A commercial loan could help your business get the finance it needs to grow or expand, but it can be challenging to find the right lender. In today’s economy, small business finance is a competitive market, and not everyone is eligible. Luckily, commercial loan brokers act as middlemen by connecting small businesses with low-interest loans to meet their requirements.
There are many benefits to using a commercial loan broker. However, that doesn’t mean using a broker is the right solution for everyone. The question is, does your business need a broker to get a loan? Let’s explore what brokers do, and how using one could benefit your business.
What is a commercial loan broker?
A business broker – also known as a commercial loan or commercial finance broker – connects small businesses with the right lenders for their borrowing needs.
Commercial brokers aim to make the process of applying for a small business loan as simple as possible. They do this by matching you with suitable lenders and taking care of the red tape. A good business broker should have access to a variety of different loan markets and will be able to advise you on the best funding source for your specific requirements.
Do business brokers charge a fee?
Yes. Brokers for commercial loans charge a fee to all businesses. How much they charge is dependent on their reputation and experience, as well as the size and repayment terms of the loan acquired. Some brokers will ask for a flat fee upfront, whereas others will take a cut of the investment you receive from the lender.
Do you need a broker for your commercial loan?
Whether or not you need a broker for your business loan depends on your experience of the market. If you are confident you can find the right lender on your own, or you’ve sourced business finance before, chances are you can probably go it alone.
Even for the most experienced business owners, however, loan brokers can offer more flexible repayment terms and lower interest rates for business loans. Therefore, it’s worth considering the pros and cons of using a broker before you make your decision.
The benefits of using a business broker
- You’ll often get business loans with lower interests and longer repayment terms by using a broker.
- Brokers can introduce you to innovative finance solutions you may not have thought of on your own, rather than relying on traditional banks.
- Brokers have experience of the borrowing market, so they know which lenders offer the best deals and which to avoid.
- The right broker will increase your understanding of how to apply for a small business loan.
- Using a broker will lighten your administrative load when it comes to applying for the loan.
- A broker can reduce the need to secure a loan with your assets.
- You’ll save time by only applying for finance with lenders that match your criteria.
The downsides of using a business broker
- Some commercial lenders don’t work with brokers, so you won’t necessarily have access to every deal.
- Not every broker has the same level of competency, as there is little regulation over brokers in the business loans market.
- Some brokers charge side service fees, which can make hiring a business broker too expensive.
- If you’re not familiar with brokers, it can be difficult to spot an inexperienced or shady one from someone who genuinely wants to help small businesses.
Questions to ask your commercial loan broker
Choosing a commercial loan broker is an important decision. If you’re looking to get low interest rates on business loans, finding the right finance broker could be the difference between your funding proposal getting accepted or denied. When shopping around for the best business loan broker, these are the questions you should ask:
Do you have access to the entire commercial loan market?
Some commercial loan brokers don’t have access to every lending stream on the market. This could mean you’re missing out on a great deal by not applying for a loan directly. You want to find a broker who can give you a balanced view of your financial requirements across a diverse market, not just from a restricted pool of funders.
Do you have the right credentials?
The commercial finance market isn’t as well regulated as, say, the domestic mortgage market, so it’s up to you to ensure your broker has the right credentials. They should be members of an association that demonstrates their compliance with regulatory systems and procedures in your country or state.
How will I pay for your services?
Some brokers will ask for a cash advance upfront, known as an introductory commission. Others will request a portion of your funding if your proposal is accepted. There may also be additional fees depending on the level of work they carry out on your behalf. It’s important to go over these details in-depth, so you’re aware of your financial responsibilities from the outset.
Are you registered for data protection?
You need to know that your private data will be protected when it’s being handled by a third party. Your broker will have access to information about you, your financial credentials and your business, so it’s important to find a broker you can trust.“Put not your trust in money, but put your money in trust.” – Oliver Wendell Holmes, Sr.
Using a business loan broker to secure a cash advance or equipment financing for your business can be a smart move, particularly if you’ve never taken out a commercial loan before. However, the commercial loans market isn’t as highly regulated as it should be, so you need to be careful when choosing a broker.
It’s important to find a broker with access to all the lending streams available, so you don’t miss out on the best deal for your business. Look out for loans with low interest rates and extended repayment terms, check your broker’s credentials carefully, and don’t ever sign up for a loan if you don’t have a plan to pay it back. If you tread carefully, working with a commercial loans broker could be just what you need to take your business to the next level.