Here is what a good broker does:
- Has a good reputation with their underwriters.
- Invests the time to put in comprehensive credit submissions.
- Uses old school technique to get buy-in from underwriters.
- Keeps relationships with non-traditional providers.
- Minimises deal shocks.
Let’s explore what I mean by these points in detail.
(I use the term introducer and broker interchangeably for the purposes of this post.)
In order to get a deal across the line, brokers need a number of yes’s from key stakeholders. Here are just three of them.
Yes Number 1.
Broker finds the client (or the client needs to find you, depending on how you look at it). This first yes is all about the client saying yes to you helping them solve their problem.
Yes number 2.
This yes is all about the sell to the underwriter or financier. He needs to understand why it is a good deal. He will (if it is pitched as a good deal), then make an indicative offer.
Yes number 3.
Now take this indicative offer back to the client. The client needs to buy the deal off you all over again. This is yes number 3.
Now brokers, it’s a little exhausting, if it were easy, everybody would be doing it right? Actually, it feels like everybody is at least trying to do it. Not everybody is doing a very good job at it.
‘Oils ain’t oils’ and ‘brokers ain’t brokers’ and thank god everybody gets what they pay for in the end.
When you deal in the market where it is not a ‘tick and flick’ type of product (almost every business deal is no longer tick and flick), a good broker is worth their weight in gold.
I am not saying that just because I love my introducer relationships, but introducing brokers provide more service than you could possibly imagine.
Almost all of the time, when you pay a premium (if there is any cost at all) going via a good introducer, you do get what you pay for (que shameless plug; just like when you go with a premium debtor financier such as AR Cashflow).
A good introducer will be able to get the underwriter to a position of yes. They will do this in a seemingly effortless way and in rapid time. What follows are some key notes good brokers hit along the way.
When you know it is a complex deal, your submission must anticipate and answer questions the lender will have.
If there are many moving parts on a deal, a credit submission is best only being made to underwriters who have an appetite and tolerance for that type of deal.
From a financier’s point of view the reputation of the introducer means a lot. I don’t mean the introducer tells me how good his reputation is, anybody can do that, it is something that is built over a long period of time. It is a result of putting up consistently good deals.
Robert Grul from G and H Financial had this to say:
“Getting to yes is a combination of things. It all starts with your reputation with the lender.
You want to make the credit submission so comprehensive that all the lender has to do is read the submission and say yes.
Knowing the lender and what their requirements really are, knowing the questions they will ask and pre-empting their concerns and answering them before they ask.
Credit officers are seriously busy and good submissions are few and far between. When a complex deal drops on their desk, they don’t want to spend hours going back and forth with the broker asking questions. They will put it to the bottom of the pile and work on the easier deals.
When there is little work for them to do, you will put your client in the best possible position to get a yes.
Even our more simple credit submission can be more than 30 pages long. Not full of irrelevant rhetoric, but covering in detail the answers to questions that particular underwriter will ask.
If a client is running a group tax debt, don’t burn your credibility with certain lenders who you know will not consider the deal, instead put a story around it backed with evidence and pitch it to the right guy. If you know they ask for tax portals, make sure they are there in the submission.
Being awesomely good looking, and having a super long beard also helps.
The downside to putting so much effort into understanding the client’s business, is that it takes a lot of time. Approvals are good, income is good, but finding good people to help put these submissions together is a real challenge.”
Technology has created many new ways to do business, however, old school business is alive and kicking in many aspects of the finance game.
“Getting the underwriter to invest in the deal is a technique.
Being face to face with the person making the decision adds credibility to the process.
The underwriter usually knows the industry. If he can see the client knows the industry, they can get a lot more comfortable really quickly.”
Physically parading your client and lender around in front of each other works surprisingly well. Especially in more complex deals.
If you have a good reputation with your underwriter, and you know the deal you want them to underwrite is good, you can use your reputation to make this happen.
Four years ago when we were in the process of getting trade credit insurance to cover our book, David Pulver, now at Gallaghers Trade Credit Insurance, used this method as part of his process in getting a yes out of QBE for our bespoke type of cover.
I spoke to David after the event and asked him the question: “How come you could get that deal across the line so smoothly?” David replied:
“Brokers can be a little lazy in our space. If I want a deal to fly and the deal is not straight forward, I find getting the underwriter out and in the face of the client works very well. The underwriter will instantly get a sense of what the client is all about.”
A yes from QBE flowed swiftly after this face to face meeting.
Are you a man or a mouse? Are you a real broker, or are you a sales rep for the major banks?
Things change so rapidly in business. One day you are offering a particular product and then the next you may not. There are many reasons behind changing business guidelines.
For whatever reason, it means that you don’t always have capacity to do a particular type of deal.
Take the local construction market for an example, providers are full up on risk. This means with larger deals you need to go outside the usual players and look internationally.
Here is where a good broker comes into play. When you go outside the garden variety underwriters, getting to a yes can be a little more complex.
When you get a ‘yes’, exactly what that ‘yes’ means can be quite different across providers. A good broker will work closely with the client before, during and after the closing of a deal. An average broker emails you a name and a number.
Ewan points out that:
“When working with clients it is important to have the most up to date information on the underwriters. Look carefully at how policies are claused in the underlying contracts. Ensure cover reflects the intention of what essentially happens from a commercial standpoint and in practice. This is where the quality of ‘yes’ is important. It means clients get what they think they are getting.”
Less sophisticated clients can really get caught out here as you only really find out if you don’t have the right deal when it is too late and the agreement is tested. As Warren Buffett says “When the tide goes out, you see who has been swimming naked.”
Once again, not investing the resources upfront to make sure you get the right deal will cost you when it matters most.
Avoid deal shock.
Deal shock is where the lender approves a deal, but on terms that are not acceptable to the client. The unacceptable terms usually relate to pricing or credit limits.
Sometimes deal shock is simply unavoidable even for the best brokers.
As Stephen Hodgkinson points out, “It’s always mildly frustrating when you write a deal up only for the lender to say no. However, lately I can get financiers to say yes, but it is usually on terms that are just not viable.
If your client needs a $500k limit, and you know your underwriter knows this, getting an approval that is a shock means you might only be able to get a $100k limit. This is in no way enough to get the deal across the line. This is more than mild frustration, it is like having your teeth pulled. Especially when the financier will only give you a limit approval after all the leg work has been done.
In today’s climate, financiers are getting more conservative, if it is clear there is a question over serviceability then everybody runs a mile.“
Understanding a financier’s appetite for risk can take time. Unfortunately, it is the result of trial and error to work out where their product really sits in the market.
Most financiers and their representatives will say that they can do any type of deal you want to throw at them, luckily money talks and bulldust walks in the end.
If the deal they say they can do seems to good to be true, it usually is. The sad thing for amateur players, is you only find out after 3 months of back and forth. It all ends with a painfully slow no.
A well connected broker or introducer will cut down all the leg work that you need to do in order to get the yes with the best possible terms.
All this information I have given you is great, and if you can find a good broker it usually pays healthy dividends to use them. Unfortunately, we live in a world of snake oil salesmen, a lot of whom cannot be easily distinguished from legitimate brokers truly trying to provide a valuable service.
How do you tell the difference between rip off merchants, time thieves and the A players?
Perhaps another time.
If you would like to know more about how to get to a yes or would like to discuss a deal, please call me on 1300 652 158.