Loan Broker or Direct Lender?
This is our first post here, so we wanted to share why we chose to start this venture as a small business broker rather than a direct lender.
Direct lenders typically secure wholesale lines of credit from third-party lenders, agree to covenants – including the types of financings, the maximum and minimum rates and terms they will offer, the maximum volume of default they commit to, etc. – as part of that process, and then proceed to underwrite under the agreed conditions and offer financings to their clients. Deviations from the agreed-upon covenants are very consequential. Many direct lenders have gone out of business after covenant violations.
Conversely, brokers are not tied to any one lender and can provide their clients access to a significantly more expansive selection of business financing solutions from multiple direct lenders. This allows brokers to focus on their clients’ needs and access best-in-class solutions in each financing category. Unlike banks and direct lenders obligated to fit their one line of financing products into every need, such restrictions do not limit our recommendations at BorrowPartner.
This freedom of choice allows us to offer our clients the most adapted, competitive financing solution.
The Case for Small Business Loan Brokers
But the decision was not only industry-related. Personal experience also influenced us.
As a co-founder of BorrowPartner, when I parted with my prior employer a couple of years ago and needed to buy health insurance, I had two choices:
- Identify insurance companies offering health coverage, understand the limits and terms of their policies, compare those terms with those from other providers, cross reference terms where they didn’t match, hope not to miss anything that could be detrimental, and then compare pricing, or
- Find an experienced health insurance broker I could trust, who understood my needs, and let her recommend the coverage that best fitted my needs. Indeed, the assumptions here were that the broker would know the key industry players, would understand the variances in policy terms, and could explain them to me where needed.
As it didn’t make sense to invest the time necessary to make an informed decision on my own, I eliminated option #1.
Instead, I quickly found a broker online. She was knowledgeable and professional. She pointed out the essential elements, highlighted the key differences, and explained the terms where necessary, so that I could promptly get the right policy at the right price. I got my health insurance coverage through her and moved on to other activities that required me to be involved.
Insurance providers and brokers work with these issues all day, every day. The rest of us don’t. It would have been unrealistic to think I could have made a better decision on my own.
At the same time, my life insurance coverage with my previous employer expired. In this case, as I already had a relationship with a life insurance broker, I simply emailed him I needed to start coverage.
He called me, asked me a few questions to update my information, and promptly identified and recommended the right solution.
It took only a few minutes. Again, a knowledgeable, trustworthy broker allowed me to make an informed decision, do so expeditiously, and move on to my other activities.
A few months later, I needed a new car. I wondered whether I could use the same approach. I checked online for car leasing brokers, found three, quickly connected with each, and selected one based on the same criteria.
He understood my needs, explained the terms, contrasted the pertinent conditions, and provided me with a few leasing quotes. I was able to select one promptly. He had the car that we wanted delivered to our home. The agreement’s terms and conditions were precisely those we had discussed. As a bonus, I didn’t have to go through the “I have to speak to my manager” back and forth with a sales representative at a dealership. It was a very positive experience.
All these experiences truly happened as written.
Why is all this relevant?
Where to Get Small Business Loans
How many times do you expect to borrow money for your business?
Enough to make learning all about it a full-time activity? Of course not.
A part-time activity, perhaps? Of course not, again.
To make an educated decision for your business as a business owner, you are then left with two options that are not un-similar to my above choices.
Either you learn everything that business loan brokers like us know about business financing – this after having participated in thousands of such transactions, or you find a trusted small business loan broker and rely on them. And, expect an all-around positive experience.
This is where BorrowPartner comes in.
