The independent channel promotes fiduciary thinking, doing what is in the best interest of the client, and accountability. It frowns on pushing proprietary products, receiving kickbacks, and not disclosing commissions.
It is ironic, even alarming, that these hallmarks of the independent channel mindset are not also always being applied to the benefit of independent advisors in regards to lending.
SBA Bank Kickbacks is detrimental to advisors, and has to stop.
With all of the current lending platforms and lenders available to advisors today, why is it that some firms and industry vendors only “partner” and “promote” one SBA bank?
Is it because it is in the best interest of the advisor to only consider an SBA loan? NO.
In many cases, if not most, an SBA loan isn’t the most ideal loan type option for the advisor.
Is it because there is just one SBA bank providing loans to advisors? NO.
Since 2010 over 400 SBA lenders have made SBA loans to advisors.
Is it because the SBA bank makes it easier for advisors to qualify for a loan? NO.
When a SBA bank requires 50% more cash flow and higher credit scores than what the SBA actually requires, many advisors who qualify for an SBA loan still won’t qualify for a loan with the industry’s most referred SBA bank. In fact, even though 75% of an SBA loan is being guaranteed by the government and often has an advisor’s home for collateral, this SBA bank is still generally harder to qualify for than a conventional loan.
Is it because the SBA bank pays kickbacks to some “partner” firms?
Most advisors have no idea that when they trust and heed the “advice” of their firm or professional vendor and get a loan from the highly recommended (and usually only recommended) SBA bank, that the bank pays some of these firms and vendor partners thousands, and even tens of thousands, in commissions, kickbacks, or whatever you want to call it, for a closed loan.
There are some vendors who specialize in advisor business valuations, buy side and sell side M&A, buyer and seller matchmaking, and other services in our industry, that makes more money off of their advisor clients by referring a loan that gets closed by the SBA bank than they make from the actual professional services they provided to the advisor.
While paying referral fees in and of itself isn’t necessarily a bad thing, these commissions aren’t small, aren’t being disclosed, and frequently are detrimental to the advisor compared to other options they have available.
When advisors see a SBA bank paying firms big money to attend every conference or to host panel discussions, and the same SBA bank being the only lender being referred by their firms and vendors they trust to be looking out for them, it’s easy to see why so many advisors get the wrong impression that the SBA bank “partner” is their only option, or must be the best option for them.
There are firms of course who will refer a SBA Bank as just a way to help their advisors with lender options and do not receive kickbacks for doing so. In fact, many of these firms would never dream of doing so. Others however, have different standards.
When a SBA bank closes hundreds of millions in SBA loans to advisors, and then sells these loans in the secondary market for 7 to 10 points, there is a lot of cash available to pay some firms and vendors a 1% to 2% kickback on the loan amounts to keep those referrals coming in.
If you’re an advisor affiliated with a firm or using a vendor that is only partnered with and promoting one SBA bank, you should ask yourself why that is, and exactly whose best interest is being served.
When a firm or vendor refers an advisor to AdvisorLoans it’s not because they are getting a kickback for doing so. AdvisorLoans doesn’t pay kickbacks for advisor referrals, nor do we accept referral fees when we recommend valuation, M&A, and legal consultants and vendors an advisor may need for their loan.
If you were referred to AdvisorLoans, it’s because they want you to work with a Loan Advisor who is looking out for your best lending interest, not their own financial interest, and certainly not that of some SBA bank.
AdvisorLoans helps advisors evaluate all of their lending options including SBA, Conventional, and Tri-party loan types, and which program is the most ideal for the advisor’s situation and goals. We then evaluate which of the lenders in our lending open architecture platform is the best match for the advisor based on the advisor’s individual needs, underwriting criteria, and the deal structure needed. AdvisorLoans packages the advisor’s loan and works as the advisor’s advocate in navigating the entire loan process with the advisor.
Our transparent and turnkey loan process doesn’t cost the advisor a penny more than going it alone. Advisors never pay AdvisorLoans a dime for anything. We get paid about the same amount from any of the lenders or programs selected, and only if the loan is successfully funded.
Just like clients, advisors deserve referral commission transparency
We have faith that the fiduciary mindset of the independent channel will soon also apply to the advice all advisors receive regarding lending and lenders.
We applaud the firms and vendors alike, who refer multiple options to their advisors and completely avoid the real or perceived conflicts of interest from receiving kickbacks from a SBA bank, or any lender for that matter.
For the other firms and vendors however, that continue to partner and promote one specific SBA bank because of their own financial interest, instead of the best interest of the advisor, should disclose the commissions received (which are often substantial) for referring an advisor to the SBA bank.
Most all advisors have no clue these kickbacks exist. With today’s robust lending options available to advisors, they deserve to know the true context of why a firm or vendor they trust and are paying to use, is steering them to one SBA bank.
Posted by Darin Manis