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Accountants are like priests: Their clients confess everything to them
There are very few professionals to whom a small business owner tells all. The insurance sales person - who wants to know everything so they can sell estate planning service- rarely gets the full story. Stock brokers get even less information.
But generally speaking, accountants hear it all. Maybe it is because clients want to unburden themselves. Maybe it is also because they know that by the very act of preparing tax returns, the accountant has knowledge of their entire financial picture.
By virtue of this privileged look, many accountants assume the role of trusted advisor.
Here is where a partnership with a stated income/asset lender comes in. If your clients run cash businesses and are seeking loans of $1,000,000 or less, they are between a rock and a hard place. They look at the accountant as their trusted advisor to help them find a solution.
YOUR CLIENTS NEED FOR HELP STEMS FROM THE FACT THAT THEY EXIST IN AN UNDER SERVED MARKET FOR FINANCIAL SERVICES
The choices they have in order to fund expansion are difficult: Banks on one side and private money on the other. Equity capital, for many small businesses is simply out of the question.
Although banks and small business would seem to be a natural fit, the fact is, the two do not work well together at all. While banks have varying appetites for risk, their underwriting standards are often difficult for small, cash driven businesses to meet. This is nobody's fault per se. It is simply that because banks are funding long term loans with demand on deposits and CD's, they have little room for exceptions in their underwriting guidelines. This abundance of caution is compounded by the presence of FDIC insurance on bank deposits, and the resulting federal regulation of how the institution does business. In short, banks are not built for risk or variance in how they do business.
On the other side of the ledger are private money or "hard money" lenders. While the evokes the images of loan sharks and repayment schemes involving force, that is not really the case. Hard money lenders are often a group of private individuals with cash to lend and at an opportunistic bent. They serve a real purpose - providing liquidity to individuals who can not get credit anywhere else - but they are usually the lender of the last resort.
It is not hard to see why. For a hard money loan, interest rates are typically 12% to 18%, with four to eight points, a balloon payment after one or two years, and low loan to value ratios, typically 50%, but up to 70% in some cases. They structure the deals on liquidation values instead of cash flows.
If your client does not have a choice, a hard money lender may be an option. But is that really the recommendation you want to make? If a client needs cash, they may go through with the loan, but how will they feel six or twelve months down the road? But taking the other route hardly seems any better. What is the point of sending your client all over town to meet with bankers who, in the end, can not be helpful to them? Will the entire situation come back to bite you?
IF YOU HAD A RELATIONSHIP WITH A LENDER THAT FOCUSED ON STATED INCOME/ASSET LOANS, YOU HAVE AN OPPORTUNITY TO BE A HERO FOR YOUR CLIENTS
Stated income/asset programs are exactly what they sound like. Your client is qualified for a loan based on the income provided on their application.
This means stated income/asset loan programs are perfect for cash businesses or self employed individuals that are unwilling to show their income. In fact, they are ideal for any client that might not meet the standards of a so called conforming loan. This could be borrowers without sufficient credit histories, or borrowers that want to limit their investment in a property, or "storied" borrowers whose credit ma be impaired because of illness, divorce or catastrophe.
More importantly though, because stated income/asset loans are underwritten on a more subjective basis than conventional or even sub-prime loans, there is ample opportunity to structure deals for the most advantageous rate and term.
Banks typically do not offer these kind of loans. It is outside of their product profile, and more importantly, loan programs such as these are difficult to build with scale. But because some lenders focus almost exclusively on this niche, they have built size, scope and platform to slash operating costs. In addition, the high volume of stated income/asset loans have enabled them to securitize their loan pools and drive down the cost of their funds.
The net result for your clients is competitively priced financing solution that they are unable to get from conventional or hard money lenders.
There is another reason for having a stated income/asset partner. They can help your business grow. Simply put, one of your best sources of new business is your existing client base. When they expand and take on new projects, this creates new opportunities for you to offer additional, value added services which they will need.
There is perhaps one more reason to look more closely at stated income/asset loans as well as the finance companies that provide them. It is a vibrant market with emerging companies that offer numerous business development opportunities. By building expertise in this arena, you can market to a wider segment of businesses, and as they grow, you can offer them additional tax, advisory and accounting services.
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