Utilizing Business Loan Brokers — Could it be Worthwhile?
Many entrepreneurs attempt in order to avoid loan brokers when seeking financing due to their companies. And, it is, in part, understandable given the bad reputation that many brokers have (especially available loan and commercial mortgage industry).
In many borrower’s eyes, business loan brokers are simply middlemen between them and the actually lenders; middlemen who only seem to create a fresh, increased layer of costs to the whole loan process – a real deterrent to businesses seeking outside financing which can be alone a very expense and time intensive endeavor in the very first place.
Unfortunately though, many business lenders prefer to make use of 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 better meet business borrower needs in addition to focus on the underwriting (which is what their business is really all about).
Lenders also prefer loan brokers as they supply yet another amount of filtering applicants. In addressing several lenders in the unsecured business loan industry, it seems that only 1 in 10 applicants will in truth qualify for a company loan product. Thus, these lenders have to invest both time and effort in pre-screening potential applicants which can really increase their overall costs – Remember that as their costs rise, 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 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 owner time (and time is money) but might help a company owner determine and identify which products and which lenders may be best due to their business – products or companies that many business owners might not know about.
Plus, brokers can perform a lot of the leg benefit the business owners – freeing the owner’s time to continue to target on running and growing their business. The trade off and potential cost saving is a balance between the increased fees or increases costs of utilizing a business loan broker and the trouble (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 individuals who actually desire to greatly help your organization discover the capital its needs. But, like the majority of industries today, you can find always bad apples.
When seeking to hire a loan broker, listed here are five questions you ought to bear in mind before you sign any contract, pass along any business financial information or pay any fees:
Ask for references then actually follow up with those provided. Now, bear in mind that most brokers will pass along their best references which can be somewhat misleading. So, either look for a few other companies that have used the broker in the past or ask the list of references if they know of other businesses who have used that broker.
Ask the broker what your organization could reasonably expect and then try to get that in writing. The important thing listed here is to listen. Listen as to the has been said and to your personal instincts. When you have any doubt or simply think that the offer is too good to be true, then walk away.
Ask about enough time it will take for your organization to really 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 own time frame requirements – remember, you’re actually hiring them and should expect results that meet your requirements and not theirs.
Ask about costs – not merely the fees involved but the various overall costs which can be involved with different business loan products sme loan broker. As an example, 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, are not require to mention 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 the same period. If the broker cannot reasonably explain the financing costs for you in terms which can be easily understood, then your broker might not have a very firm grasp on the merchandise that 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 when from your organization, be required upfront or once the loan is actually funded?
Having upfront fees is currently becoming, unfortunately, the norm in this industry – in part as a result of financial turmoil inside our economy but additionally 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 so long as it is accompanied with some kind of guarantee – like being refunded if the broker cannot obtain your organization the agreed upon level of funding or offset against other broker or lender fees when funding does occur.
Also, it is definitely advantageous to invest some time researching the countless different products which can be open to new or growing businesses. In this manner, you are able to better evaluate the broker’s recommendation. As an example, you’d rather have a broker recommend and pursue a loan product that’s best for your 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 fresh link in the financial chain that appears to be here to stay. But, brokers do not have to be an Achilles heel for your organization when seeking capital in the event that you and your organization focus on using them to your advantage. When you can pull this off using the tips outlined above, brokers could possibly be worth using as then they end up being the eyes, ears and legs for your organization during your business loan pursuit – allowing you, the business owner, to continue building the profitable business you have always dreamed of.