Many entrepreneurs attempt in order to avoid loan brokers when seeking financing for their companies. And, it is, partly, understandable given the bad reputation that numerous brokers have (especially in the commercial loan and commercial mortgage industry).
In most 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 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 raised meet business borrower needs along with focus on their underwriting (which is what their business is truly all about).
Lenders also prefer loan brokers as they give yet another level of filtering applicants. In speaking with several lenders in the unsecured business loan industry, it would appear that only 1 in 10 applicants will in actuality qualify for a business loan product. Thus, these lenders have to invest both time and effort in pre-screening potential applicants that may really increase their overall costs – Remember that as their costs go up, so does the expense to the potential borrower as all costs see through on – thus, most lenders choose to let loan brokers filter and pre-qualify potential clients.
But, brokers can also provide a little 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 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 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 really a balance between the increased fees or increases costs of utilizing a business loan broker and the trouble (expense of the owners time) to be drawn away from the business and finding and dealing with lenders on their own.
Most business loan brokers are honest, hard working folks who actually desire to 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 here are five questions you ought to remember when you sign any contract, pass along any business financial information or pay any fees:
Request references then actually follow-up with those provided. Now, remember that many brokers will pass along their utmost references which can be a little misleading. So, either try to find added companies that have used the broker before or ask the set 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 get that in writing. The main element listed here is to listen. Listen to what is being said and to your own instincts. If you have any doubt or just genuinely believe that the offer is too good to be true, then walk away.
Enquire about enough time it will need for your business 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 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 preferences and not theirs.
Enquire about costs – not just the fees involved but the different overall costs which are associated with different business loan products. 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, aren’t 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 higher than a traditional term loan over the exact same period. If the broker cannot reasonably explain the financing costs to you in terms which are easily understood, then a broker may not employ a firm grasp on the products that they’re brokering on your own behalf.
And, lastly, fees. Ask if they require a fee from your business or will they receive their payment from the lender? Will these fees, particularly if from your business, be required upfront or once the loan is obviously funded?
Having upfront fees has become becoming, unfortunately, standard in this industry – partly due to the financial turmoil in our economy but also because many brokers want to weed out the looky loos and only cope with serious businesses singapore business loan broker. Keep this in your mind, an upfront fee is OK so long as it is accompanied with some type of guarantee – like being refunded if the broker cannot obtain your business the agreed upon number of funding or offset against other broker or lender fees when funding does occur.
Also, it is definitely good for invest some time researching the numerous different products which are open to new or growing businesses. In this manner, you are able to better evaluate the broker’s recommendation. As an example, you would rather have a broker recommend and pursue a loan product that’s best for the company and not only the very best 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 seems to be here to stay. But, brokers do not have to be an Achilles heel for your business when seeking capital if you and your business focus on 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 business during your business loan pursuit – allowing you, the business owner, to carry on building the profitable business you’ve always dreamed of.