Certain questions come up all the time when people are working on getting business loans. We hear this question all the time: "Are you a direct lender?" This is probably the most commonly asked question. People seem to believe that working directly with a funding source will somehow save them money or help them get lower rates.. The common perception is that if you work with a broker, you are more likely to be charged extra fees than if you work with a direct lender. When people apply for different types of business funding, this is a common misconception.
Believe it or not, who you work with to get your business loan does not really make any difference. Banks and brokerage firms have special relationships. That relationship is often times a love / hate type of relationship. They really need each other. There are things that banks have to pay for each month regardless of how many loans they fund. To pay for these costs, they need to lend more money. Since most of a banks' income comes from interest on outstanding loans, it makes sense that lending more money helps to cover these costs. Business loan brokers help banks lend more money. Brokers earn commissions, so it's in their interest to submit as many applications as possible to the banks. Many banks have their own sales agents the same way that brokers do. They pay their own agents a commission, just like they pay their brokers. The cost of marketing and advertising required to do one deal usually ends up being about the same as it would cost in commission.
As a result, this cost is built into your business loan either way. So, working with a direct lender should carry the same cost, give or take, as working with your business loan broker. So banks have commissions to pay, and brokers have to cover marketing costs. There are other things that a broker can bring to the table for you. Regardless of the type of business funding that they provide, brokers should be able to look at your paperwork and instantly have an idea of which bank is going to be the best fit for you. Another benefit you get out of a broker is that a bank who gets your application from a broker knows that it is going to have to give you good offers. The reason is that banks know that its brokers will do everything he or she can to get your deal funded, whether it's with this bank or that one. Since brokers often work with more than one bank, you're going to have banks competing to offer you the best rate possible.
Do get the same benefit working with direct lenders, you'd have to go and apply to each of them yourself, but without the industry knowledge that your broker would have and negotiate with. Its broker-relationships are important to banks, which is another reason that they offer low rates to them.
Like I mentioned earlier, it's a love / hate relationship sometimes. They need the continued business and submissions sent in by the broker. I've also seen how working directly with a bank can be bad for you. Sometimes, when you work with a direct lender, the bank realizes that you're not shopping around and it knows that it doesn't have to offer you the most competitive rates. If they know that their offers are the only ones you're going to be considering, don't expect them to make the best offers possible. As a result, you may pay a higher interest rate because you worked with a direct lender instead of a broker.
Believe it or not, who you work with to get your business loan does not really make any difference. Banks and brokerage firms have special relationships. That relationship is often times a love / hate type of relationship. They really need each other. There are things that banks have to pay for each month regardless of how many loans they fund. To pay for these costs, they need to lend more money. Since most of a banks' income comes from interest on outstanding loans, it makes sense that lending more money helps to cover these costs. Business loan brokers help banks lend more money. Brokers earn commissions, so it's in their interest to submit as many applications as possible to the banks. Many banks have their own sales agents the same way that brokers do. They pay their own agents a commission, just like they pay their brokers. The cost of marketing and advertising required to do one deal usually ends up being about the same as it would cost in commission.
As a result, this cost is built into your business loan either way. So, working with a direct lender should carry the same cost, give or take, as working with your business loan broker. So banks have commissions to pay, and brokers have to cover marketing costs. There are other things that a broker can bring to the table for you. Regardless of the type of business funding that they provide, brokers should be able to look at your paperwork and instantly have an idea of which bank is going to be the best fit for you. Another benefit you get out of a broker is that a bank who gets your application from a broker knows that it is going to have to give you good offers. The reason is that banks know that its brokers will do everything he or she can to get your deal funded, whether it's with this bank or that one. Since brokers often work with more than one bank, you're going to have banks competing to offer you the best rate possible.
Do get the same benefit working with direct lenders, you'd have to go and apply to each of them yourself, but without the industry knowledge that your broker would have and negotiate with. Its broker-relationships are important to banks, which is another reason that they offer low rates to them.
Like I mentioned earlier, it's a love / hate relationship sometimes. They need the continued business and submissions sent in by the broker. I've also seen how working directly with a bank can be bad for you. Sometimes, when you work with a direct lender, the bank realizes that you're not shopping around and it knows that it doesn't have to offer you the most competitive rates. If they know that their offers are the only ones you're going to be considering, don't expect them to make the best offers possible. As a result, you may pay a higher interest rate because you worked with a direct lender instead of a broker.
About the Author:
If you want to get a business loan, regardless of whether you work directly with a funding source or if you apply through a business funding broker, your cost should be in the same ballpark either way. Small Business Loan Options is a great service that helps you get in touch with one or the other, based on your preferences.
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