The Changing Face of Commercial Lending

Nov 7, 2023

The lending landscape is always changing, and it’s not always easy to see what’s coming around the corner. Even those who keep a close eye on the economy can be caught by surprise. For example, few were prepared for the housing bubble collapse in the late 2000s that triggered a global financial crisis. It was caused, in part, by the rise in subprime lending, which caused the rate of lower-quality subprime mortgages to skyrocket.

The resulting Great Recession caused a major upheaval in the lending industry. Banks tightened restrictions, which meant far fewer businesses qualified for bank loans. People with money to lend then created private lending relationships because they were willing to take the risks banks weren’t. Now, private loans compete with bank loans in a complex market.

The world of loan brokering has changed significantly in the past twenty years to better respond to the needs of business owners and lenders. In today’s article, we’ll explore the current loan brokering process and how your business can benefit from it.

Changes to Loan Brokering

New restrictions on lending severely limited the number of businesses that qualified for a bank loan to fund CRE, equipment, and other vital resources. Because banks lost so much money in fines and foreclosures, they became shy about taking risks. As a response, they created credit criteria that left many business owners out of the running. Private lenders stepped in to fill the lending gap.

The private lenders came from successful industries, with specialized expertise and a narrower focus than most banks. They prefer to lend in niche categories where they hold the most knowledge. The best way for these lenders to reach out and connect with businesses is through loan brokers.

It makes more sense for private lenders to work through a broker who can effectively pinpoint the best prospects than it does to spend millions broadcasting to an audience that may not need their services. It’s also beneficial for businesses in those niche categories to keep from wasting time with lenders who can’t provide what they need.

The Benefits

Today, loan brokers can bring a broader range of financial resources to the table for businesses seeking a loan. If a business owner has tried unsuccessfully to get a bank loan, a broker can help them connect with more options. But borrowers don’t need to go to their bank first.

One added disadvantage of bank loans is that they must go through a stringent underwriting process that can take weeks to complete. Completing that process does not guarantee the loan will be approved either. Private lenders can operate much faster than traditional lending institutions. A broker can help a business decide whether a bank loan or a private loan is the right choice for their needs.

Brokers also enable businesses to find the best possible loan terms. They spend a lot of time building relationships with different lenders and other financial sources. These relationships allow brokers to provide loans that can’t be found elsewhere. They also spend a lot of time getting to know businesses and understanding their specific needs. It’s this connection between lenders and borrowers that helps both parties meet in the middle. Working with brokers allows business owners to stay focused on running their business instead of searching for financing.

The Process

Businesses that work with a broker have a direct line on funding. Making connections is what loan brokers are all about. They work closely with borrowers and lenders to ensure the entire loan process goes smoothly. A broker will typically first meet with a business to discuss their financial needs. Then, the broker will tap into their network of lenders to find the best possible loan terms. After the business owner selects which loan type they want and the terms that make sense, the broker will submit the loan application to the lender.

Brokers, however, do more than hunt down lenders and submit applications. They negotiate on behalf of businesses to improve the terms of the loan. If the process hits a snag, the broker follows up with the lender to iron out any wrinkles. They also advise businesses on actions they can take to remain loan ready. Once the business is approved, the broker helps close the loan and makes sure the funding gets where it needs to go. Loan brokers also follow up following close to assist with insights, new financing opportunities, or to assist with refinancing the loan when the time is right.

Lenders are constantly changing and evolving. Business owners need to keep up with the changing face of commercial lending. But, they need to stay focused on business, not sourcing money. Today, loan brokers are an indispensable piece of the puzzle. To grow and succeed, you need the best possible loan terms. To get on the most direct path to financing, partner with us.