The Value of Commercial Finance Brokers to Banks!

  • 30 September, 2019
  • Greg Pierlot

Banks pay Commercial Finance Brokers an upfront commission and, in most cases, trail for business they introduce.

In the main, the relationship between Commercial Finance Brokers and Bankers works well – however, occasionally because there is an acquisition cost involved, this relationship can be tested.

Most often this comes about because of:

  • A lack of understanding and appreciation of the role a Commercial Finance Broker plays in the transaction
  • Not fully appreciating the lead times, and work involved, prior to the presentation of an opportunity
  • Misunderstanding that it is the client not the Broker that initiates the action – this is particularly the case where the Broker is asked to engage with their existing Bank
  • Business finance being complex with many variables as no two businesses are alike. This contrasts with residential finance for which there are generally clear policy guidelines and processes

The Commercial Finance Broker Myth - Shopping Deals Disrupting Relationships

The fear of many Bankers is that once a Commercial Finance Broker is involved, it potentially places the business at risk each time the facilities come due for review. That each review the Broker will “shop the deal around”!

However, such an approach only serves to undermine the Broker value proposition.

The reality is changing Banks is a long process and time consuming. Time most business owners can ill afford.

Certainly, terms and pricing need to remain competitive. But this is something quality Bankers will strive to ensure and with which a Broker can assist.

But, ultimately churn and disrupting relationships isn’t in anyone’s interest, particularly the business owner!

Why Business Owners Use a Commercial Finance Broker

Our experience is that very few business owners regularly change Banks!

In fact, most are reluctant to even consider this until they reach a tipping point.

Even when they have a good relationship with their Bank/ Banker, it is often frustration with policies and processes, or unease with the powerful institution, that are the initial motivating factors.

Price whilst important, is an outcome rarely an initiating factor!

Loan Journey Before Submission to Banks

Finance Requests - Sunk Costs and Time

Whilst a business owner may have reached their tipping point, this doesn’t mean they will quickly engage a Commercial Finance Broker.

Most are initially unsure about using a Finance Broker even when referred. Their concern being how using a Broker may be perceived and how it could impact their existing banking relationships.

Against this background, the Broker needs to invest a considerable amount of time, demonstrating value and expertise, before they give the go-ahead.

The reality is that business finance is complex. No two businesses are identical. Lead-times can be lengthy and by necessity involves:

  • Taking the time to understand the business, and the people behind it
  • Obtaining and analysing all the financial and other data
  • Educating the client about finance – the options available and possibilities
  • Agreeing a strategy together
  • Preparing a Finance Proposal

All this requires considerable time and sunk cost that the Commercial Finance Broker absorbs, before presentation of the proposal to Banks for consideration.

There is also no guarantee of payment unless they achieve an outcome acceptable to the client.

The Opportunity vs. Cost

How Commercial Finance Brokers Benefit Banks

Whilst Commercial Finance Broker introduced business involves a cost, the value proposition for Banks is:

  • Time recovery and avoiding the sunk cost associated with finding, qualifying, then nurturing an opportunity
  • Increased time available to focus on service delivery and relationship building
  • The ability to leverage the new relationship to generate additional revenue streams through other products and services
  • A valuable resource (the Broker) to assist with ongoing management and education of the client
  • Access to market intelligence to help ensure pricing, terms and conditions are fair and market competitive

A Cooperative Partnership Benefits the Client

At The 500 Group we invest a considerable amount of time and effort building relationships with quality Bankers who are a key to our overall value proposition.

However, to work, it needs to be a two-way partnership – one that respects what each brings to the table and extends beyond the initial introduction of the opportunity.

When Bankers and Commercial Finance Brokers work in partnership, the ultimate beneficiary is the client – as it should be!

If you would like to learn more, don’t hesitate to get in touch!