MAKING A BIG IMPACT AS A LOAN BROKER
How do diverse communities build wealth in today’s economy?
Diverse communities, particularly Black and African American communities in America were redlined and restricted from the financial tools they need for community development and to create intergenerational wealth. This created an impact that is being played out today in local development commission activities, resulting in gentrification as funds are injected into previously redlined communities, and the families and individuals living there become priced out of their own homes.
To address these challenges, Black, Hispanic, Indian, and Asian communities have long recognized the value of pooling money in locally owned banks. While that benefited many communities in the first half of the 20th century, revisions to banking regulation have changed the playing field. While many of these organizations can still provide low dollar credit-builder loans and small business funding, the criteria for borrowers to access funds for business development and home purchase are consistent across the board. Today, banks, whether they are owned by representatives of a community or are national or international conglomerates, are federally backed and must follow the same national lending guidelines. As a result, these institutions no longer have the ability they once did to focus on the development and uplift of their own communities.
The Order of St. Luke
In the early 1900’s, Maggie Lena Walker became involved in the Independent Order of St. Luke, a benefit society providing a form of insurance in the areas of health care and burial. After the organization lost its long-time leader and fell into financial insolvency, she became its director of finance and operations. Walker quickly turned the organization around by establishing local groups and significantly increasing membership. But she aimed for much more, calling for the foundation of a savings bank at the 1901 meeting. In her moving statement at the annual meeting, Walker said, “Let us put our moneys together; let us use our moneys; let us put our money out at usury among ourselves and reap the benefit ourselves.”
Walker was successful in building the bank and using innovative strategies to provide a path to home ownership and savings for those who previously did not qualify. She expanded the institution, leading it through several mergers. The bank continued after her death and merged with Abigail Adams bank in 2005, then Premiere Bank in 2009. While the legacy continues, these mergers mean the bank no longer holds the status of a Black owned financial institution.
Photo credit: Maggie L. Walker, c. 1900-1910, Wims. Burg Photo Co., Brooklyn, NY
As these changes have impacted the banking landscape, and as successful minority-owned banks have merged with larger and more corporate institutions, the number of such banks has declined. A 2021 article published by Independent Banker argues for the support of, in particular, Black-owned banks, citing a decline from 2006 when 44 Black owned banks were in operation, to 21 in 2019.
It is important to develop banks and bankers versed in the knowledge, skills, and abilities of their communities and who are ready to advocate for their customers. Yet at the same time, it is functionally impossible for the current level of minority owned banks to meet the demand for funds from minority owned small businesses and startups around the United States.
So how can communities adapt and flex today? We need to follow the guidance set in place by the founders of Black and minority-owned financial institutions.
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At the Commercial Loan Broker Institute, we recognize that every loan has a story, a dream, and a purpose behind it. We're not just in the lending business. We're in the business of building futures.
As a loan broker, you're the bridge between aspirations and achievements for countless minority business owners.
Join us in our mission to bring financial freedom to minority communities, ensuring a brighter, more inclusive tomorrow.
Resilience Emerges Through Commercial Loan Brokers
Today, small and medium sized businesses have developed resilience by sourcing funds though business loan brokers. In 2008, in response to the home mortgage crisis, the FED issued the most restrictive lending requirements ever implemented up to that time. “Sub-prime” borrowers were hit the hardest by those regulations, but the guidelines didn’t just impact home buyers. Many of the sub-prime residential borrowers are the same individuals running small businesses.
As small businesses approached a crisis point, capital markets realized they needed pathways other than banks to get funds to qualified borrowers in the small business category. Payday loans and merchant cash advances would only put those businesses in greater risk, and something new was needed. That’s when the market for independent, private lending consultants opened up.
These capital consultants, also referred to as commercial loan brokers or finance advisors, play a pivotal role in this new market. To understand their role, we first need to understand the private lending world. In it, money is pooled by investors into independent lending organizations. Each of these organizations has a specific area of expertise: an industry, sector, loan type, and type of clientele which they serve. As result, there is only a small percentage of businesses that will match the lending appetite of any one lender. This leaves minority owned businesses in a rough place, applying blindly to lender after lender hoping that the next will be the one to say yes.
