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The other week was a little strange – strange in that we received four enquiries pretty much in succession from applicants aged from 78 to 87 years old.
Now I am sure there must be some good reasons why somebody that age may want to borrow money – I just can’t think of any! Now, whilst I remain enthusiastically optimistic about becoming an octogenarian myself, the intention at that age is to be sipping piña coladas in the Bahamas and not borrowing money for my feckless offspring or for a business partner named Gerald who is operating out of Nigeria. Stay away from these deals – you are only courting disaster.
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However, I recently saw an offering by an organisation whose rates were indeed the sharpest I have seen. Naturally well-meaning elements of my database were keen to gauge our reaction. Sure enough, they were right – the rate was the lowest out there. No question. However, the application fee – carefully bundled as part application, part administration, and part establishment – was a dizzying 10 per cent. Now personally, I can’t conceive a small-business owner (or anybody) wanting to borrow $100,000 and paying $10,000 upfront for the privilege of it.
So, if it looks too good to be true, it probably is.
If I was to give a small piece of advice to brokers as to what not to say when putting up a scenario, it would be this: “You probably won’t do this deal, but I thought I’d call anyway.”
You’re right. We probably won’t do it. If you think it’s rubbish, the likelihood of the lender drawing a similar conclusion (or worse) is almost a certainty. Look at the deal forensically: would you lend the money? No? If by chance the lender says yes, odds-on they are charging a healthy upfront fee with absolutely no intention of settling the deal. Be straight with the client – you will only ultimately enhance your reputation and integrity. Nobody needs the fallout from disgruntled clients who have paid fees for no result.
With all that said, be tuned into market opportunities. The growth and requirements of SMEs continues to be strong, and this market has legitimate requirements for working capital to aid initial set-up stages as well as enable expansion for established operations.
The upshot is this:
• Be aware of the fee structure you’re being presented. What is the total fee cost? If it’s not transparent, question the lender.
• Be dictated by common sense and financial acumen.
• Be wary of lenders who tell you they can do the deal despite the borrower’s circumstance. This will come at a price.
• Invest your time in business-based loans versus personal loans. The chance of it being a genuine opportunity is much greater, and will provide a much higher rate of return.
There’s no doubt that diversifying into this space provides a direct opportunity to tap into a highly lucrative, evolving market with strong borrower demand and an ever-increasing client base.
