Many people ask me, what is the point of engaging a loan consultant, when I can apply the loan myself? (That’s always happening before they started our service and they don’t know what exactly we do.)
Is it worthwhile for SMEs to engage a broker to secure a business loan in Singapore? This are for business owners who are looking for a business loan to finance an expansion, working capital requirement for cashflow purpose, or equipment upgrade.
What I normally tell them is; “Let’s take us as a PR consultant who helps many foreigners applying for PR, we are in a similar nature. You can always apply for PR yourself, but the chances of rejection are very high nowadays. Especially in Singapore where they are tightening the quota.
We are here because we know what the financier is looking at, to get your loan approved! “
Applying for a business loan is an extremely tedious process. In fact, for many small business owners, it is a painstakingly process to start (especially when they are first-timer); due to the sheer number of requirements banks might ask for. Most SME owners do not know what the banks are looking for.
Based on my over 10 years of experience in the corporate finance industry, let me explain the role of a loan consultant.
What’s the role of an SME loan Consultant?
Most of the SME loan broker in the market takes on the role of an intermediary, a “go-between” facilitator linking business owner to a prospective financier.
The person’s key role is to ensure that the loan application process from satisfying a financial institutions’ requirements down to the actual SME loan disbursement, runs smoothly.
A good loan consultant, however, not only take on the role of an intermediary, but also an advisor to help you improve your chance of loan approval and eventually grow your business.
What is the benefit of engaging a Loan Consultant
Contacts and network
Professional brokers, especially those who’ve been in the business for years, have built relationships with a large network of financiers and bankers.
They’ve known and worked with so many banks and financial institutions in the past and this gives them (and you) the advantage of knowing which ones could offer the best deals. A loan broker knows where to search for a financier who is a good match for your funding needs. He’ll find the missing piece of the puzzle.
You’re paying for the extensive contacts of a business financing specialist who have filtered through numerous bankers and have direct ready access to those bankers who are responsive and dependable.
A broker is also aware of new loan products and promotions. He would know every useful and latest information about lenders and loan programs because of his range of contacts and network. In other words, he is in the loop.
Expertise and experience
A seasoned broker will have both mastery and experience in the lending process as well as documentation.
He’s aware of the market, including indicative rates and knows the spot if a loan is over or reasonably priced. He has knowledge of the common types of collateral offered as security for loans.
He’s also aware of basic laws and regulations governing lenders and borrowers. Since he has reviewed most types of loan contracts, you can rely on him to discuss with your terms and conditions that aren’t clear to you. He can walk you through each loan provision and highlight on any business loan fees to look out for.
Background of the Founder is also important as his/her knowledge and experience can help you understand your case situation better, they also can value add your case when they have good credit knowledge.
Alternative strategy and practical advice
Getting a loan through a broker doesn’t guarantee that you will obtain a loan the first time you approach a bunch of funders. In the event of banks’ rejection, your broker can still work it out for you as he knows of other financing options. You may not qualify for a traditional bank loan, but you may get the green light for a merchant’s cash advance or a revolving credit line or other funding options.
A good loan broker has a ready plan “B” and a string of other alternatives prepared for you just in case. He can also advise you what are the possible reasons your application is rejected and how you can improve on your credit standing in future.
Favourable loan terms
Many loan brokers think that presenting your loan proposal to a handful instead of a single financier is a strategic way of getting the best of the best loan terms offered in the market.
They think that by approaching multiple banks and financial institutions concurrently, you can get the best rates and payment terms.
However, while saving you time, we like to share that Bizsquare does not present your loan to all funders. Although many brokers do that, Bizsquare does not think that this is the right thing to do.
It is very easy to just forward your document to all the financier at once, without accessing your credit, but it does not help the SME at all.
In our opinion, a good loan consultant will have the knowledge of accessing the customer’s credit profile and business needs and recommend the correct loan package or financing product to the client. If the client needs a trade financing instead of just a simple business loan, a good loan consultant would explain the process of a trade cycle and how it will help the business.
