Project Owner vs. Broker: Who Should You Trust with Your Funding Needs?
When seeking funding for your project, choosing whether to work directly with a project owner or rely on a broker is a crucial decision. Here’s a breakdown of the pros and cons of working with brokers and why direct engagement with project owners often leads to better outcomes.
Working with Brokers
Pros:
Access to Lender Networks: Brokers often have connections with multiple lenders, which can potentially increase your options for funding.
Delegated Workload: They handle initial communications, reducing the project owner’s administrative burden.
Industry Knowledge: Some experienced brokers understand market trends and can guide you toward appropriate funding channels.
Cons:
Inadequate Underwriting Skills: Many brokers don’t properly vet deals or understand how to underwrite files, leading to repeated rejections.
Recycled Deals: Brokers often resubmit deals to multiple lenders without addressing why funding was previously denied, creating a "relay race" effect.
High Fees: Brokers charge 1-2 points just for facilitating the deal, even when they add little value or fail to secure funding.
Lack of Accountability: If the broker doesn’t succeed, the project owner is left to restart the process, wasting time and money.
Working Directly with Project Owners
Pros:
Clear Communication: Direct access to the owner ensures that all project details are accurate and complete.
Control Over the Process: You can evaluate the project's bankability and address any issues upfront without relying on a third party.
Cost-Effective: Eliminating brokers reduces fees, making the deal more financially viable for both parties.
Faster Decisions: With fewer intermediaries, decisions can be made quicker, streamlining the funding process.
Cons:
Limited Network: Project owners may not have access to a wide range of lenders, potentially narrowing funding options.
Time-Consuming: Owners must take on the responsibility of preparing and presenting their projects for funding, which can be a challenge without experience.
Key Challenges with Brokers
Lack of Due Diligence: Many brokers push clients to pay for appraisals or other services without first confirming the project’s viability.
Misaligned Incentives: Some brokers prioritize their commission over the project’s success, charging fees without securing funding.
Inexperience: Brokers may not fully understand lender criteria, leading to poor matchmaking between projects and funding sources.
Our Approach: Direct Engagement and a Fair Broker Model
Vetting All Deals: We believe in implementing a system to thoroughly review deals before they reach lenders, ensuring they are bankable and meet all necessary criteria.
Fair Broker Compensation: For brokers who bring quality deals, we propose a 20% funding fee based on the lender's fees, ensuring fair compensation for value added.
Focus on Project Owners: By working directly with project owners, we eliminate inefficiencies, reduce costs, and maintain full control of the deal flow.
Conclusion
While brokers can provide value in certain situations, the inefficiencies and costs associated with unqualified intermediaries often outweigh the benefits. Directly working with project owners, or setting clear expectations and limits for brokers, ensures smoother funding processes and better outcomes for all parties involved.
Choose wisely to protect your time, money, and project success.
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