You may think that this is promoting our business and it is, but there are sound financial reasons to seek out and appoint a finance broker.
First, allow me to indulge in an analogy.
Say I want to build a bridge. I’m certain of the design and know what materials to use. I’m not an engineer but get my hands on a table that shows what materials can handle what forces etc.
I build the bridge. Vehicles start driving over it. Disaster.
Did I save any money?
It’s not quite as drastic and no lives will be lost but Nick (my business partner) and I come across many successful business owners that have tried (and failed) to raise funding on their own. There are many reasons quoted for this course of action and I’ll list the most popular ones here:
- I didn’t want to pay a broker’s fee.
- I have a good relationship with my bank.
- My accountant introduced me to his bank.
- It didn’t seem like a big deal.
And here’s how I address some of these questions:
- For those that don’t know, we don’t always charge clients a fee. We always get paid a commission by the lender. A success fee is charged to the client when funding will be difficult – this fee will range from between 1-3% of the principal amount and will only be payable if we are successful in getting the minimum contracted funding. On rare occasions we will ask for a flat work fee. What is the cost to your business if you fail to secure funding?
- Your relationship with your bank extends to your relationship manager. Banks have now stripped these poor souls of all decision-making authority. So, unless you’re on a first name basis with the credit manager, your relationship is not what you think it is.
- Accountants are fantastic at giving sound advice in areas that they are experts in…like accounting. They do not know how a credit decision is arrived at. Also, your business may be completely different to that of the accountants. His/her relationship manager won’t be able to help you. The best he/she can do is forward your funding request to the relationship manager who services your industry.
- Why is going solo to search for funding a big deal? Because it’s the capital that will drive your business. It is the most important thing for your business. We see business owners who, armed with a set of financials from their accountants, will go from bank to bank (often to branches) until they have completely exhausted their options. By the time they get to us, they have polluted the market. Let me explain…once a bank arrives at a credit decision it’s a rare thing indeed for them to reverse that decision. So you only get one crack at it. That is a big deal!
What can a finance broker do differently?
Firstly, there aren’t that many finance brokers that have the commercial and institutional experience that we have.
We would start by determining
- How we approach the lenders
- Which lenders we approach – Banks, Mezzanine debt providers, Private Equity lenders
- The costs to you
If you agree to proceed, we would ask you to sign an exclusive letter of appointment. We would then write a marketing document that incorporates your story and your financials, the risks to the banks of lending to you and a terms sheet that will be a starting point for conditions under which you would be prepared to accept borrowing.
We would then approach our contacts formed over a collective 43 years (between Nick and I) in the 19 lenders that we’re accredited for (and beyond) and determine which could offer you what you need.
We would then present the results (along with prices, terms and conditions and a recommendation) to you.
Disaster averted.