Upon deciding the correct product, the loan consultant will share with SME the different financier that offer this product and share with them all the terms and decide the final choice with the client. Once decided, the loan consultant should apply only to 1 or 2 financiers.
-There is no need to approach and compare as this only means that the consultant does not know their work and need the banker or the credit approval to tell them.
– An important reason not to approach multiple banks at once is that when multiple banks search the guarantor’s personal credit bureau, and the company ACRA; there will be extra searches on personal credit bureau (of the director) from the banks and this will bring down the credit rating of the guarantor. Same for company Acra searches from banks, additional searches can show the credit approval that the SME is applying for any loan at the same time and it doesn’t look good.
(I am saying this from an ex bank’s credit-approval point of view)
– This frequency of searches from different funders in a month also showing to other funders that this company is desperate for funding and it does not reflect well if you have (for example) 8 searches in a month.
Till today, many inexperienced brokers still do that, and they don’t realise their problem.
The correct way to do it is to have experienced broker accessing your case and understand how you can improve your credit record before you even start submitting. Even after submitting and get rejected, the consultant should be able to let you know your problem and solve it together with you; therefore, can apply for you in the next few months.
Handling the small details
A broker will go down to the details and assess how you would fare in the eyes of a potential creditor. They be able to point out red flags that could lower your chances of getting approved.
Different banks have different credit criteria that most SME owners are not aware of. For example, do you know that your business industry nature might affect your chances of approval as bank A might be open to a certain industry while bank B might reject the same industry?
Assisting you with the nitty-gritty of loan packaging frees you from doing the grind yourself and increase your chances of getting business loan.
Sharing the same interest
Most of the consultant charge their consultation fee by a percentage of the loan approved amount and this will place the interest of the SME in line with the consultant.
Beware of broker/consultant who charge you an advance fee without applying the loan for you, as this is not the common practice.
By sharing the same interest, the consultant will try their best to make sure your loan gets approved and will not short change your application, as their fees are based on this.
What to look out for when sourcing for a good loan broker?
After knowing the benefits of having a loan consultant, so how do SME find a good consultant?
It’s not enough that you know the advantages of using a broker. It’s also critical to deciphering which ones have your interest in mind even though they do have an established working relationship with banks and lenders.
While there are credible, professional loan brokers out there, there are also brokers who bring a bad name to the industry. Here’s a quick list of “red flags” to watch out for.
No contact information or proper business premise
A loan broker who does not have a contact number and an office or postal address identified with his brokerage business makes one question the legality of his business or even its existence.
Your objective is to ensure that he isn’t operating as a fly-by-night loan broker. Such brokers usually are one-man setups working from home.
You can ask a broker how much commission he’ll be realizing when he brokers for you. You also have the right to ask about his network of lenders and important details such as the full cost of the loan he is arranging for you.
If he can’t give you clear answers or appears lacking in transparency on this info, it’s better to drop him before he’s able to gather vital info about you and your business.
Beware of a broker who guarantees to get you a loan without checking on your financials and credit history. Don’t get blinded by these guarantees. Promising the moon and the stars despite glaring issues that could stall your loan application (i.e., poor credit standing, unstable cash flow or lack of acceptable collateral, little or no track record) raises doubts about his credibility.
You should not engage a broker whom talks big and are able to “guarantee” loan approval. The truth is, no matter how competent a broker, no one can guarantee assured loan approval as the final decision lies with the bank’s credit approver.
No third party such as a broker can guarantee approval. A responsible and experienced broker might be able to advise you after his preliminary assessment of your financials that the chances of approval are high but not definitely not 100%.
The tell-tale signs of a fly-by-night or inexperienced broker are someone whom talks up his banking contacts or credit savviness and assures a 100% guarantee of loan approval. These brokers usually do so to seal the deal quickly.
What is the difference between Bizsquare and other loan consultants?
