples.
When seeking to hire a loan broker, here are five questions you should keep in mind before you sign any contract, pass along any business financial information or pay any fees:
Require references then actually followup with those provided. Now, keep in mind that most brokers will pass along their utmost references which is often somewhat misleading. So, either try to look for added companies which have used the broker previously or ask the list of references when they know of other businesses who’ve used that broker.
Ask the broker what your organization could reasonably expect and then try to have that in writing. The main element here’s to listen. Listen as to the is being said and to your personal instincts. When you yourself have any doubt or simply just think that the offer is too good to be true, then walk away.
Enquire about enough time it will take for your organization to actually receive funding. Most business owners seeking capital usually need funds immediately – not 4 or 5 months down the road. This will not just allow your organization to judge the worthiness of the broker but to also impress upon them your time frame requirements – remember, you’re 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 can be involved with different business loan products. For instance, most secured or unsecured business loans are pretty straight forward given a stated annual interest rate. 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 might actually cost much more than a traditional term loan over the exact same period. If the broker cannot reasonably explain the financing costs to you in terms which can be easily understood, then a broker might not possess a firm grasp on the merchandise they are brokering on your behalf.
And, lastly, fees. Ask if they might need a fee from your organization or will they receive their payment from the lender? Will these fees, especially if from your organization, be required upfront or once the loan is clearly funded?
Having upfront fees is now becoming, unfortunately, typical in this industry – simply due to the financial turmoil in our economy but additionally because many brokers wish to weed out the looky loos and only handle serious businesses. Keep this in your mind, an upfront fee is OK so long as it is accompanied with some kind of guarantee – like being refunded if the broker cannot obtain your organization the agreed upon quantity of funding or offset against other broker or lender fees when funding does occur.
Also, it is obviously advantageous to 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 instance, you’d favour a broker recommend and pursue a loan product that is best for the company and not simply the most effective for the broker.
While brokers may be just middlemen, they are also becoming more prominent in this industry and a new link in the financial chain that appears to be here to stay. But, brokers don’t have to be an Achilles heel for your organization when seeking capital if you and your organization focus on with them to your advantage. If you can pull this off utilizing the tips outlined above, brokers might actually be worth using as they then end up being the eyes, ears and legs for your organization throughout your business loan pursuit – allowing you, the business enterprise owner, to keep building the profitable business you have always dreamed of.