[Incbiz440]

Question for those that broker SBA deals and charge a PSF: in states that prohibit charging advance PSFs, how do you structure your agreement as the SBA does not allow contingent fees? From my perspective and understanding certain states laws and SBA regulations are in direct conflict.

[Olderguy]

So when I get a SBA file, I tell the broker and the merchant up front there is a 2% broker fee. Depending on the program, it can be paid through the loan or outside the loan. It's on the letter of direction, the form 159 and you have an invoice. The referral fee is extra and can be 1% - 2% and is not in the loan docs final settlement statement. So total fees can be 3% - 4%. However, if the loan is over $1M, then the guidelines allowed change from that 2%. And I tell them the fee will be determined by the program and the final loan amount on the committment letter.

Not sure if that answers your question or not. I know some brokers have a separate PSF and you have to be careful because the SBA loan docs specifically state "merchant agrees he did not pay a fee for a broker searching for a lender for this loan"

[brandon_]

If you go through a broker who processes them and is great at getting them done, you'll end up making more by referring them over and you'll buy back your time to focus on MCA. One of the most common scenarios is a debt consolidation. You don't net the customer any cash. You just free up a ton of cash flow for them by paying off all of their debt and refinancing it into an SBA loan. Most MCA brokers hear $2M loan amount, and they try to charge them some crazy fee on the side. It doesn't work like that and it just kills the deal.

[Incbiz440]

So when I get a SBA file, I tell the broker and the merchant up front there is a 2% broker fee. Depending on the program, it can be paid through the loan or outside the loan. It's on the letter of direction, the form 159 and you have an invoice. The referral fee is extra and can be 1% - 2% and is not in the loan docs final settlement statement. So total fees can be 3% - 4%. However, if the loan is over $1M, then the guidelines allowed change from that 2%. And I tell them the fee will be determined by the program and the final loan amount on the committment letter.

Not sure if that answers your question or not. I know some brokers have a separate PSF and you have to be careful because the SBA loan docs specifically state "merchant agrees he did not pay a fee for a broker searching for a lender for this loan"

First, thanks for the explanation. It doesn't answer exactly what I was looking for but does assist with some others I had.

Using an example:
Florida prohibits loan brokers from charging advance fees prior to loan closing.
The SBA prohibits loan brokers from charging fees contingent on successful closing of a loan (to a borrower).

If I understand it correctly those are mutually exclusive, or nearly so. A broker doing an SBA deal would be either limited to being compensated by the lender or be compensated in some other structure(?)

To your point about collecting fees from both sides, the SBA prohibits a broker from being compensated by both the lender and borrower for the same service. It may be a point of semantics, but a broker would need to ensure that for example the agreement with the lender was written as a referral fee and the agreement with the borrower was a packaging fee?

This is probably where a Coleman's broker seminar would be useful but I don't see doing that anytime soon, haha.

Yes, the SBA has the stepped 3/2/0.25% fee cap.

I've done SBA lending in banks in the past and never looked deeper into it other than collecting a 159.

I've also seen brokers in the past charge $2500 on a 159 but have additional consulting agreements with their clients with the loan process being just a piece of that process. How accurate that was probably varied on the broker.

[Olderguy]

None of those I indicated are advance fees for SBA loans. You can't charge for searching for a SBA lender. You can charge 2% max in the 159.

Here a sample breakdown on a form 159:

Loan packaging and servicing $3,500
Financial statement preparation and review 1,500
Broker/referral services 2,500
Consultant services 2,500

Total $10,000 on a $500,000 loan

Some SBA lenders will guide you on what you can state here...I had one lender tell me we have to do s separate 159 for their referral fee. In this instance I got this plus the referral fee.

Charging a separate PSF puts the broker at risk...you can do what you want and I have brokers who claim they do. I had one broker tell me he has to make 10% on a SBA loan so he charges a separate PSF. That's a MCA broker for sure and yeah, it not legal but OK for this guy.

What I show is considered legit.

You aren't collecting it from both sides if the lender doesn't allow the fees in the loan.You are taking one payment outside the loan.

[Incbiz440]

If you go through a broker who processes them and is great at getting them done, you'll end up making more by referring them over and you'll buy back your time to focus on MCA. One of the most common scenarios is a debt consolidation. You don't net the customer any cash. You just free up a ton of cash flow for them by paying off all of their debt and refinancing it into an SBA loan. Most MCA brokers hear $2M loan amount, and they try to charge them some crazy fee on the side. It doesn't work like that and it just kills the deal.

I know it's anathema here but I try to move my clients as far up the financial stream as I can, so MCA is usually not my go-to.

[Incbiz440]

None of those I indicated are advance fees for SBA loans. You can't charge for searching for a SBA lender. You can charge 2% max in the 159.

Here a sample breakdown on a form 159:

Loan packaging and servicing $3,500
Financial statement preparation and review 1,500
Broker/referral services 2,500
Consultant services 2,500

Total $10,000 on a $500,000 loan

Some SBA lenders will guide you on what you can state here...I had one lender tell me we have to do s separate 159 for their referral fee. In this instance I got this plus the referral fee.

Charging a separate PSF puts the broker at risk...you can do what you want and I have brokers who claim they do. I had one broker tell me he has to make 10% on a SBA loan so he charges a separate PSF. That's a MCA broker for sure and yeah, it not legal but OK for this guy.