In Bizsquare, we are NOT only a loan broker because we strongly believe an intermediary does not add any value to your business and your application. If we cannot add value to your business, Bizsquare will be assured that we will NOT get any form of fee from you.
Unlike other loan brokers, Bizsquare does not pass your documents from one hand to the other hand and hope that your cases will be approved. (We personally feel that this has no value add.)
In Bizsquare, We practise a – Business Credit Doctor concept.
BIZSQUARE – Your Business Credit Doctor
Our entire process is different from other loan broker firm. We are a specialist.
Imagine you walk into a Specialist clinic and speak to our Specialist.
Here are our Bizsquare process and procedures:
1. Upon signing our Bizsquare company documents, we collect your full company information and do a thorough credit check on the company and all guarantors and do an initial credit assessment. (Based on Moody’s credit and Singapore Commercial Credit Bureau guideline)
2. As our credit assessment is 85% accurate and the range of approval that we estimated are accurate.
3. We will understand the business operational process and also do a site visit in the client’s office.
4. We look for possible gaps and advise the Business owner on their possible ways to improve on their credit, cashflow management, business gap or other trade-related issues. This process will take the longest, as the credit improvement process normally take 1-3 months to reflect on the documents. The duration will depend on the credit standing of the business and the directors.
5. Once the SME has resolved their issues, we will suggest the possible ways they are able to raise funds. We suggest the correct products to them based on their needs. Sometime, in a unique situation (where the funder is a private investor), we will create a customized solution for the SME based on their exact cashflow requirements.
6. After confirming the whole strategy, we will proceed with the submission of documents and follow up on the case until the funds are received.
7. Post-Review on the SME cashflow and advise them how to use the money in the best possible way to grow their business. (In Bizsquare, we practice the good use of the loan is to grow more money and avoid other purposes – See our article on this)
Why Work with Bizsquare?
a) Gathering data and documents alone is a time-consuming task especially if the SMEs haven’t organized or updated your files regularly.
b) Bizsquare has an internal credit process to filter possible rejected cases an advise them the right way to build their profile before even submitting to the relevant banks or FI. This is very important as a rejected case will cause the company unable to apply from the same bank/funder for the next 6months to 12 months.
c) You might not be sure also out of the many banks and financial institutions which has the lowest rates and deal. Bizsquare will compare and make the decision together with you.
d) Nowadays bank requests for business plan too. Making a good business plan, including realistic projections, eat up valuable time. Bizsquare can help you with your business plan.
e) How to present the company to the banks and financial institutions in a way that give them the highest chance of approval is also a form of Art.
f) Business owners also need to answer questions from the banker, which most business owners crumbled upon and unable to answer due to miscommunication with their accountant. We help you facilitate the whole process.
g) Even in the event of a rejection, we will share with you the possible reasons (which you will not be able to know if you apply yourself). With the possible reasons, we help to ‘rebuild’ your profile together with you by advising you the right way to manage your cashflow.
In Bizsquare, we treasure long term relationships as we have many long-term customers since the year 2013 till now. We have helped many SMEs build their business cash flow and grow their business; an example of a few of them are from $200k yearly revenue to now a $10million revenue business after 6 years.
I would like to reiterate that if the loan application failed due to rejection, the SME may face up to 12 months lapse before you can apply with that funder again.
Some business owners would rather brave the loan application process while others choose to outsource the task to a broker to save time and effort.
SMEs never regret coming to us as they feel that the benefits of using us, cure the root of their problem.
Apart from the only loan, Bizsquare is a management consultancy company that build SME by fixed their internal cash flow problems, so that they can grow well and expand far. We help SME to settle their key cashflow problems by ways such as:
i. Adjusting their credit terms with their suppliers or customers
ii. Credit collection methods and discount techniques
iii. Find out their business loophole, cost reduction methods
iv. Revenue generation issues
v. Drill down into products and talk about efficiency on each product and service.
For people who doesn’t know what does a management consultant does, please visit here.
Director of Bizsquare is registered Practising Management Consultant under Enterprise Singapore.