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?
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
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/
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
However, when deciding what type of broker to use, I would suggest you consider the following:
1) Are they requesting up front fees? I highly discourage anyone from paying a packaging fee or up front fee for services. If a broker is confident they can get a deal done, they should not require an up front fee. We work purely on a Success Fee basis, meaning we do not charge anything up front and only get paid at time of closing.
2) If the broker requires you to be exclusive or they earn a fee even if you do not close the deal with them, this is a huge warning sign. First, they should be confident up front they can get you better terms and get the deal done. Secondly, they should not have a right to earn a fee on a relationship you had prior to working with them.
3) Be sure the agreement you sign prevents the broker from double-dipping on you. In some cases, and specifically in SBA lending, most brokers are paid a referral fee directly from the lender. If they want to charge you a fee as well, they would be getting double paid for the work. Be sure the agreement makes it so they only get paid once.
4) Dig into what type or lending relationships they have and what type of experience they have. You want a broker with a large rolodex and plenty of industry experience. Many brokers do not have a lending background and some do not have a financing background. They will not be able to help you answer complex questions. They may make some introductions for you, but you will still end up doing most of the work and they might not have the knowledge on how to get you to the right lender or mitigate risks that exist. You want a broker that knows how to underwrite, package, and what it takes to get a deal approved and closed. Otherwise you are not really getting what you are paying for.
I hope this information is of help. We are always willing to have a conversation with anyone to go through our process. I can be pinged here or directly at redacted