Business finance brokers have a duty and obligation to their family’s economies as well as their client’s economies. We’ve noticed a large separation in the orientation of brokers. Some brokers, especially inexperienced or start-ups, shop their client’s applications to several direct funders at the same time. This practice is done mainly because:
- The broker is looking for the first funder to make an offer, or
- The broker is looking for the wholesale program that pays the most points.
There are two issues with this behavior, both related to broker etiquette:
- This diminishes the relationship between the broker and their funding partner. For example, when the funding partner learns that the broker is shopping several funding partners at the same time they will look past the broker’s application and reduce it’s priority. The best practice is to submit to one funding partner at a time and receive an offer or decline before submitting to another funding partner.
- This diminishes your reputation with your client. When your client realizes that you’ve had 5 funding partners pull credit at the same time they will likely be upset because it effects their credit scores. Also if brokers are trying to shop for the highest points to be paid to themselves with little regard for their client they may get one funding done for their client but this will not result in renewals or customer loyalty.
FinServe challenges it’s Broker Network 1.0 members to become entrepreneur and small business freedom fighters. Helping as many businesses as possible with not only the best financial programs but also the right financial programs for their clients. Practices such as using a merchant cash advance for someone who could better utilize an equipment leasing program, for example, are detrimental and counter intuitive for your clients. We encourage brokers to learn how to analyze and consult with business clients to provide them the best financial advise possible.
As you may already know, the FDIC insured banks are only providing financing to about 10 out of 100 businesses. There are a lot of businesses who can benefit from the alternative financing available such as; merchant cash advances, equipment leasing, etc. Helping a local mechanic who lost his job at a major dealership and had recently bought into an auto repair franchise could only be achieved by alternative financing. Often times the business owner’s personal credit takes a hit as an entrepreneur who has sacrificed their personal finances to grow their business’ cash flow. In cases like this brokers who are able to help entrepreneurs build more freedom through business ownership should be proud to help them connect the dots. Those brokers who are focused on finding funding partners who are willing to pay more points to the brokers (therefor raise the cost of capital for the businesses to the point that it could potentially put their client out of business) should take a look in the mirror. They should realize that as a shake out gets closer in this industry, the broker that doesn’t make some changes to their philosophies will be part of the shake out.