A commercial loan broker is someone who has relationships with multiple lending institutions and matches would-be borrowers with said lending institutions. It sounds simple enough, and it is. Commercial loan brokers are held to the same ethics and compliance standards as direct lenders. So, what is the benefit of working with a commercial loan broker over a traditional bank?
A traditional lender is more likely to have hundreds of employees and thousands of applicants. You may be encouraged to check the status of your application online, or to be given an toll free number to call and follow up with the first person to answer the phone. Nobody has a direct line, and it’s the luck of the draw who answers the phone- if you are fortunate enough to get through. Even worse, you may have to wait to receive your approval or decline letter in the mail, which can take weeks. You most often will not have one point of contact. Nobody will care to listen to your story, and find out why you are applying for the loan. You will find yourself explaining yourself over and over again as your call is transferred from department to department. You will not build a relationship. You are a number among thousands, and nothing more.
A commercial loan broker likely has fewer employees. When you call in or inquire online, a person will contact you and find out your individual situation, and work with you from there. You will have one point of contact, and be able to explain your situation to that person. Your loan specialist will place you with lenders appropriate for your situation to increase your chances of getting approved.
Your loan specialist wants you to get approved, and will likely go to bat to help your application get approved. We don’t often take a “no” the first time from our lenders, and always ask to see if there is anything else you can provide to strengthen your underwriting profile. When you win, we win also, so we are in this process together.
A good commercial loan broker has relationships with multiple types of lenders. At Zena Financial Services, we have relationships with all types of lenders, with all types of criteria, for A through F credit. When you speak with a loan specialist, they will request a few minutes of your time for a brief call to ask questions about your business, your credit profile, available money down, collateral (if available), monthly budget, and other considerations to help us place you with the right lender. Not only do we have relationships with different credit profile lenders, we also have relationships with different types of lenders.
A typical example would be if we have a customer who may be able to qualify for equipment financing, but based on his credit profile, we know that the only lenders who may approve him will require 10% down. The customer’s business has been around for more than 6 months, and is generating revenue. We submit the customer’s application to the equipment lender for approval, then we also submit an application to a working capital lender to help the customer come up with the down payment. Traditional lenders leave it to the customer to come up with the down payment. Commercial loan brokers should have a lender that can fill the “holes” that can kill the transaction and help the customer acquire the equipment they need. When your application is sent to lenders who are more likely to approve your application, you save time and inquiries to your credit report.
Of course there are multiple scenarios that benefit from working with a one-stop shop, but I will not bore you with all of them today. Here are the types lenders that we work with here at Zena Financial Services, so I welcome you to imagine the different scenarios if you like:
- Equipment Leases and Loans- A-F credit profiles
- Working Capital Loans- A- F credit profiles
- Startup lines of credit- A credit only (680 credit score and above)
- Personal loans- A-C credit
- Collateral based loans- A-F credit
- Franchise financing- A credit
- Seller based financing- A-C credit
- Asset based financing A-F credit
All of these lenders will accept the same credit application, and you will only have to submit your credit package once. When you contact your loan specialist, you can get updates and details from multiple lenders all at once who are reviewing your underwriting package. You may also be presented with multiple offers from lenders who have approved your deal. You have the option to choose the offer that works best for you.
Why Are People Skeptical of Brokers?
This is a terrific question, and deserves an explanation. As in any industry, there are some “bad apples” that give everyone else a bad name. There are people who will pose as brokers, who don’t actually have relationships with lenders, and will try to “re-broker” the deal with brokers who do. Rest assured, each lender that we work with at Zena Financial Services has vetted us with multiple verification checks to make sure we are a legitimate company with a squeaky clean background.
In addition, some brokers engage in predatory practices, such as a financing proposal. While financing proposals have their place in business, some brokers will request such a document for simple transactions. Check out the blog post on financing proposals here. If you are working with a broker who requests you to sign a financing proposal for a deal less than six figures and can turn around and fund quickly, I would advise you to push back on this broker, or walk away. But please don’t sign it, and don’t send them money. All this document does is guarantee that the broker will get some of your money whether you accept the loan or not.
Finally, another predatory practice that the “bad apples” engage in is lying to their customers about the interest rates. A good broker should be honest about the rates you should expect to pay, and why. A startup restaurant equipment loan should never expect to pay less than 20%, and it’s more likely going to be 30%, regardless of the credit profile. It’s a fact that startup restaurants have a high risk of failure, so the lender needs to charge higher rates in the likely event the borrower defaults. Lenders will always get their money one way or another, regardless of the great deal they are advertising. Make sure to ask the broker about the rate if it is important to you, and be cautious of someone who skirts around the topic or won’t give you a direct answer to your questions.
Hopefully this post answers your questions or concerns regarding commercial loan brokers. While some people may have the luxury of using their local bank for every type of financing they may ever need, many people do not have that option. If you do decide to work with a broker, I encourage you to be aware of some of the predatory practices I mentioned. A good broker can be your best friend and one-stop shop for years to come and address all of the financing needs your business may have.
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