What I show is considered legit.

Yeah, no, I'd prefer not to be on the debarred ****list.

The not advance thing I get.

I think my confusion comes into play being newer on the broker side of the table than the lender side that to me, I would consider all of those contingent fees - you're not billing them until/unless the loan closes.

I could be wrong as I've never looked into it further and working internally instead of as a broker I never ran into a case where anyone was concerned with the details other than collecting a 159 and checking the box. And I may be overthinking it.

But, flat out, the SBA technically does not allow fees contingent upon the loan closing.

[Olderguy]

Yeah, no, I'd prefer not to be on the debarred ****list.

The not advance thing I get.

I think my confusion comes into play being newer on the broker side of the table than the lender side that to me, I would consider all of those contingent fees - you're not billing them until/unless the loan closes.

I could be wrong as I've never looked into it further and working internally instead of as a broker I never ran into a case where anyone was concerned with the details other than collecting a 159 and checking the box. And I may be overthinking it.

But, flat out, the SBA technically does not allow fees contingent upon the loan closing.

The fees are paid at closing. The fees can be in the loan or outside. They can't be paid up front. You can't have a PSF per se. Needs be a form 159.

[CRElender]

Sorry to be late to this discussion.
I work for a top 15 SBA lender, and we pay referral fees on most of our deals. It is not considered a contingent fee if you negotiate a referral fee as a percentage from the lender.

As for trying to collect fees outside of closing and disclosure, I would strongly caution against doing so. The SBA 159 form, signed by both the borrower and the referral source, states no outside fee has been charged. The SBA is very serious about imposing penalties on fees not reported. Not only would you find yourself on the SBA banned list, the borrower would also invariably be placed on the banned list and jeopardize them doing business again with the SBA, possibly including future SBA guaranteed loans but also disaster recovery that is administered by the SBA.

The SBA has a very long memory. Once you get on their banned list, you won't get off. You may also find that the SBA communicates the banned list to other federal governmental agencies, and you'll risk being banned by other agencies.

I pay at least a 1% to 1.5% referral fee on all my deals. We are a preferred lender with the SBA and can offer very competitive pricing on CRE-secured SBA deals. We can also close much faster than most SBA lenders, as fast as 30 days or less. If you want a reputable lender with a higher degree of execution, we can help.

[Incbiz440]

Sorry to be late to this discussion.
I work for a top 15 SBA lender, and we pay referral fees on most of our deals. It is not considered a contingent fee if you negotiate a referral fee as a percentage from the lender.

As for trying to collect fees outside of closing and disclosure, I would strongly caution against doing so. The SBA 159 form, signed by both the borrower and the referral source, states no outside fee has been charged. The SBA is very serious about imposing penalties on fees not reported. Not only would you find yourself on the SBA banned list, the borrower would also invariably be placed on the banned list and jeopardize them doing business again with the SBA, possibly including future SBA guaranteed loans but also disaster recovery that is administered by the SBA.

The SBA has a very long memory. Once you get on their banned list, you won't get off. You may also find that the SBA communicates the banned list to other federal governmental agencies, and you'll risk being banned by other agencies.

I pay at least a 1% to 1.5% referral fee on all my deals. We are a preferred lender with the SBA and can offer very competitive pricing on CRE-secured SBA deals. We can also close much faster than most SBA lenders, as fast as 30 days or less. If you want a reputable lender with a higher degree of execution, we can help.

Hi Dan, thanks for the insight.

In the case of client paid fees, what's your experience there re: being regarded as contingent or not in the eyes of the SBA?

The system you're referring to is SAM, and yes, it's multiagency and not just limited to SBA.

[CRElender]

I don't know all of the distinctions, but our group customarily pays referral fees on transactions that we close. It may be that since we are paying the referral fee to the agent, it is not considering charging the borrower a contingent fee, I'm not entirely sure. I do know that it is customary to pay referral fees as a percentage of the loan amount.

[etci]

I don't charge any fees outside of the lender paid referrals. I prefer not to get on the bad side of the SBA so I take the safest route.

[Incbiz440]

I don't know all of the distinctions, but our group customarily pays referral fees on transactions that we close. It may be that since we are paying the referral fee to the agent, it is not considering charging the borrower a contingent fee, I'm not entirely sure. I do know that it is customary to pay referral fees as a percentage of the loan amount.

Yes, as far as I know it's fees billed to the client directly. I still find the no contingency fee clause confusing, but I've yet to get a clear, definitive answer from anyone in any capacity. Yet.

This is where I probably should cough up the $500 for the Coleman webinar on SBA broker fees.

[Incbiz440]

I don't charge any fees outside of the lender paid referrals. I prefer not to get on the bad side of the SBA so I take the safest route.

That is the safest route but leaves money on the table and also cuts out leveraging some of the most flexible SBA lenders. Of course if you're not trying to get into the weeds with difficult deals it's probably not an issue.

[etci]

That is the safest route but leaves money on the table and also cuts out leveraging some of the most flexible SBA lenders. Of course if you're not trying to get into the weeds with difficult deals it's probably not an issue.

In the short term that is probably the case. However, that same customer always makes me their first call when they need equipment or AR financing so in the long term the dollars add up.

[Incbiz440]

I think we should all pitch in, designate a forum rep to participate, and have them report back. LOL

https://colemanreport.com/legal-loan...-webinar-2025/