Lending consultants, or loan brokers, help these business owners to avoid this time consuming, headache inducing process.
Brokers first help their clients to gain clarity on their business goals and how additional capital can be leveraged to achieve those goals more quickly. Once those pieces are in place, the broker then lines up the business with the lowest cost financing vehicle – or loan type – for which the business can qualify. Next, the loan broker will pitch lenders who they know are looking for this exact type of borrower. When the broker finds the best match, typically the lowest cost lender, they then help their client to apply and navigate the underwriting process, and ultimately get funded.
To be successful, the loan broker develops skills in a number of areas: business finance, lender selection, underwriting, and negotiation.
The aptitudes necessary to work as a successful loan broker are quite varied. The broker needs to balance the client’s urgency for funding with their capacity to take on debt and their ability to meet monthly payments. In some instances, the pathway to funding is not a straight line, but may include additional services such as credit repair, debt restructuring, factoring, SBA backed funding, or other paths to increased cash flow such as bonding and licensure to overcome barriers to higher revenue and more complex jobs.
Loan brokers sometimes develop specialties – commercial real estate funding, working capital, or construction loans to name a few. Others work across a broad range of lending categories. The specialized skills loan brokers take on and referral networks they develop are as unique as the business communities they serve.
By building knowledge, skill, and insight, the loan broker becomes a “hired gun” or external facilitator who specializes in making deals happen. With the same commitment to borrowers exhibited by the founders of the first minority owned banks, loan brokers become the hub for information, insight, and access to capital. Many loan brokers become speakers and respected participants in their business community, presenting through chambers of commerce, providing webinars and personal coaching to startups, main street organizations, and businesses that face a road bump in their growth trajectory.
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Loan brokers are now serving business owners in many of the ways that minority-owned banks originally intended. Brokers are helping capable and deserving minority-owned businesses to access the capital that they need. In turn, these local businesses are uplifting the entire community, creating jobs, supporting families, and investing in other local companies through service and product contracts. Just as minority-owned banks launched a virtuous cycle supporting the community in the past, local loan brokers are initiating this supporting same cycle today.
Better Matches Mean Better Outcomes
When businesses seek funds on their own, an application in one category may make them ineligible for loans in the categories most suited to their objectives and financial needs.
Business owners often take a scattered approach, applying through an online lender, talking with a local bank or credit union, and tapping into business credit cards in an effort to obtain fast funding in the hopes of future profits. This approach very often damages credit, results in high interest rates, and obtains funding with restrictive terms, leaving the company’s books in a sorry state.
Because of their knowledge and experience, loan brokers help business owners avoid predatory lenders.
The goal of the loan broker is to help businesses to receive funding at the lowest cost available, but at the same time, clean up their books and position themselves for future funding opportunities. Brokers help their clients to play the long game, continually leveraging loans for faster growth, accessing lower interest rates, refreshing equipment, upgrading amenities, and making their business more competitive in the marketplace.
With their extensive network of niche lenders, loan brokers accelerate the path to the closing table.
When loans are packaged right and presented to the right lender, the process of evaluation and approval is accelerated. Rework is reduced, and borrowers experience much less red tape between their initial ask and final approval.
When clients are empowered with information, they can choose among multiple options in terms of rates, payments and their total cost of money.
Loan brokers often are able to source multiple offers for each loan sought by clients. With more options, businesses are empowered to make choices that suit their business development.
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Better Outcomes Serve the Community
When businesses thrive, they are able to provide better service options and flexibility to their customers. When customers receive excellence, businesses grow, creating jobs. Families are empowered with the income necessary to buy property, add upgrades to their home, increase property value, save for their children’s college and their own retirement.
What is even better, is that loan brokers often bring money from major markets into local communities. Many lenders are willing to lend in minority communities, even when they do not have a physical location there. When new money comes in and circulates among quality local businesses, their employees, and local families, it empowers the change many of us are seeking.
Isn’t that the vision that drove the early community bankers? When business is built around a shared vision and provides a virtuous cycle, it revs the engine of local economies.
The entire foundation behind Small Business Lending, whether it comes from SBA backed or independent lenders, is to fuel the power of small business. Small Businesses make up 99.7% of employers in the United States, create 64% of net new jobs, and make up 49.2% of private-sector employment.
