You may have heard of a business loan broker, often known as a small business loan broker. Is it advisable for SMEs to hire a broker in Singapore to acquire a business loan?
Applying for a SME loan can be a time-consuming procedure. In reality, the sheer quantity of requirements that banks may ask for makes it difficult for many small business owners to take the initial step.
You can be a business owner in need of a loan to fund an expansion, working capital, or equipment upgrade. However, you’re not sure if you’ll be able to do this fairly difficult task on your own.
Gathering data and papers takes time, especially if your files aren’t organized or updated on a regular basis. Preparing a comprehensive business strategy, complete with realistic estimates, takes time.
You simply cannot drop everything and immerse yourself in the loan application process because you are busy managing your business.
You may also be unsure which of the several banks and financial organizations provides the greatest rates and deals.
Business Loan Broker's Role
Fortunately, there are business loan experts who act as an intermediary, acting as a “go-between” between you and potential funders.
His/her primary responsibility is to guarantee that the loan application process works well, from satisfying the creditor’s requirements through the actual SME loan distribution.
Business Loan Broker's Value Add
But do you really need a loan broker if you can handle all of the paperwork (and legwork) yourself and save money on broker fees.
It all boils down to your priorities.
Some business owners prefer to go through the loan application procedure themselves, while others choose to hire a broker to save time and effort.
In the latter situation, the advantages of employing a broker should well outweigh the benefits of going through the procedure without one.
What are the advantages of using a broker? Aside from the time savings, what’s in it for you? Here are some things to think about while selecting a loan broker.
Network and Contacts
Professional brokers, particularly those with years of business, have developed ties with a wide range of financiers and bankers.
They’ve worked with and know a lot of banks and financial institutions, so they (and you) have an advantage in understanding which ones can offer the greatest deals. A loan broker knows where to look for a lender who will meet your finance requirements. He’ll locate the missing puzzle piece.
You’re paying for a business financing specialist’s wide relationships, which have been screened via multiple lenders and have direct access to bankers who are attentive and reputable. If you phone the bank’s hotline, your applications will be routed to the appropriate department and staff without the “ding-dong” back and forth.
A broker is also informed about new loan products and special offers. Because of his extensive network and contacts, he would be aware of all relevant and current information about lenders and loan programs. In other words, he is aware of the situation.
Efficiency and Speed
If you need funds quickly for a specific reason, such as meeting a contractual obligation (i.e. meeting a delivery of goods fulfillment deadline) or seizing an opportunity (i.e. certain inventory/assets are selling for a low price), a broker may be able to assist you in completing the financing deal faster.
The reason for this is not due to any “magic,” but rather to the broker’s expertise with the requisite documentation and which banks’ processing times at the time could turn around the application in the shortest period.
Experience and Expertise
A seasoned broker will have a thorough understanding of the lending procedure and credit documents.
He understands the banking sector, especially indicative rates, and can tell if a loan is overpriced or underpriced. He is familiar with the most prevalent types of collateral used as loan security. You may also rely on him for sound advice on more complex arrangements like trade financing and factoring.
He’s also familiar with the fundamental laws and regulations that regulate lenders and borrowers. You can rely on him to explain any terms and circumstances that are unclear to you because he has studied most sorts of loan contracts. He may go over each loan provision with you and point out any business loan fees to be aware of.
Alternative Strategies and Recommendations
Using a broker does not guarantee that you will be approved for a loan the first time you approach a group of creditors. If the banks reject your application, your broker can still help you because he is familiar with other financing options. You may not be eligible for a typical bank loan, but a merchant cash advance or revolving credit line may be approved.
A reputable loan broker will have a backup plan “B” and a slew of other options available for you just in case. He can also help you figure out why your application was denied and how you might improve your credit score in the future.
Better Business Loan Terms
A loan broker understands that presenting your loan proposal to a group of lenders rather than a single lender is a smart method to receive the best loan conditions available.
Your broker can compare which banks and financial institutions offer the best rates and terms by addressing various banks and financial institutions at the same time, saving you time and resources. Brokers that are knowledgeable with government financing programs like the Enterprise Financing Scheme and the Temporary Bridging Loan Program can also assist you in locating cost-effective finance choices.
A broker can assist you in “collecting and selecting” the best loan for you. Obtaining a term loan with a low and fixed rate, for example, has long-term benefits because you will be paying fewer interest until the loan period ends.
Taking Care of Little Details
A broker will examine every aspect to determine how you might appear to a possible lender. He’ll be able to bring out any red flags that could jeopardize your approval.
Most SME owners are unaware that different banks have varied credit conditions. Do you realize, for example, that the nature of your business industry may influence your chances of acceptance, as bank A may be amenable to specific industries while bank B may not?
