Applying for financing can be difficult and time-consuming, especially if your business is new to the process. A business loan broker can help save time, provide industry knowledge, and possibly help you obtain the best small-business loan offer. They are not necessary for all businesses.
This is what you need to know to determine if a business loan broker is right for you.
What is a business loan broker?
A business loan broker acts as an intermediary between small businesses and different lenders. The business loan broker will gather information about your company and financial goals and use industry experience, knowledge, and relationships with lenders to help you find the best loan terms and the lowest interest rates.
Business loan brokers help you apply for loans by contacting lenders directly. They can also assist with your application and answer your questions throughout the process.
These professionals can help you save time and get lower interest rates. You may need to pay a broker’s fees for their services
Business loan broker fees
The lender should pay the broker for business loans, but sometimes these fees will be charged to the borrower. Anecdotally fees range from 1% up to 6% of the total loan amount but can go as high as 17%.
While some business loan brokers may add fees to the interest rate of financing, others will charge separate fees after closing on your loan. Reputable brokers will not ask you for upfront payment before you have secured a loan.
When to use a business loan broker
A business loan broker can provide personalized assistance in finding and applying for small-business financing. While it is not necessary to work with a broker, this may be beneficial for startups looking for a business loan for the first time or for companies that require specialized financing such as a commercial realty loan.
Benefits of a business loan broker
- You don’t have to spend your time looking for and comparing lenders.
- You want to build a relationship with someone who can understand your financial needs and help you obtain more competitive interest rates.
- Need assistance in submitting loan requests and general advice throughout financing.
- You are applying for a loan for your business for the first time.
- You may require a special type of financing such as SBA loans, commercial real estate loans, or business acquisition loans.
How to find a business loan broker
There are a few options to choose from when searching for a loan broker for your small business.
A quick and easy way to find business loan brokers in your local area is to use the internet. It is possible to also go to the website of your local secretary of state and look for licensed brokers in your state. However, not all states require licensure.
Websites of professional associations, such as the American Association of Commercial Finance Brokers or Small Business Finance Association Broker Council can be helpful resources for connecting you with reputable brokers.
Local small-business organizations
Small Business Development Centers, local Small Business Administration offices, and similar organizations may be great resources for finding loan brokers. These organizations provide a range of resources and advice that can help you finance your business and grow it.
To discuss your funding requirements, you can make an appointment at your local center. The staff can help you determine if a broker is right for you and provide guidance on how to connect with one.
Ask small-business owners to meet up in their local communities or online and find out if they have ever worked with a broker for business loans. Referring to a friend or colleague who has had positive experiences can make you more confident about the broker’s reputation.
You can also read reviews from websites such as Trustpilot and the Better Business Bureau to get a feel for what other business owners think about working with a particular broker or brokerage.
How to choose the best business loan broker
A professional business loan broker must have relevant experience and work with many lenders to be able to meet your financing needs. You can also research and ask questions about the credentials and training of a broker since licensing is not required and it is not subject to federal oversight.
These are questions that you can ask brokers to determine if they are the right fit for your business.
- How many lenders will view my application? A broker must have a large network to be able to submit your loan application to multiple lenders in order to get the best offer.
- What does your process look like? You should understand the details of their services before you agree to work with them. You should express your desire to have someone complete loan applications for you, such as by completing them on your behalf.
- What is the average time it takes to get funding? The timelines may vary depending on how the broker works with their lenders. You will need to ensure that the broker has access to lenders who can provide fast loans for your business if you have urgent financing needs.
- Are you making more money by working with certain lenders? Your broker should always look out for your best interests, regardless of how much it may cost you.
- What time will it take to make a decision once I get a loan offer? The broker should allow you to review the offer and make a decision before you decide. You might want to look for another broker if someone pushes you to take a quick decision.
- What fees should you charge? Brokers should be transparent and upfront about how they charge fees and what their services cost. Brokers that refuse to provide this information, or who ask for payment of their fees, should be avoided.
- Is it possible for you to sell my information? Before you agree to work with a broker, make sure your data is secure. A business loan application may contain a range of personal data. A broker should answer all questions about the information they have.
Business loan broker red flags
Unfortunately, not all small-business loan brokers can be trusted When comparing brokers, be on the lookout for any broker with these red flags.
- Guarantees loan approval. A broker cannot guarantee approval for a loan. Legitimate brokers wouldn’t promise that. Avoid any broker or lender who promises approval. It’s probably a scam.
- Your credit is not important to them. To match you with a lender, brokers will need to verify your credit. Scammers are likely to claim that brokers can obtain a loan for you without credit checks.
- Has limited contact information available. A broker should have multiple contact options, including a phone number and email address. You can always look elsewhere if it is difficult to find information on the broker.
- Isn’t able to provide references or reviews. If a broker is asked, they should be able to give references or provide reviews of past business owners. This is a red flag if you cannot find any reviews online or the broker refuses to provide any information.
Alternatives to a business loan broker
A broker is not required for all businesses to obtain a loan.
Existing businesses might be eligible for the same competitive interest rates as their competitors, while some small-business owners may prefer to apply on their own. Others may prefer not to pay a broker’s fee.
These are two alternatives to consider when searching for small-business financing.
1. Use a business loan marketplace
The business loan marketplace streamlines the process of applying for financing and comparing potential lenders. The marketplace matches you with potential lenders by simply filling out a loan application.
Some marketplaces allow you to submit your information to small business lenders. They can then provide you with loan offers. Others simply pass your information on to their partners. These marketplaces do not usually charge borrowers a fee, unlike a business loan broker.
Using a business loan marketplace is a great way to get funding faster, Although you will likely not receive the same personal attention as a broker,
2. Apply to lenders directly
You have the option to apply directly to individual lenders, whether you are applying online to a lender or working with banks to obtain an SBA loan,
Businesses with good credit and strong financials are likely to be able to access attractive interest rates without the assistance of a broker. They can apply directly with a lender to avoid having to pay a broker’s commission.
If you are in a relationship with a lender – or you are sure of the one that you want to use — Applying it first can help you save time and prevent additional fees.