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On the other hand, he notes that some loan brokers get bad reputations, “because they try to put lipstick on the pig, so to speak, regarding the loan package, trying to get every loan funded so they will be paid on more transactions. Often, the lenders will look at loan brokers a little bit hesitantly, wondering if the loan package they are looking at is really the true story of the business owner.”
Meanwhile, Isom says loan brokers that shop traditional lenders are just adding an additional layer of expense and that a BRC or SBDC is a better resource. “An SBDC can help assess the borrower’s needs, help get the loan or business package ready and then help apply for the right loan. The SBDC will also help you tell your story and buy into your vision and passion,” he says.
Getting help with the loan process is generally a smart move, whether that means help from a BRC, SBDC or company like Lendio. In all three cases, the services are generally free to the borrower. But according to Blake, 95 percent of small businesses get declined for the loans they shop locally. On the other hand, he says 85 percent of the business owners that come through Lendio get matched to at least one lender. Of that 85 percent, about 60 percent are approved for a loan.
When evaluating a loan broker or agent, you are looking for credibility, says Lendio CEO Brock Blake, which will add to your comfort level and help you decide whether or not you want to work with the company. How can you avoid becoming a victim? Look for these red flags:
1. Paying for a promise. Blake says there are times when an upfront fee is necessary, such as to pull your credit. But Isom says if the loan broker charges an upfront fee, “he has no skin in the game and no motivation to help you get your loan. He gets compensated, but you have no guarantee of the results.”
Daryl Rude believes you should question the motives of anyone that charges an upfront fee. “And if you send $300 to a P.O. box, you are going to get what you get—nothing.”
The safest bet is to work with loan brokers or agents that take a fee out of the back end of the loan. They are much more accountable and the deal is much less risky, according to Blake.
2. A loan guarantee. “Any guarantee by the company that you are going to get a loan would scare me to death,” says Blake. “The loan broker has no control over whether or not you will get the loan. The lender is the one to make that decision.”
Isom agrees: “Lending is not that straightforward. There are no guarantees and no magic grant money.”
3. A vague explanation of what you are paying for. “You have to understand the deliverables and what you are getting for the money you are spending,” Blake says. “Are you paying the broker to help you with a business plan and a financial model? In many cases that is totally legit, because that may be part of the service the company offers. Or are you paying for help to shop your loan application? There is a difference. You need to understand that relationship upfront. Otherwise, you may end up paying for a loan package when you thought the broker was going to shop your loan application for you.”
4. Vague information about the online loan broker. When examining the services of a loan broker, ask yourself
5. Low rates and instant approvals. Remember that old adage, “If it sounds too good to be true it probably is,” counsels Isom. If you don’t qualify for a loan from a local lender, should you trust a pie-in-the-sky deal from an online loan broker?