The obvious first stop for your business when seeking financing for working capital, growth or expansion, is your bank. This is the same institution into which you have been making your deposits, from which you have made your payments and with which you have built a great relationship.
With your good business reputation, years of good financial records and your bank’s preference for your type of business, chances are you will get the financing you need. There are however times when, your otherwise friendly and supportive bank, may say; “Sorry, but we cant help you.”
When situations may not be ideal
To minimize their risk, every bank and lending institution sets strict rules and guidelines under which they would advance a commercial loan. So here are only a precious few of the many reasons why your bank may not be in a position to meet your needs.
- Your personal FICO score, your business’ credit rating or some other financial ratio or indicator falls below the specified minimum for the bank.
- The financing you are looking for is more than your bank can give to your business.
- Your bank does not lend money to your type of business. It is not uncommon for a bank to refuse loans for construction or for working capital.
- If you are a start-up company or a company with less than 3 years of revenue on your books, chances are that you will have some difficulties getting any sizable capital from your local bank.
So what are your options? One of them is to hop from bank to bank, or to do some serious searching on the Internet. You could also easily spend hours on the phone, all in your effort to find the perfect alignment of your financing needs, interest rates and payback period, with the set of lending rules of banks and other financial institutions.
The other option is to engage a professional to do all of that while you mind your business. That professional is your Commercial Loan Broker.
Your commercial loan broker’s reach and objectivity
In your business, you may only be familiar with a handful of banks, mostly local, that you could approach for financing. A commercial loan broker, on the other hand, is trained, certified and formally signed up with hundreds of banks and non-bank commercial lending institutions nationwide. You may not even know that the majority of your broker’s lending partners exist! The broker is therefore in a unique position to find a bank or lending institution that can work with your particular needs and circumstances, no matter where you’re located.
The lenders your commercial loan broker works with have a wide variety of financing products. For example, some lenders would only finance the purchase or lease of equipment, others may only finance working capital based on outstanding receivables, while still others would only fund bridge loans to cover construction. The specific requirements of all of these types of funding are different.
As a partner of these lending institutions, your broker has official relationships with them, expert knowledge of their products, and can negotiate and structure a combination of lending instruments, sometimes from more than one institution, that perfectly addresses your needs.
How does getting a commercial loan through a broker work?
You may have engaged a real estate broker in the past to find or sell your home. A business loan broker works the same way. You contact the loan broker and set up an appointment to discuss your needs. Some basics they will need are:
- Your type of business and how long you have been in business,
- How much capital you are looking for,
- How you will be using the funding and how you plan to pay it back,
- Your FICO score.
From these initial discussions, you are likely to receive some indication from the broker as to the feasibility of finding funding. There will be follow-up with forms to fill out and contracts to be signed to engage the services of the broker. The broker then goes to work on your behalf and will be in touch to offer you options for your consideration.
How much does it cost to engage a commercial loan broker?
Loan brokers charge you a percentage of your total loan amount, and only after it is funded. This is typically 1% to 3%, but can be as high as17% depending on the type of loan. Brokers often have fixed fee arrangements with their lending partners, which are paid by the lender to the broker at the closing of your loan. Otherwise the institution would require the broker to negotiate the brokerage fees with you before closing the loan, as this and other items such as the lender’s origination fees, documentation fees etc., is a line item for the cost of your loan.
At any rate, the broker’s fee is not an upfront payment. It is a transparent part of the closing costs for your commercial loan and it is only disbursed after the successful conclusion of your loan transaction. So, engaging a commercial loan broker when looking to finance your business is a win-win situation.
LaGray Finance | Innovative Business Financing Solutions