Getting extra cash is always a challenge for SMEs. Businesses that successfully receive financial backing from angel investors or VCs are few and far between. To ease cash flow, most companies will be seeking credit financing from banks.
With so many financial institutions out there in the market offering a myriad of business loan options, business owners are spoilt for choice. Yet, deciding which bank to go to is probably the easy part. The real challenge is to manoeuvre past the mountainous process that precedes a successful loan disbursement.
Just fill-up the necessary forms and submit, you say? Trust us, it's more tedious and cumbersome than that. Why? Because, firstly, different banks have different requirements and lending criteria. There's no one-size-fits-all.
Secondly, drawing up a good business proposal and making sustainable and realistic projections are time-consuming too. Add to that the to-and-fro correspondences between company and bank, it is no wonder many business owners find the process exasperating.
So should business owners give up on applying for business loans? Of course not. There is a smart way to go about it: Outsource it to a reliable business loan broker.
A business loan broker, also known as an SME loan consultant, acts as a middleman between you and prospective funders. The broker's role is not just to source for the best rates and deal for you, but also ensure that the loan application process is smooth till loan inception and disbursement.
Here are 5 reasons why you should engage a business loan broker:
1. He Has Expert Knowledge
An experienced business loan broker will be well-versed in the lending process, requirements, and credit documentations. He knows the various business loans available and has all the market rates as well as the industry rules and regulations at his fingertips.
He will be able to advise you on more complicated business banking facilities such as trade financing and factoring. And given his experience with handling different loan contracts, he will also be able to better explain the terms and conditions to you, especially when it comes to the terms regarding business loan fees, early loan redemption, and penalty.
2. He Knows the Bankers
Besides the vast knowledge and experience that a broker should have, relationships with bankers and funders are important too. Having worked with many banks and financial institutions, the broker has the advantage of knowing which of them could offer the best deal.
A resourceful broker would know which bank or funder will match your needs, and he is also kept updated of new loan products and promotions. What you are paying for is his extensive contacts and networks that he has built over the years with bankers who are responsive, responsible, and reliable.
3. He Will Look for Alternatives
A broker does not guarantee a successful loan application every time. But, in the event your loan application gets rejected, you can count on your broker to explore other alternative funding options for you. A good loan broker would have prepared an alternative strategy — just in case.
4. He Will Show You the Way
A loan rejection is not the end of the world. A good loan broker will be able to advise you on what are the possible reasons your application got rejected, and how you can improve your credit standing over the next few months.
If you trust him, he will go down to the nitty-gritty details and pinpoint the areas of your business operations that could potentially jeopardize your future loan approval, which in turn increases your chances of getting your loan approved in the future. As mentioned earlier, different banks and financial institutions have different credit and lending criteria that most business owners are not aware of. Your broker will be able to advise you on this and save you the trouble from applying from the wrong sources.
5. He Has Flexibility
Applying for business loans yourself means you are limited to the number of applications you can submit at any one time. But, with a broker, he is able to submit your business proposals to various parties concurrently. The big advantage of submitting multiple applications at the same time is that it gives you the option to pick the best offer should any of the banks turn you down. On top of that, the broker can also try to negotiate better terms for you.
Warning: Signs of a "Bad" Broker
While there are many good brokers out there, there are also some who may not have your best interests at heart. Here are some warning signs to look out for:
- • "Talks Big": Guarantees loan approval or makes unrealistic promises. No broker can guarantee approval.
- • "Goes Missing": Becomes unresponsive after initial engagement or during the application process.
- • "Is Shady": Lacks transparency about fees and commissions. Always ask about their fee structure upfront.
Note: b.Smart caps our fee at 3%, whereas the industry average is 3-5%.