Loans offer businesses an opportunity to finance expansion, upgrade equipment, or acquire new assets. However, navigating the plethora of loan options to secure the most advantageous terms can be a challenge, particularly if you lack familiarity with the industry.
A loan broker can assist you in navigating the intricacies of securing a loan, from distilling complex terms into understandable concepts to facilitating lengthy application processes and paperwork.
The initial step in engaging a loan broker would be to sign a contract employing their services. To ensure that you obtain favourable terms and understand the fine print, we would like to walk you through the key aspects of a loan broker contract before you sign one.
A loan broker contract is a legally binding document outlining the terms and conditions surrounding your engagement of a specific broker’s services. It covers the scope of their services, responsibilities, and compensation arrangements, among other things.
Whilst a contract of this nature is written in highly legal terms, there are many aspects of it that you will have to understand. Your signature upon such a document signifies you are binded to the terms, and you would not want to agree to anything you don’t fully acknowledge.
A thorough knowledge of the contract terms will also help prevent any undesirable situations later on. For instance, you may not be aware of certain additional fees or hidden charges laid out in the fine print. This can cause you added burdens and throw your financial situation into disarray.
A broker contract can be an intimidating document to address, as it is often filled with difficult terms and complex sentences. However, taking the time and effort to examine it closely will be rewarding in the long term. Here are the portions of your agreement to pay close attention to:
A loan broker’s fees usually involve a small upfront payment of about $100 to $300, as well as a percentage of 1-3% of the total loan amount you receive. Alternatively, some brokers may not charge an upfront fee, but will require a larger percentage (3 -5%) of your loan as commission.
Another aspect to note in the contract is when a service is considered completed and eligible for payment. Some brokers consider a work done upon obtaining you an offer while others stop at your official signing of a letter of agreement. Some brokers like Lendingpot, however, only charge clients when the loan is disbursed into their account. These are things to note on your contract.
You should also consider whether these charges are reasonable, and whether you can afford them. Additionally, you should examine if your broker has extra charges for services that are not covered in their scope of services.
Ideally, your broker should be transparent about any arrangements they have with loan providers. Certain brokers may be in partnership with lenders or banks, and earn higher commissions from them. Disclosing this information to you is important as it influences the counsel they ultimately provide.
In any case, it is also your responsibility to perform the due diligence and not rely solely on your broker when choosing a loan.
One key portion of the broker agreement is the range of products that are covered and their related charges. Therefore, it is important to split each product into their various fee brackets. For example you may be willing to pay a 5% fee for an unsecured loan but only 1% on an invoice financing facility and 0.5% on a secured loan. This is because of the different scales of difficulty for each product.
Check the agreement for a clause stating what would happen should you be dissatisfied with the broker’s services. Determine if either or both parties are allowed to terminate the agreement, and under what circumstances termination is allowed.
More importantly, you have to note any penalties or fees involved should the agreement be cancelled. For example, you may forfeit any upfront deposit you made.
Some brokers require you to work exclusively with them. This greatly restricts you as you are not able to terminate them without a penalty or engage a new broker to help you. Under such circumstances, you could be stuck with an inefficient broker. As such, it is advisable to not engage any brokers that require exclusivity.
Engaging a loan broker also means sharing much of your personal and financial information. These include banking information, assets and financial health. Much of this information will be in the form of documents, making it easy to leak them to unscrupulous third parties.
Therefore, your contract should contain a clause safeguarding your personal information. It should clearly state whose responsibility it is to ensure that your information is not leaked, and what penalties they would be subjected to if your data has been handled irresponsibly.
Loan brokers help ease your corporate loan hunting expeditions, and guide you through the process. They are especially beneficial in sourcing the best loan products for your company and improving your chances of approval.
Therefore it is important to carefully examine your loan broker contract before signing this legal document. At Lendingpot, we offer a platform where you can compare loan offers from various lenders for free. With 45 lending partners available, you’ll enjoy a better chance of finding one that suits your company’s needs the best. Contact us for any queries. Our professional SME business loan consultants will be glad to assist you.
Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.
