Should You Engage An SME Loan Broker For Your Business In Singapore?

At some point in your business, be it at the start-up or expansion stage, you might find the need for extra funds to push it forward. You might also be wondering if it’s worth engaging the services of an SME loan broker for your business in Singapore. 

Would hiring a loan broker add value to your loan application process, or would it make more business sense to approach banks or private financial institutions directly?

Understanding what SME loan brokers do, how they operate, as well as the pros and cons of hiring one would help you decide if they fit into your business loan application.

So, What Do SME Loan Brokers Do?

infographic-on-what-SME-loan-broker-do
Loan brokers are like the middleman between a borrower and a lender.

SME loan brokers are also commonly known as business loan brokers, mortgage brokers, or business loan consultants in Singapore.

They take on an intermediary role in a business loan application, bridging the gap between a borrower and a direct lender. SME loan brokers are usually armed with an extensive network of direct lenders that include banks and private financial institutions, and they are apt at advising on the business loan most suited to your needs.

Depending on the nature of your business, how long your company has been around, and your experience in acquiring a business loan, consulting a loan broker may not be such a bad idea.

Some business owners shun away from hiring an SME loan broker as it would mean additional costs to the loan application process. The lack of understanding what a loan broker can provide also contributes to the reason why businesses seldom consider them.

But, as with any loans, there are advantages and drawbacks you should be aware of before deciding to engage in a loan consultant.

ProsCons
Have an established network of lenders to compare loans across the panelMight be difficult to find a good loan broker suitable for your business needs
Consolidate the best loan deals to be presented to youInterest may not align with your intent in getting the best loan
Provide expert advice and direct you to the most suitable lenderMay not be able to provide the full extent of costs involved
A guided and hassle-free application process 
Offer alternative financing solutions 

Advantages Of Hiring An SME Loan Broker In Singapore

Expertise And Experience

Having highly-experienced loan brokers would enable you to tap on their expertise on various loan packages available in the market.

With their extensive knowledge, they can provide clarity on a loan’s terms, and how to best approach potential lenders to increase your approval rate.

Depending on their network and level of relationship with lenders, they might also be able to negotiate a lower interest rate in your favour.   

Hassle-free Application Process

Not all business owners are familiar with the requirements of a loan application. For example, you might not be aware of all the documents required to secure a loan.

A reliable loan broker can highlight the tiniest detail that you could have missed if you had applied for a loan on your own.

To avoid getting bounced around by lenders because of inadequate documentation, hiring a loan consultant could be your ticket out of a messy application.

A loan broker’s knowledge of business loans is like a treasure trove of financing options. In addition to a faster and hassle-free application, they can recommend loans tailored to your business needs.

Some loan consultants would even go the extra mile to suggest collaterals that you can put up to build lenders’ confidence and trust in you.

Alternative Financing Solutions

With their wealth of experience in helping businesses from various industries, a competent loan broker can spot red flags that could act against your loan application.

In the worst-case scenario that your loan request gets rejected, having an SME loan broker could be the beacon of light at the end of the tunnel. The loan broker can provide insights and possible reasons why your applications were rejected, so that you can avert similar mistakes in the future. 

Not sure why your business loan was rejected? These are some possible reasons why your application didn’t go through.

Loan brokers may also suggest alternative financing options such as cash advancements, and ways you can improve your credit position to stand a better chance of getting the loan.

Disadvantages Of Hiring An SME Loan Broker In Singapore

Multiple Brokers In The Market

With so many SME loan brokers to choose from, it might be challenging to identify the right one for your business. 

As this is a specialised trade, a suggestion is to rely on recommendations from fellow business owners. They might know 1 or 2 loan brokers, or have used their services before. Understanding the experience they went through with their loan brokers would give you an idea on what to look out for. 

Conflict Of Interests

The main goal in hiring a loan consultant is to offload the tedious legwork of sieving through the wide range of business loan products in the market. You want to be presented with the best options that offer affordable fees and interest rates.

However, it might not be in their interest to get the best loan you can afford. Loan brokers are paid by a percentage of your final loan amount. Thus, some of them might be motivated to refer you to lenders who offer higher loan amounts, and not necessarily what suits your business needs.

May Not Provide The Full Extent Of Costs Involved

As SME loan brokers don’t provide the needed extra capital for your business in Singapore, the best they can offer is an estimate of the amounts associated with the loan, such as:

  • The principal you are eligible for
  • Application fees
  • Interest rates and 
  • Repayment amount

There may be other fees involved that could factor into your principal, and lead to unexpected higher costs. Though SME loan brokers are knowledgeable about the industry, they might not be up to date with the latest loan product terms or conditions.

By contrast, direct lenders may be in a better position to offer you transparency on the loan packages or the latest changes to any criteria. Dealing directly could save you the worry of a surge in the final repayment amount.

Signing-of-business-document
Direct lenders may offer greater transparency and clearer terms.

When Should You Engage An SME Loan Broker In Singapore?

Business owners have the liberty of choosing to work with an SME loan broker in Singapore or directly with lenders for their loan needs. Ultimately, the choice is subject to a variety of circumstances.

Before deciding on the appropriate path to take, you must understand your situation and needs as a borrower. If you find yourself in the following situation, it’s best that you consider working with a loan broker:

  • You Are Facing Time Constraints

Running a business can take a toll on your time. So does trying to get a business loan. Going through a slew of documents in a loan application is not everyone’s cup of tea.

If you would rather spend more time ensuring your business runs smoothly rather than pouring over paperwork, engaging a loan broker would be a good option.

They can help compare different loan packages available in the market and ease your search for the most affordable loan product that matches your business needs.

  • You Lack Commendable Credit History

These situations could adversely affect your credit financial history:

  1. Your new business does not have much to show in performance revenue.
  2. Your business had run into cash flow problems in the past.

Being new in running a business could mean you lack the contacts of lenders that could extend extra capital for your business. Engaging in a loan broker could open the doors to multiple options and ultimately, a loan package that meets your business needs.

If you have problems with your cash flow, a loan broker would be able to advise on the next best approach to take to keep your business running.

  • Your Applications For Bank Loans Have Been Rejected

There are various reasons why your loan applications were rejected. Whatever the reason may be, a loan broker can stand in as an advisor to explore alternative financing options that you might not be aware of.

Having a large network of lenders, the broker would be able to find other sources of funding to increase your working capital.

While it’s true that hiring an SME loan broker for your business in Singapore would add to your loan application costs, it would be deemed necessary in some instances. If you’re wondering what the differences between approaching an SME loan broker and a Direct Lender is, you can read more about it here.

Hiring an SME loan broker for your business loan needs in Singapore is not all bad. The key thing is to understand your position as a borrower, and determine if having a loan broker is a value-added move.

Applying for a business loan? Reach out to Capitall to take care of your business financing needs today. 

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