Assisting you with the details of loan evaluation relieves you of the burden and may even boost your chances of obtaining a business loan.
Look For Red Flags In A Loan Broker
It’s not enough to understand the benefits of utilizing a broker. It’s also crucial to figure out which ones have your best interests at heart, even if they have a long history of dealing with banks and lenders.
While there are reputable, professional loan brokers, there are other brokers that give the sector a poor image. Here’s a quick rundown of “red flags” to be aware of.
No Contact Information Or Proper Business Location
A loan broker who does not have a valid business number or an office or postal address associated with his brokerage business raises questions about his legality, if not his existence.
Your goal is to make sure he isn’t a fly-by-night loan broker. These brokers are mainly one-man operations who operate from their homes.
You might inquire about the commission a broker will receive when he brokers for you. You also have the right to inquire about his lender network and other pertinent information, such as the total amount of the loan he is arranging for you.
It’s wiser to be wary of his competence if he can’t provide you clear answers or looks to lack clarity on this information.
Operating History, References and Testimonials
ACRA Bizfile can be used to look into the broker’s business history. If the company is brand new, with less than two years of experience, they may not have a solid track record. Check whether they can provide references or testimonials from former clients to demonstrate their track record of delighted customers.
Be wary of a broker who promises to secure you a loan without first reviewing your finances and credit history. Don’t be fooled by these assurances. He raises worries about his legitimacy by promising the moon and stars despite obvious obstacles that could stymie your loan application (i.e., bad credit, uncertain cash flow or lack of acceptable collateral, little or no track record).
You should avoid working with a broker who boasts about their ability to “ensure” loan approval.
The truth is that no broker, no matter how skilled, can guarantee loan acceptance because the final decision is made by the bank’s credit approver.
A broker, for example, cannot guarantee approval. After a preliminary evaluation of your financials, a reputable and skilled broker should be able to advise you on your possibilities of acceptance. It is, however, difficult to “ensure” approval.
Someone who brags about his banking contacts or credit savvy and promises a 100 percent assurance of loan acceptance is a tell-tale indicator of a fly-by-night or inexperienced broker. These brokers frequently do so in order to complete the transaction quickly.
Fraud and Scams
As this is an uncontrolled market, the entry barrier is incredibly low, and there will undoubtedly be a few bad apples. Brokers have been accused of defrauding banks and financial organizations, most typically by falsifying documents and submitting fake applications.
If you have any suspicions about the loan broker you’re contemplating, don’t proceed with the agreement.
Consider hiring loan consultants who have been highlighted in independent media (rather than press releases), as this demonstrates credibility and industry thought leadership.
The Price Of Hiring A Loan Broker
The majority of SME loan consultants are compensated based on their performance and success. Fees are only due if the broker is successful in obtaining loan approvals for the customer.
Fees are normally calculated as a percentage of the loan amount granted. It usually falls around between 3% and 6%. Some brokers provide a basic flat charge rather than a percentage.
The fees are determined by a number of factors, including the loan quantity sought, the case’s complexity, and the applicant’s financial situation.
When you’re aiming for and can qualify for a larger loan amount (typically $300K and up), fees should be kept to a minimum.
Also, if your firm or you have several credit difficulties, such as previous bad credit, a lack of financial documentation, financial losses recorded, a weak cash flow position, etc., negotiating for lower broker fees may not be feasible.
The reason for this is that in order to get approval, the broker must devote additional man-hours and effort to discuss and mitigate these difficulties with potential lenders.
Brokers frequently begin work with a customer after receiving a signed engagement form but before collecting any deposit or fees.
The interests of the borrower and the broker are aligned under such a performance-based remuneration arrangement because the broker must put in the work upfront to identify and negotiate the best financing contract in order to get compensated.
It’s also a more fair and equitable agreement for you because there are no upfront charges and you simply pay for results.
Some brokers, on the other hand, may charge a non-refundable upfront processing cost in exchange for a lesser share of the final success fee. This is not, however, a typical industry setup.
When Should I Engage A Loan Broker?
In conclusion, consider using a loan broker if:
- You’re applying for a business loan for the first time.
- You lack the time or resources to compare all SME loan rates from several banks.
- You require immediate financing to meet specific obligations or capture a business opportunity.
- It’s possible that your credit history isn’t in the best shape.
- You’ve had your business loan application refused by a bank before.
- You lack the most recent versions of papers such as financial estimates and business strategies.
If you meet the majority of the criteria listed above, a broker may be able to help you with your finance application.
Before determining whether to use a SME loan broker, you should seek a non-binding assessment from an expert business loan consultant on your company’s financing eligibility — such as Ollo Tech Asia.