Are SBA Loan Brokers worth it?

August 16, 2021

by a searcher from University of Virginia in Los Angeles, CA, USA

I was introduced to the regional officer at a well-known national bank. who said they will not make SBA 7a loans without the full amount in collateral. Shucks. But she put me in touch with a loan broker, one that she trusts very much.

I didn't realize SBA loan brokers exist, but I guess it makes sense. This one had never heard of a search fund but is eager to help me. On the one hand, some added help (purportedly free) with paperwork and contact management seems great. On the other hand, I'm wary of someone who isn't familiar with search and skeptical that I won't be paying for the service in some form.

Anybody have experience with brokers and willing to share thoughts?

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Reply by a lender
in Yorba Linda, CA, USA

As a direct lender, I'm going to say I don't think they are worth it, no. There are several SBA lenders which do not require full collateral (or really any) and they are all active on this platform. Yes, the broker costs you something. If the bank has to pay a fee to the broker for your loan, it's going to be factored in to their pricing model, and passed on to you in the form of basis points. The same is true of seller's brokers who get paid referral fees by banks (a practice I highly recommend you stay away from since there is an inherent conflict of interest in these circumstances). Find 3 good lenders on this platform, and you will not need a loan broker.

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

We are a Commercial Loan Brokerage Shop. Because of that, I am obviously biased. With that said, if you already have a lender relationship(s), I would definitely get a quote from those lenders. However, you need to understand that many lenders have set policies and ways they like to do deals, and others will be more aggressive on certain types of deals than others. By using a broker or at least running your situation by a good broker, you can get a sense if what you are getting is fair in the market or there might be something better out there, and if there is something better out there they can help you find it. We have 350+ lending partners we work with (over 60 institutions focused on SBA financing alone), that include traditional banks, credit unions, private lenders, non-bank lenders, etc., so we can present a lot of different options, and options most clients might not find on their own.

The other thing we help our clients do as a broker is get the deal structured the right way from the start. We have substantial experience funding business acquisition deals and can help our clients get the deal structured up front so they will qualify for the best financing available. And we can also assist them throughout the process and help avoid pitfalls and issues, and help them get the paperwork done correctly. I work with Bankers in and out all day everyday. And there are some great institutions and great bankers out there. However, there are some bad ones as well that you might want to avoid and the Banks and Bankers we take our deals to have been vetted by us.

Lastly, different brokers charge differently. Here at Commercial Lending X our fee is typically 1% of the loan amount, however, our agreement prevents us from double-dipping on our client, meaning if we get paid a referral free from a lender it gets credited to their fee. That way Borrowers know we are going to market to get them the best deal possible and not the best deal for us. When it comes to SBA loans, we typically get paid a referral fee from the SBA lender. The SBA program allows for this as the SBA sees the value in having brokers help customers get the financing they need. However, this does not impact pricing. That fee gets paid out of the back-end profitability of the loan to the lender. In fact ,we still find we can typically get our clients a better deal between terms and structures than they can on their own, even with the SBA lender paying us this fee. If it is a conventional loan, then the client ultimately ends up paying our fee as the lender typically will not. Again, we still find we save our customers money on conventional deals by negotiating better terms, advance rates, conditions, and covenants, not to mention the tremendous amount of time we save them versus them working the deal themselves with multiple lenders.

I hope this information helps. You have to watch for brokers who are not experienced, but if you find one who is and has a proven track record, they can provide tremendous help and help you avoid some pitfalls that could kill your deal. Here is a blog I did several years ago about how to identify a good broker from a bad one. https://commerciallendingx.com/2011/09/22/when-to-be-cautious-in-dealing-with-a-commercial-loan-broker-consultant/

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