Google the term “commercial loan lenders” and you get everything from ads for local and national banks and credit unions, commercial loan brokers to definitions from both Wikipedia and Investopedia—even a handy article from WikiHow.com—on how to become a commercial loan broker or officer.
Most individuals know what a commercial lender is: an entity that makes funds available to a business with the expectation that the funds will be repaid along with any interest and/or fees. However, as many business owners have discovered there is a wide range of sources they can go to in order to obtain the necessary funding to sustain business operations, expand or purchase commercial real estate.
Sources of funding for commercial businesses run the gamut from single individuals, public or private groups, commercial banks, national or local financial institutions, mutual or insurance companies, private lending institutions, peer-to-peer investment groups, VCs, and angels to any entity with money to lend that is interested in earning a return on that money. It is enough to make even the savviest business owner’s head spin. Business owners also have to decide whether they want to go at this journey alone or engage the services of a broker to help research, submit applications and obtain approval for the loan request.
Any of the above options have both their advantages and disadvantages. See below:
Direct Lender –You might have to kiss a lot of frogs!
Going directly to your local bank or credit union seems like the most logical step when you need money for your business. In many cases it is, dealing directly with the source of the money usually results in lower interest rates and fees.The other side of the coin is that because you are dealing directly with each institution on an individual basis, the criteria for decisioning and funding will vary. Meaning that their appetite for risk within a particular business or industry fluctuates and many times the focus is more on your ability to repay the loan than the collateral you have available to guarantee it or why you need it in the first place. The process can be cumbersome and downright frustrating for many businesses that end up feeling like they have to prove they don’t really need the money to actually get it!
Investors – Oh, they’ll give you the money all right!
There are numerous sources out there that are willing to lend money to entrepreneurs and business owners with little to no credit criteria or underwriting standards. The terms of this arrangement are quite different from traditional financing – instead of focusing on the repayment of the loan with a small profit from interest and fees the reward for this group is an ownership stake in your business. Engaging with investors can be advantageous – you may be able to obtain a higher dollar amount, with less paperwork or the burden of proving repayment ability. You will have somebody in your corner that is rooting for your business to succeed and grow even beyond your expectations. The downside is that you have given up a piece of your business and possibly some of the influence over management decisions to somebody or some group that has simply written a check.
Indirect or Broker – Money – come out, come out wherever you are!
Many business owners looking to expand or supplement their cash flow have discovered that engaging with a lending broker is the most efficient use of their time and resources and in the end will yield the most fitting loan arrangement. The advantages of brokers include the numerous relationships they have with lending sources across the country, giving them access to funds that business owners can’t normally obtain on their own. These relationships also provide insight into the appetites that lenders have for risk or exposure within a particular industry or loan type and how to best structure and present the request for credit to best suit the underwriting criteria of each individual lender. The time, effort and frustration this saves the business owner usually outweigh the incremental points or fees that the broker charges to cover their expenses.
As with any decision a business owner makes the choice of lender is a critical one in the continued success and growth of the business and should not be taken lightly.
Author Bio – Jason Bengert is a professional blogger and work at Park Place Equity .Apart from blogging he is fun loving person and his area of interest is finance, technology. You can connect with him at Google+.