Commercial Broker Fees

It is normal for a lender to ask for many documents and upfront fees to obtain commercial financing. A broker should ask for the same things.  Brokers should request the needed documents for a loan package and an upfront fee for utilizing services and time.

A lender wants to see what is called a complete loan package. Loan package items include schedule of business debt, tax returns, schedule of business collateral, etc. A lender will charge upfront fees before closing the loan for THINGS such as appraisals, environmental, and attorneys. A broker may ask for upfront fees for gathering up a loan package, executing financial analysis, and shopping around to find a lender. This is normal skin in the game for you, the broker, and the lender. The balance is just right.

However, the balance can quickly become imbalanced by little details such as unrealistic expectations, incomplete loan packages, improper loan structure, shopping lenders inefficiently, and excessive upfront and closing fees. This is a growing concern in the commercial lending industry.

Unrealistic expectations could include setting the wrong timeframes for when LOI’s, commitment letter, timeframe from start to closing, or just when they will be getting the request to a lender.  At Hoffman Consulting Group, when a lender has a complete loan package the clock starts; loan closing takes 45-60 days to close. This timeframe is largely up to the business owner. Sometimes a certain lender will ask for additional documentation on that specific loan request. At Hoffman Consulting Group we try to anticipate all the questions and all the documents needed for each loan request.

Imbalance usually has a domino effect on the loan and the way the broker works. I will use a particular example from an unnamed broker. This broker gathers up business and personal documents and inputs information into an automated system to output a business plan for a lender.  This plan is then mailed to the client and then submitted to tens to hundreds of potential lenders or other sources with a blanket approach on the loan. With the introduction to the business plan asking, “We would encourage your input on any alternative financing arrangement that would fall under your lending guidelines more appropriately”.  As for fees, the broker has a tiered method. For example: the same broker in Texas has a tiered value, which looks something like as follows:

$300,000-$500,001 is $3500 upfront and 3.25% at closing.

$500,001-$650,000 is $6000 upfront and 3.00% at closing.

$650,001-$900,000 is $8,000 upfront and 2.75% at closing.

 

First, the business plan which is sent to both the client and lenders is 90% worthless. The other 10% can be used; however, the lender still needs the other 90% to make a credit decision.  This is both inefficient shopping for a lender and a waste of time by gathering the wrong, and not enough, information. Look at the broker’s business plan examples and bring it into a banker or call Hoffman Consulting Group and listen to what is said. Ask the banker for what is usually needed in a loan package. Second, the spam approach for a lender will not get you into the banker that makes the decisions based on their criteria. The majority of the time a banker will throw away the business plan and your loan will never get the look that it needs and deserves. This is what we call unloading a “brick of paper” on the banker’s desk, a waste of everyone’s time. Third, the broker needs to be the one structuring the loan properly to fit a lender’s credit box and not have the lender tell the broker what to do. Isn’t that why you hired them?  If the broker has to say this, walk away. Unfortunately, the majority of brokers take the brick of paper approach, which again, is a waste of everyone’s time.

Broker fees should be moderate, not excessive. All of these examples are too much for the service rendered. This is something you need to question. In addition, the broker talked the potential borrower to increase their loan requests to include lines of credit or increase their principle. This, of course, increased the upfront fee several thousand dollars, sometimes even doubling the upfront fee.  With any loan, there is a right amount for a business to obtain. At Hoffman we charge $1000 upfront and 1% success rate for all commercial loan amounts. Too little could hurt and under position the business financially, while too much could make the business grow too rapidly and put itself out of business.

At Hoffman, we have had to correct many mistakes from brokers from excessive fees to setting the right expectations for funding a loan. Be sure to do your due diligence. Ask questions, research, ask for references, look up and call businesses from website testimonials, and look at examples of their work.

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