Many entrepreneurs attempt in order to avoid loan brokers when seeking financing for their companies. And, it’s, partly, understandable given the bad reputation that numerous 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 bring a brand new, increased layer of costs to the complete loan process – a genuine deterrent to businesses seeking outside financing which may be alone a really expense and frustrating endeavor in the first place.
Unfortunately though, many business lenders prefer to make use of loan brokers for just two primary reasons:
Using loan brokers allow lenders to cut back their overall marketing expenses. Thus, they are able to focus more on creating and developing their loan programs to better meet business borrower needs as well as focus on their underwriting (which is what their business is actually all about).
Lenders also prefer loan brokers as they give one more level of filtering applicants. In talking to several lenders in the unsecured business loan industry, it appears that only 1 in 10 applicants will in actuality qualify for a business loan product. Thus, these lenders have to pay both time and effort in pre-screening potential applicants that may really increase their overall costs – Keep in mind that as their costs rise, so does the expense to the potential borrower as all costs see through on – thus, most lenders elect to let loan brokers filter and pre-qualify potential clients.
But, brokers can offer a bit of value to busy business owners. Contacting a broker who has many contacts within a can not only save the company owner time (and time is money) but can help a business owner determine and identify which products and which lenders may be best for their business – products or companies that numerous business owners may not know about.
Plus, brokers can perform a lot of the leg work for the company 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 really a balance between the increased fees or increases costs of using a business loan broker and the cost (expense of the owners time) to be drawn from the company and finding and working with lenders on their own.
Most business loan brokers are honest, hard working folks who actually desire to simply help your business get the capital its needs. But, like the majority of industries today, you will find always bad apples.
When seeking to hire a loan broker, listed below are five questions you should bear in mind before you sign any contract, pass along any business financial information or pay any fees:
Request references then actually follow-up with those provided. Now, bear in mind that many brokers will pass along their utmost references which may be a bit 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 business could reasonably expect and then try to obtain that in writing. The key here’s to listen. Listen to what will be said and to your personal instincts. If you have any doubt or just genuinely believe that the offer is too good to be true, then walk away.
Enquire about the time it will take for your business to actually receive funding. Most business owners seeking capital usually need funds immediately – not four to five months down the road. This will not only allow your business 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 needs and not theirs.
Enquire about costs – not just the fees involved but the different overall costs which can be associated with different business loan products. For instance, most secured or unsecured business loans are pretty self-explanatory given a stated annual interest rate singapore business loan broker. But, other products, like account receivable factoring or business cash advances, aren’t require to mention their rates like traditional business loans. Thus, a 5% rate for an advance against your business’s invoices may 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 may not employ a firm grasp on these products they are brokering on your own behalf.
And, lastly, fees. Ask if they might require a fee from your business or will they receive their payment from the lender? Will these fees, particularly when from your business, be required upfront or once the loan is in fact funded?
Having upfront fees is now becoming, unfortunately, typical in this industry – partly due to the financial turmoil in 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 provided that it’s accompanied with some kind of guarantee – like being refunded if the broker cannot obtain your business the agreed upon amount of funding or offset against other broker or lender fees when funding does occur.
Also, it is obviously good for spend some time researching the countless different products which can be available to new or growing businesses. In this way, you can better evaluate the broker’s recommendation. For instance, you would favour a broker recommend and pursue a loan product that’s best for your company and not merely the very best 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 is apparently here to stay. But, brokers do not need to be an Achilles heel for your business when seeking capital in the event that you and your business focus on using them to your advantage. If you can pull this off utilizing the tips outlined above, brokers may actually be worth using as then they end up being the eyes, ears and legs for your business during your business loan pursuit – allowing you, the company owner, to carry on building the profitable business you’ve always dreamed of.