Getting signed up with most funders as a business loan broker is not as simple of a task as it used to be. Funders have been changing requirements for years but the addition of new regulations, higher default rates, escalating and sometimes more sophisticated fraud have pushed Funders to enact new policies to make sure they partner with the best possible brokers or other referral partners.
What has changed
This evolution has been going on for several years but has reached a point where the differences are obvious. Funders have added actions to their due diligence process on Brokers (ISOs) to ensure they meet all standards and minimum requirements.
Funders have long taken into consideration things like how long the broker has been in business, how many deals they get per month, experience, key performance requirements, and some funders did background checks.
Now background checks are the norm.
Funders want more experience and a minimum deal flow.
They will do a phone interview and/or a video conference with several team members. They check the accuracy of the physical address, understand a broker's full scope of services, whether the broker charges a PSF fee, ask about how they get their leads, thoroughly research their online presence, and more.
Where is the process going
The process and difficulty of securing a partnership with certain funders will only become more competitive and difficult. Some of the reasons are going to be some of what has already been mentioned plus new laws going into effect that will force the funder's hands to prevent any backlash for non-compliant ISOs.
Funders have already taken steps to ensure compliance by updating their ISO agreements to reflect the new policies and terminating ISOs that aren't keeping up with the changes. This will continue as more states add disclosure laws and registration requirements. There are likely to be more steps in getting signed up as a broker and also required in the closing of deals.
Since we have foreseen the difficulty in checking multiple state websites and finding ISO or Funder company accounts, we have already added fields onto both Funder and ISO profiles where information like being registered in Virginia can be easily found.
How laws affected the decisions and process
New laws in certain states put liability on Funders for business practices, behavior, and compliance of their ISOs and other referral partners. More states will follow.
This means Funders will not tolerate anything that jeopardizes them as they could be fined, sued, lose the ability to fund in a state or other penalties. They will be quick to terminate any partner that deviates or doesn't comply with the policies, even if it means less deal flow in the short term.
The funders who don't care about the new laws will still get some brokers but they will dwindle as their hands are forced by laws and the penalties that come with not abiding by them if the enforcement agencies come after them as promised.
The competition will get even more fierce as a result.
What to do if you are a new broker
If you are new to this industry and aren't signed up with enough funders, then you need to sign up with as many as reasonably possible or partner with another broker who already has the relationships.
There may be some funders where you won't meet their qualifications. However, you can continue to work with the ones you have until you have built up enough of a lead flow that you can consistently submit the volume of deals necessary to get signed up and stay with certain funders.
If you haven't already visited our MCA Funders List to see who is actively signing up ISOs, you can do so today.
Funders can update their profile anytime by visiting the Update Underwriting page.