How Much Money Can You Save by Using a Financial Intermediary?

Answer: A lot if you have working capital borrowing needs and your situation is complex.

In today’s complex credit market, it often pays to use the services of a financial intermediary (loan broker) to assist you with obtaining business loans. Commercial loan brokers work much the same way as residential mortgage brokers except they aren’t licensed or regulated. When you use a good commercial loan broker, you can often save substantial amounts of money in interest and fees, have better loan covenants negotiated, and end up with a loan that better serves your business needs.

Finding a good financial intermediary can be difficult because there are no trade associations to get recommendations from and most intermediaries are “solopreuners.”

Many CPAs and business attorneys know good loan brokers who can help you though, so don’t hesitate to ask one of your trusted advisors for a recommendation. Often, CPAs and business attorneys perform this service directly.

Many financial intermediaries in the industry have come from the banking industry, accounting, or law. Many were commercial lending officers themselves. They understand the loan process very well and have a wide range of lending sources available to them.

In 98 percent of cases, a good loan broker won’t charge you any upfront fees and will work on a contingency-only basis. For many loan types you won’t be paying the broker directly; the lender will. In the case of most factoring and asset-based loans, the lender pays the broker out of normal sales and marketing funds and the cost of your loan won’t be increased as a result of using an intermediary. In the case of term loans for real estate and equipment, the lender will often pass the broker’s fee on to you at closing.

If you are using a broker and they are helping you obtain a term loan, make sure you ask the broker what his fee will be in advance. Fees vary widely based on the complexity of the loan and the amount. Typical fees range from 0.5 percent for a large loan to 3 percent for a small one. For a real estate or term loan in excess of $4 million, expect fees of less than 0.5 percent to 1.0 percent. Occasionally, a lender will share their standard origination fee with the intermediary and you won’t be paying any out of pocket costs for their services.

Here is what you should expect from a good financial intermediary:

• A highly professional, knowledgeable expert that stays up-to-date on the constantly changing trends in the lending world.
• Someone who can give you a minimum of three references for the type of loan you are seeking. Call the references and ask them if they would use the broker again. 
• Someone who doesn’t put “a square peg in a round hole.” In today’s niche lending world, there are specialty lenders that are spread out all over the U.S. Sometimes niche lenders are the best fit for you. A good intermediary will take time to find the lender that fits your company’s personality and needs. 
•  A good intermediary will give you sound advice on debt restructuring and, more important, protecting your collateral that is not necessary for a loan. Most lenders routinely file a blanket UCC lien on all of a borrower’s assets. However, this can be a negotiable point and a good intermediary understands how to negotiate which collateral can be held out of the UCC filing for use for other loans (should they become necessary). It is always easier to negotiate this point at the beginning of the loan process rather than once the lender has filed the UCC. 
• The best intermediaries assist their customers in understanding the implications and limitations of certain types of loans and help create realistic expectations for the borrower. 
• In the case of a working capital loan from a commercial lender, there are both reputable and unscrupulous lenders. As this is an unregulated industry, some factors and ABL lenders have terms and conditions of the loan that should be criminal. Expect a good intermediary to have a strong working relationship with reputable commercial finance companies and know which ones to avoid. 
•  Lastly, even though the loan broker is not devoting a hundred percent of their time to your loan, make sure they explain each step in the process and spend time educating you about what is happening and what trade-offs you might be making to realize the best loan for your company.

Using a qualified financial intermediary can make borrowing a much more pleasant experience, save you substantial money, and help you achieve positive results more quickly than setting out on your own.

Disclaimer: The author of this blog is a financial intermediary and derives 65-75 percent of his income from assisting companies with their working capital, leasing, and equipment/real estate term loans. This is not a solicitation for business.

Sam Thacker is a partner in Austin Texas based Business Finance Solutions.

You may contact Sam directly at: sam@lesliethacker.com

or follow him on Twitter: SMBfinance

EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his podcast show.