Banker or Broker? What is best for your business?
Choosing one lender over another can make a BIG difference to your business. However with all the time constraints running a small business, it can just feel easier & more convenient to keep your accounts with your current bank. With 3 levels within most major banks it can already feel overwhelming to figure out where to go & who to approach . . .
• The local branch where retail clients have access.
• The business bank, which is available to larger accounts like SMEs who have a broader requirement. Bankers here are generally more knowledgeable across the banks domestic products. *This is the area of banking we are discussing in todays article.
• The institutional bank where corporate clients are managed. Bankers here tend to have a deeper understanding of what drives the economy & the market. They will understand the drivers of interest rates, foreign exchange & international trade.
Most clients that I have spoken to assume that, because they have been loyal customers, they will get a good deal, that as rates fall & new products are introduced in the market these will be applied automatically to their account. Unfortunately, this is not often the case.
Having the time yourself to focus on your core business AND keep abreast of the financial markets products that best support business growth is the ideal option. However, whilst the plethora of options available today will give greater flexibility, they can be overwhelming & confusing. This is where a broker with banking experience can bring added value to you & your business.
So what differentiates a BANKER from a BROKER?
1. A banker is an employee. No matter how good your relationship may be with them, they can only offer you limited options . . . their options! Obviously, they won’t be able to tell you about loan products offered by other banks which may suit you better.
As a broker my interest is in finding the best option for you, my client. I’m not constrained by an employment contract with a single product provider. I have no reason not to find you the best product for your business. At the end of the day, I am motivated by wanting to keep you happy so that you will continue to use my service & refer me to your friends & other business owners.
2. Bankers are Sales people. They are incentivised to “sell” you a specific solution including credit cards & insurance. The more products or services they get you to “buy” the more money the bank makes.
Brokers are about finding you the best solution. Once you walk in our door we are incentivised to find the best solution for your business needs. We have access to dozens of lenders & whilst we might charge you an upfront “work fee” to cover our costs for more complex business solutions, we get paid for success. Retaining you as a client is based on your satisfaction, building our business is largely based on you referring us to other clients.
3. Contrary to what you may have been told by your banker, the interest rate you are currently on is probably negotiable. Market rates have been dropping & if you haven’t renegotiated your interest rate for a while then you’re probably paying too much. I’ve recently saved my clients thousands of dollars a year on loan repayments where their banker assured them they wouldn’t get a better deal anywhere else.
When a Broker has been mandated to find you a better option, then the bank knows you mean
business. As a broker I will either:
• Negotiate a better deal to keep the business with your incumbent bank if you are happy with their service & products, or
• I will find you a better deal with a lender who will provide better products & services for your business. As a broker I have more leverage here than you do as an existing client. Most banks know that an existing client is unlikely to move their business.You just don’t have the time to do all the research involved in getting a better deal.
4. A banker will look at their in-house product range & offer you only what they have to support your business. If they’re truly your advocate, they’ll find the product that suits your business rather than the latest shiny new product that the bank is pitching to enhance shareholder return. But it is still limited to their in-house range rather than everything available across the market.
As your Broker I’m effectively employed by you to negotiate the best deal possible for your business across dozens of lenders. I am agnostic with regard to who you use but I do work across them all & learn the strengths & weaknesses of each provider. Whilst one might offer the best service & largest branch network, another will have the most advanced technology. There are many new specialised business banks but they don’t have the depth of product that an established major bank might have. The one that has exactly what you need might be a bit more expensive.
My job as a broker is to sit with you & establish what is important to you. I will find the bank & product range that best suits your business needs for long term growth & profitability.
5. Bankers are not Financial Advisors. Some borrowers assume bank employees are trained to help them make financial decisions, but that’s generally not the case. Remember my earlier point, Bankers are Sales people.
I’m not a Financial Advisor either but I am a debt specialist with decades of experience in banking across the different sectors. I have access to business partners I trust who are accountants, management consultants, financial advisors, property strategists & business management. I will be happy to refer you to any of these specialists to help you.
6. One thing to be careful of is that the “system” will decide on your loan application. Many people think that their bank manager or the loans officer will decide, but in reality an algorithm will assess your loan application. All your information will be fed into a computer & your application is reduced to a number.
With a broker involved in your application, we will prepare & review your application with a solid understanding of the banks requirements. If there is a gap in your application we will talk this through with you to make sure that you are taking on debt levels that will enhance your business & that you are able to service the debt with your cashflow.
7. My final point is that I believe that once I’ve found you the right bank & products for your business it’s really important for me to work with your banker to ensure a high level of ongoing service for your business. The banker will be your day to day contact going forward but I will work with them as your advocate to ensure that your account is reviewed regularly for your benefit.