Have you ever wondered whether it is better to engage a loan consultant or to apply for a business loan yourself?
Applying for a business loan is an extremely tedious process. In fact, many small business owners, especially first-timers, find it difficult to get started due to the sheer number of requirements banks may ask for; and most SMEs do not know what the banks are looking for.
Based on my 10+ years of experience in the corporate finance industry, let me first explain the role of a loan consultant.
Role of a Loan Consultant
Most of the SME loan brokers in the market act as an intermediary, a “go-between” facilitator, who connects the business owner with a prospective financier. Their key responsibility is to ensure that the loan application process runs smoothly; from satisfying the requirements of a financial institution to the actual SME loan disbursement.
A good loan consultant, however, not only takes on the role of an intermediary but also as an advisor to help you improve your chances of loan approval and, ultimately, grow your business.
So, what are the benefits of engaging a loan consultant?
1. Extensive Contacts and Networks
Professional brokers, especially those with years of experience, have built relationships with a large network of financiers and bankers. They’ve known and worked with a large number of banks and financial institutions in the past, giving them (and you) the advantage of knowing who offers the best deals. A loan broker knows where to search for a financier who is a good match for your funding needs, and he will find the missing piece of the puzzle. In essence, you are paying for the extensive contacts of a business financing specialist, whom he has screened through numerous bankers and has direct ready access to those bankers who are responsive and dependable.
Additionally, due to his wide range of contacts and networks, a broker is informed of new loan products and promotions. He would know every useful and latest information about lenders and financing programs. In other words, he is in the loop.
2. Expertise and Experience
A seasoned broker will have both mastery and experience in the lending process as well as documentation. He is familiar with the market, including indicative rates, and can identify whether a loan is overly or reasonably priced. He has the knowledge of the common types of collateral offered as loan security. He also understands the basic laws and regulations governing lenders and borrowers. Since he has handled most types of loan contracts, you can rely on him to discuss any terms and conditions that you are unclear of. He can walk you through each loan provision and highlight anyfees you should look out for.
Additionally, the founder’s background is also crucial as his or her knowledge and experience can help you better understand your case situation. When they have good credit knowledge, it can also further add value to your case.
3. Alternative strategy and practical advice
Obtaining a loan through a broker does not guarantee that you will get it the first time you approach a bunch of funders. If the banks reject you, your broker can still work it out for you because he knows other financing options. While you might not be eligible for a traditional bank loan, you could still get approved for a merchant’s cash advance, a revolving credit line, or other funding options.
A professional broker will have a plan B and a string of other alternatives prepared for you, just in case. He can also advise you on the various possible reasons your application was rejected and how you could improve your credit standing in the future.
4. Favourable loan terms
Many loan brokers think that presenting your loan proposal to a handful of financiers rather than a single financier is a strategic way of getting the best of the best loan terms offered in the market. They think that approaching multiple banks and financial institutions concurrently will result in the best rates and payment terms. While it saves you time, we would like to share that Bizsquare does not propose your loan to all funders. Although many brokers do this, Bizsquare does not believe that it is the right thing to do. It is very easy to just forward your document to all of the financiers at once, without accessing your credit, but this will not benefit the SME at all.
In our opinion, a good consultant will have the knowledge of accessing the customer’s credit profile and business needs, then recommend the correct loan package or financing product to the client. If the client needs a trade financing loan rather than a simple, a good loan consultant will explain the trade cycle and how it will help the business.
Upon determining the ideal product, the loan consultant will share with the SME different financiers who offer this product, as well as all of the terms, before making the final decision with the client. Once a decision has been made, the loan consultant should apply to only 1 or 2 financiers.
- It is not necessary to approach and compare because this merely indicates that the consultant does not know their work and must rely on the banker or credit approval to inform them.
- An important reason not to approach several banks at once is that when multiple banks search the guarantor’s personal credit bureau and the company’s ACRA, there will be extra searches on the director’s personal credit bureau, which will lower the guarantor’s credit rating. The same is true for company ACRA searches from banks, where additional searches can reveal credit approval that the SME is simultaneously applying for multiple loans, which does not look good (I’m saying this as a former bank credit-approval officer).
- This frequency of searches from different funders in a month also shows to other funders that this company is desperate for funding. For example, having 8 searches in a month does not reflect well on the company.
Many inexperienced brokers still do this today and they do not realise this problem.
The right way to do it is that before you submit your application, have an experienced broker assess your case and see how you may improve your credit record. Even if you submit and get rejected, the consultant should be able to let you know your problem and work with you to solve it. Therefore, allowing you to apply within the next few months.