The Real Cost of Lender Paid Fees

By Steve Mariani

Everything sounds great on the surface as a local lender promises an additional point or so for sending them a loan request. They promise to handle everything and produce an approval quickly, sometimes within hours. As I am not one for cliché’s, I must say, if it looks too good to be true, then it probably is. We don’t fall for these (well, anymore) and you shouldn’t either. The extra point on the transaction is very appealing to many brokers but today we’re discussing the true cost to a business intermediary.


We can always tell when a lender runs a promotion and offers high fees to brokers. How can we tell? Well, to be honest, (aside from them soliciting our company) we begin picking up the pieces almost immediately after. Our offices receive multiple urgent requests because the deal is now in jeopardy and frustration between seller and buyer are at an all-time high. It’s week 5 or 6 and still no commitment letter and no closing date. Many times it’s 6 weeks just to receive a decline. This is more the norm than the exception and we’re asked to drop everything and help save the transaction. Every lender promotion provides a spike in our volume and we’ve encountered as many as 3 in just 1 week all produced by one lender’s promotional advertising and later loan declines.


When time doesn’t matter (and that’s rare) this is not a big concern at all. However, that is typically not the case, because we all know no one gets paid until the closing. Setting your transaction behind by 5 or 6 weeks not only puts it in jeopardy but also brings your reputation into question if you were the one who sent the buyer to this lender. Should the seller get wind of the fees being paid, it would most likely make him more concerned. The true cost of your reputation could be far more than the lender fee and even the brokerage fee on this one.


Our nationwide company policy is to never be swayed by lender fees and always focus on the most appropriate lender with the best product for a specific transaction. Once a fee level is considered then the best interest of the client becomes compromised. We don’t let that happen and neither should you, ever.


So let’s talk about the true cost in more depth. For example, let’s say you collect a lender fee on 2 transactions this year and begin to send this lender more of your transactions.  If only one gets declined after 6 weeks and the deal does not have time to be restructured somewhere else, you just lost those 2 fees along with another 8 or 10 points on this deal and that costs.


What we’ve found over our 20 years in business and want to share is that the best lenders, with the most aggressive underwriting, do not have to promote to brokers by offering fees.  They are just good at their jobs. They do a great job of approving and closing transactions, often not within hours or even days, but the outcomes are positive. They are consistent and honest from the first day they review the loan request. The alternative is a lender term sheet that no one on the credit side has even reviewed and many times is not even SBA eligible. That’s right, we see at least one or two letters a month provided to us by clients that are not even structured within the SBA guidelines at all. This happens mostly because of the lender inexperience in the market today and lack of borrower concern by them. Lenders today are only concerned with getting the first look at as many transactions as possible and that happens by promising things that (many times) they cannot deliver on. Their approach is simple, sign a client up and we can figure it out later. The problem, though, is that many times later that means a decline.


Don’t get me wrong, we live on lender fees, but we choose our lenders very carefully and not based on any promotion or fee amount and neither should you.


In summary, we love lender promotions as it saves us the cost of advertising and brining in business ourselves. However, don’t let your office be the one paying the actual cost in the end. is always available for specific questions regarding this or other SBA rules.