In your search for the right source of credit, you probably came across the term: commercial loan brokers. Who are loan brokers, what do they offer you, and why should you care? Brokers’ services can save you a lot of time in your search for financing and find you opportunities you might have had trouble discovering on your own. But you should be aware of the risks as well as benefits of using a broker.
What Does a Loan Broker Do?
Simply put, a broker connects two sides in a business deal, combining the roles of purchase and sale agent, and working in the interests of both sides. Real estate agents are an example of brokers: they connect buyers and sellers and perform a valuable service as an intermediary.
A loan broker will “float” your loan application with several lenders and present the best offers to you. Besides finding loans with attractive rates and terms, a loan broker may find loans that can be delivered very quickly—sometimes within 24 or 48 hours. There are also websites that serve as loan brokers, comparing loans and giving you a list to choose from. Up to three-quarters of all online loans originate this way.
Questions for a Loan Broker
Brokers should be able and willing to find the best loan options for you, but there are no guarantees. After the recession of 2008, the home mortgage brokering industry was regulated under the Dodd-Frank Act, but that oversight does not extend to commercial loan brokers. California licenses loan brokers, but the licensing requirements in California are quite light. Be sure to do research before committing to a broker just because they are licensed.
Of course, many commercial loan brokers do a wonderful job—both in person and online—and help many businesses, but others have been known to give inaccurate information or write unfavorable provisions into the fine print of their loan agreements. In order to make sure you understand everything about your commercial loan broker, consider asking the following questions:
- What is the annual percentage rate (APR) of the loans you are being offered?
- How many lenders will see your application?
- What service charges are being added to the cost of the loan?
- What is the broker’s financial arrangement with the lender?
- Are there adequate security and privacy protections for your personal information?
- If you are applying online, what are the broker’s and lender’s telephone numbers and mailing addresses?
If a broker hesitates or refuses to answer any of these questions, it might be a red flag. Keep in mind that although the loan broker is expected to have knowledge and experience that you do not, they do not have access to any lenders or financing opportunities that you could not find on your own.
Try an SBA 504 Loan First
The emergence of online lenders in recent years has been a response to the increasing difficulty of getting a loan from a conventional bank. Online lenders fill the market’s need for an alternative to conventional lenders. That said, it is a good idea to understand the options conventional lenders offer you before approaching alternative lenders or a loan broker.
Primarily, you should keep the Small Business Administration (SBA) 504 loan in mind before diving into the complex and potentially stressful world of loan brokering. Unlike conventional banks, the 504 loan program has remained accessible in recent years. The eligibility requirements for the 504 loan are designed to allow for maximum accessibility. A 504 loan can be used to buy or upgrade land, buildings, or equipment with a long service life.
A conventional lender provides 50% or more of the total project. Your Certified Development Company (CDC) facilitates the SBA loan for up to 40%, or $5 million ($5.5 million for manufacturing projects or projects that include energy-efficiency measures). The borrower provides a 10% down payment.
- 50% Conventional Lender
- 40% CDC
- 10% Borrower
Besides the accessibility, flexibility, and cost effectiveness, a 504 loan has additional benefits:
- The 504 loan offers attractive conditions: 10- or 20-year terms (25-year terms coming in 2018); below-market, fixed-rate interest; no balloon payments; and 10-15% down payment.
- A CDC can work with you from the very beginning and connect you with the best bank to accommodate your project. TMC Financing has longstanding relationships with all types of lenders who can provide the first loan.
- Conventional banks are often more willing to loan to you as part of a 504 loan project. Being the first lender in a 504 project means less risk for them.
- CDCs simplify the loan approval process for small-business owners. The TMC team coordinates the entire process from application through closing, funding and servicing, making it seamless for business owners, bankers and brokers.
You can also easily prequalify for the 504 loan. Prequalifying is not the same as applying, but it will give you an idea of what to expect from a 504 loan—how much down payment your loan may require, what your buying capacity is, and how much total financing you may receive. It can also give you an advantage over other buyers when you bid on a property. Prequalification usually takes 48 hours or less, and TMC Financing averages 18 hours.
Knowing your options is the key to finding the best financing available to you. Even if you choose to seek expert advice on loans, you will benefit from doing some homework of your own, and the 504 loan is a smart place to start.
TMC Financing is a Premier Lender with the SBA, which gives us the ability to make faster funding decisions. Our experts would be happy to answer all your questions about the 504 loan and to help you find the funding that is best for you. Contact TMC today to get started.