Should I work with directly with a Lender or through a Broker?
Updated: Apr 14, 2020
Despite the fact that I work for Builders Capital, a direct lender, I occasionally have borrowers ask me if they should hire a broker. While there are times when working with a broker can be advantageous, there are also situations in which a broker may not be necessary.
When should I work with a #broker?
Some construction loans can be very complex. In fact, one-size-fits-all often does not apply to construction projects. If your project is atypical and you don't already have a relationship with a direct lender who can fund the type of loan you need then a broker may be able to connect you with the right type of lender for your project or investment. Many brokers are highly experienced financial professionals with a network of connections and some have insider knowledge of different lenders and loan programs. A good broker can help you find the right type of loan for your business or project. A good broker will also help you obtain the most competitive pricing.
Please understand though that brokers earn a fee for brokering your loan to a lender. That fee is usually in the neighborhood of 1% to 3% on top of your other loan fees, although the actual fee can vary with each project.
Keep in mind that not all brokers are created equal. While some have years of financial experience and relationships under their belt, other brokers simply don't. Your actual experience working with brokers can vary greatly. Avoid brokers who make empty promises, who demand an upfront investment, deposit or retainer fee, who make promises that seem unrealistic, or who neglect to do their own due diligence with you prior to pursuing your loan. Also, I suggest avoiding brokers who are simply a referral service.
When should I work directly with a lender?
Generally speaking if you can find a lender like Builders Capital who you feel you can trust, who will provide competitive rates, transparent pricing and who has the loan program you are looking for, then you then you likely don't need a broker. In fact, clients who work directly with me at Builders Capital will save the extra expense of a broker fee (often a savings of 1% to 3% of the loan amount) and they'll grow to understand that I will always work diligently to get the best rate and fee structure I possibly can even with the most challenging loan or project. If for some reason I don't have a loan program through Builders Capital that can fund your loan I likely can refer you to a competent broker who likely has relationships with other types of lenders. However, I must say that due to the flexible manner in which Builders Capital offers funding it is rare that I cannot fund a residential construction loan.
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