Still sourcing for the right Financial Institution that can give you the best interest rates or not knowing the reasons for recent rejected applications?
In recent times due to COVID-19, our government has launched a series of programmes administered by Enterprise Singapore to help SMEs overcome this difficult period.
Financing schemes such as the Bridging loan programme and the working capital loan scheme are in place to encourage Financial Institutions to lend and support our SMEs in times like this. This is done through taking up 90% of the co-risk with the participating Financial Institutions. However, business owners have to understand that these are not ‘easy’ borrowings and companies will still have to fulfil the respective banks’ credit guidelines.
If you as a business owner is facing the above issues and is in a dilemma on what to do next, here are some uncommon reasons for you to engage a loan broker to assist you.
Experience & in-depth knowledge
Corporate banking has always been very different from consumer banking; it is an expertise that has to be accumulated with years of experience in the corporate lending environment, knowing the lending criterion and its process, as well as the documentations required for a successful application.
Not knowing the respective banks’ basic requirements is akin to leaving your applications to luck, or fate if you call it. This is definitely not an advisable approach as most banks have a ‘waiting’ period of minimum 6 months before they are ready to accept your next loan application after a rejected outcome. This will ultimately jeopardise your cash flow planning and expansion plans for the financial year.
Hence, it is crucial to get it right the 1st time!
Real savings in the long-term
As business owners, you have your own sales force, you know how sales persons are remunerated in the industry. This applies to the bankers you are dealing with as well; they draw a basic, with their KPIs and commissions determined through the end package sold by them; unless they happen to be your close family members if you get what we mean.
Facilities such as trade financing and project financing have even far more complicated structured fees embedded in them. Some of these fees are negotiable if you know exactly where your financial standing is in the eyes of the lenders, and how to tackle this from the start of the lending process.
Working with an experienced broker in this sense will definitely help you save more in the long run if you managed to shave off the bank charges from the start, even if you have to pay your broker a fee.
The nitty-gritty details
For experienced business owners, you would have known that different banks offer different terms such as quantum, rates, and other charges and so on for the same set of documentation that you have provided to them for loans’ assessment. Why is this so?
Every bank has different credit criterions in assessing a borrower’s financial standing or grading in their systems. The risk factor of the industry your business is in, the debt-servicing-ratio, credit history, repayment capability and even down to the nature of your business. Yes, the nature of your business might be favourable to some banks and not to some.
The tricky part here is that banks are always ever-changing their lending criterions based on the local and global economy outlook, and it will definitely not be the same as your last application. A broker who is abreast with the latest market happenings will be a good option to overcome this hurdle.
How to choose the right broker?
With the introduction of the financing schemes by Enterprise Singapore to support SMEs during this trying period, you would have noticed that new market entrants of loan brokers have sprout out. Here, we offer some tips in selecting good brokers;
Genuine and transparency
A good broker who is intent on striking a long-term working partnership with you will always have your interests at heart. Offering a non-biased advisory based on your current financial standing is important for you to know where you stand from the lenders’ perspectives. Though it could be hard to accept for some, note that this is the only way for you to work towards a good credit profile in the eyes of the lenders.
Good brokers should be able to give you a preliminary assessment on the quantum they can work with based on the provided documentation. The companies they represent should be in the panel of the various financial institutions they have partnered with. This memorandum of understanding with the banks will state the guidelines that brokers have to adhere to and this will also ensure that they are not your ‘one-off’ brokers out to earn a quick buck. And you would definitely not want a broker who simply passes your application to a ‘friend’ working in the bank.
Charges for this industry vary, depending on the facility type secured and the final approved credit quantum. As a general guide, brokers usually charge 2%-4% for term loan facility and a lower fee for larger credit lines such as trade financing and project financing. An agreement should be in place before submission of applications to the various Financial Institutions. This can be done through a service fee agreement so as to avoid future disputes.
Lastly, never enter into shady agreements with unethical brokers; agreeing to any amendments to your financial documentation to seek for banks’ approvals. This is fraud and you do not wish for CAD to pay you a visit. And avoid brokers who make guarantees on approvals and overpromise on the credit quantum you seek. After all, the final decision lies with the credit approver.
Here at Elite, we have assisted over 1000 SMEs to secure corporate facilities for over a decade. To add, our sales team is headed by 2 certified management consultants recognised by Enterprise Singapore to help SMEs to scale up their internal capabilities through the Enterprise Development Grant (EDG) programme. You can rest assured that our advisory works are of quality and of the right ethics.
Feel free to reach us below should you need assistance in this area, and our advisory fee stands at 1% or minimum $2,500 for successful loans applications.