How Brokers are Milking Small Business Owners

How Brokers are Milking Small Business Owners
How Brokers are Milking Small Business Owners
June 1, 2016

When it comes to lending, chances are that most small business borrowers know nothing about the rigors of borrowing. What follows is that they turn to brokers to help them scale through the hurdle. Brokers on the other hand have come to realize this, that they are sole mediator and some seek to exploit the borrowers.

First, there are lots of loan options and whether online or offline, borrowers will somehow come around to their loan broker to help them explain the complicated huge documents they are often given. Online lenders also often have no base for lending and rely on loan brokers to secure their investment.

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Some brokers exploit the borrowers

Many brokers will pride themselves as impartial to get the attention of borrowers but what they do underneath is far less than desired. There are those that will advise borrowers to pick up loans that are expensive to the borrower because it will favor them – the loan brokers – more.

Compared to the latter, the former will seem like saints. What the latter do is to inflate the interest cost by some ten or twenty percent and include some other hidden charges so that in the end, the amount the loan broker is milking from the borrower eludes the borrower.

Loan brokers use several tricks to swindle borrowers

There are various factors that make it easy for a dishonest loan broker to take undue advantage of borrowers. Besides the obvious fact that they are more knowledgeable than the borrowers on the subject, there is no law that checks their activities at the moment.

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Such a scenario was the order of the day in the mortgage industry till the Dodd-Frank rule got rid of them. This time, the same ugly head is popping up in small business loans. Also, loan brokers are not under federal regulations. The only regulation that applies to loan brokers is that posed by some state governments who require them to obtain operating licenses.

What makes it even crueler is that the state governments that require the loan brokers to obtain licenses often do so to increase the state financial revenue because once the license has been obtained; no one gives a hoot to their activities anymore or cares to monitor and regulate them.

Tips to stem the tide on these predatory behaviors of loan brokers

Having analyzed the problem, the next question to answer is the way forward. Knowing that borrowers depend on loan brokers a hundred percent, steps should be taken to ensure that loan brokers match the trust of borrowers by the same margin.

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Hence, the first key step would be to set up regulatory bodies to see to it that loan brokers follow the rules of engagement. Policy makers and regulators should congress and fashion out laws that would encompass all loan brokers. And as it is with every law, a stiff penalty should be carved out to punish offenders.

Such laws should make it binding that loan brokers should disclosure all there is in any contract to the borrower. Finally, conferences should be organized every now and then to educate loan brokers on some of the ills they should avoid in their practices.

Read also: Looking for Ways to Finance Your Company: Try Asset Based Lending

Article highlights

  • Many borrowers depend on brokers to make sense of the documents.
  • Both online or offline lending still fall back on the broker.
  • There are lots of lending options and it is the duty of a broker to clarify.
  • Many loan brokers pride themselves as honest but their activities speak otherwise.
  • Some brokers hoodwink borrowers to take up loans that are detrimental to them but fatten the broker.
  • Others increase their services but up to 20 percent without the knowledge of the borrower.
  • It is very easy for brokers to swindle borrowers because they are more knowledgeable on the subject.
  • There is no federal regulation on the activities of loan brokers.
  • The available state regulation seems to only focus on them obtaining licenses.
  • Conferences should be organized to train loan brokers.

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