With stats like that, the responsibility of loan brokers to serve their communities equitably and to provide broad access to capital is imperative.
What types of financing do commercial loan brokers most often facilitate?
Working Capital: Businesses require sufficient liquidity to meet their short-term goals and enough cash flow to maintain operations for the long-term. Working capital funding provides options to access funds to meet everyday business costs.
Commercial Real Estate: Whether companies are buying real estate to run their business, or they are purchasing apartments, office space, retail buildings or other investment property, commercial real estate funding provides money to purchase the right properties.
Equipment Funding: For many businesses specialty tools, trucks, machinery, and equipment is at the heart of business operations. Equipment funding provides multiple pathways to access the right equipment at the right rates and to remain competitive in evolving markets.
Lines of Credit: A working line of credit offers access to ready capital for business owners with better rates than a business credit card, but with more stringent approval requirements. Loan brokers can help businesses apply for the right credit limits and even advise owners on ways to make themselves more attractive to lenders.
SBA Backed Loans: SBA loans are issued by private lenders, but are partially underwritten and guaranteed by the federal government. Because the government guarantee reduces lenders’ risk, credit limits come down and lending amounts increase. Options include everything from construction to working capital, so these can be an exceptional deal for borrowers.
Construction Loans: Construction loans are a unique category that is built to pay out in stages as construction is completed and approved. More cost effective than a lump sum loan, these add a certain level of checks and balances through independent inspectors that review work before the next stage pays out.
Accounts Receivable Factoring: For businesses that work on contracts, invoices or other types of delayed payment, accounts receivable factoring is a non-lending approach to accelerating cash flow. Because it is the sale of an asset, the client’s credit isn’t pulled. Instead, the payment record of the final consumer is the most important component of the deal.
Bridge Loans: Bridge loans, or gap financing, helps borrowers to bridge the gap between seizing and opportunity and securing permanent financing. These short-term loans are typically interest only with a term of 1 – 3 years. They allow a company to utilize the funds today for a growth opportunity, and then obtain lower cost permanent financing to repay the bridge loan within a few years.
What do loan brokers help businesses avoid?
Overleveraging is a circumstance when borrowers take on too much debt in one category or too much debt overall. Loan brokers help clients assess their books to determine what they can afford.
Choosing the wrong loan type
Brokers also help borrowers avoid applying for the wrong type of funding for a given purpose. For example, if a client purchases equipment on a credit card, their repayment timeline will have to be much too fast, or their cost of money will be too high due to compounded interest.
Accepting high interest rates
With online lenders, business owners fill out an application, get a rapid offer and are pressured to choose quickly among relatively similar options. This doesn’t give the client adequate information about what might be reasonable or unreasonable given their business and financial goals. Loan brokers give clients choices, including the length of the loan, the interest rate, and the total cost of money, helping clients to make an informed selection that is right for them.
What do loan brokers need in order to rapidly and affordable finance clients?
To become a loan broker an individual needs the right training and coaching in a number of skills, including presentation and pitching skills, communication with lenders and clients, the expertise to review balance sheets and cash flow statements, and the ability to track multiple deals from start to finish so nothing is dropped in the middle.
They need to know the loan types and how best to apply funds. In many instances, a client needs more than one financial instrument. The broker needs to not only know the loan types from top to bottom, but to be able to convey the strategy and steps necessary to move through the process so the client remains financially balanced as they proceed.
In addition, loan brokers need to have the full set of business tools at their disposal – a website, online marketing, social media, blogging, and an informational newsletter.
They need to build lender relationships, either from scratch, or through a partnership with a lender or broker network. The strength and breadth of the network can largely determine the broker’s ability to source the right funds for borrowers.
The Commercial Loan Broker Institute, founded by Darrick Brown, provides the knowledge, skills, and abilities necessary to launch a commercial loan brokerage in just three months. The program includes a complete branding and marketing platform, as well as providing a network of more than 100 lenders to help brokers finance their clients. Graduates receive a list of prospective partners and clients to help them launch right out of the gate, and they receive two years of ongoing education and direct coaching from expert brokers in order to help them facilitate high quality deals and establish their credibility within their business community.
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