It can be overwhelming to apply for small business financing to grow your business, so many small business owners just don’t bother. They continue to struggle, and business growth is stunted.
Meet the business loan broker. These individuals specialize in helping entrepreneurs navigate the sometimes tricky waters of small business loans. Understand how they work, and when working with a loan broker makes sense for your business.
What are Business Loan Brokers?
Small business loan brokers make money by helping business owners obtain various types of loan products such as business cash flow loans, equipment loans, expansion loans, and other types of small business financing.
Finding financing can be a time-consuming process, and you may not have the time or patience to sort through all the options out there. A commercial loan broker (another name for a business loan broker) who works with a network of lenders may be able to find loans with better terms or introduce you to potential lenders you might not find on your own.
Types of Business Loan Brokers
Small business loan brokers aren’t all the same. Often, a broker will focus on one type of financing or a particular industry. Some specialize in short-term loans, while others focus on long-term loans.
Here are a few of the types of small business loan brokers you may encounter.
SBA Loan Brokers
The Small Business Administration backs certain loans you can get through traditional financial institutions, including banks or credit unions. These SBA loans come with very specific requirements, and as a result, many businesses find it challenging to qualify.
That’s where an SBA loan broker can come in handy. They’ll know what qualifications you need to be approved for the different types of small business loans guaranteed by the SBA, help you find lenders that work with businesses with your qualifications, and walk you through the application process.
Startup Loan Brokers
Starting a new business? Finding business funding for a startup can be tricky because most lenders consider new businesses to be risky. These loan brokers will try to help you identify short- and long-term loans you’re likely to qualify for. Some focus primarily on helping business owners get multiple business credit cards.
Commercial Loan Brokers
A commercial loan broker should have a wide knowledge of financing options, as well as relationships with a variety of traditional financial institutions and online lenders. If you’re looking for the most options, a general loan broker should be able to provide you with many.
Equipment Financing Brokers
If you’re looking to purchase or lease equipment, a broker with expertise in equipment financing can help guide you to the best option. If you have bad credit, there are some equipment loans that will require you to pay the loan back faster, use the equipment as collateral and may require a down payment. Your broker might also suggest a sale-and-leaseback option.
Factoring is the financing vehicle of choice in the textile industry, but is also widely used by businesses that bill their customers by invoice. Many businesses simply need a little cash to float them until clients pay their invoices. A factoring broker specializes in helping you find invoice financing or factoring opportunities where you sell your outstanding invoices to a lender who will then be responsible for collecting the debt.
Business Cash Advance Broker
For companies who don’t have good credit, need financing fast, and are good at managing their finances, a cash advance may be the only option to access needed capital. Alternative lenders look at revenues and cash flow more than personal or business credit scores. A broker that offers merchant cash advances can help you access capital based upon the funds in your credit card merchant account, even if you have a weaker credit profile — but it is usually pretty expensive.
Do You Need a Business Loan Broker?
Business loan brokers may offer benefits worth considering. Their expert guidance can assist you, not only in understanding your funding options but also in finding lenders (or funding solutions) you couldn’t have found on your own. Even a small reduction in your APR can have big savings in the long run.
A broker can also save you time. Do you have days to spend looking for the best financing deal out there? Probably not. But a broker already has those relationships established and can help you identify the best deal and apply for a loan in less time than it would have taken you on your own. If you needed the money yesterday, a broker will know how to push your application through faster so you get access to cash sooner.
And because business loan brokers are familiar with the small business lending environment, they know what lenders look for. They can look at your business credit and personal credit score before you apply so that you know the likelihood of being approved. They can advise you to choose the best financing for your business’ situation.
And because business loan brokers are familiar with the small business lending environment, they know what lenders look for. They can look at your business credit and personal credit scores before you apply so that you know the likelihood of being approved. A good business loan broker can advise you so you can get the best financing for your business’ situation.
How to Pick the Best Business Loan Broker
Don’t be shy about asking brokers lots of questions. Brokers are there to serve you, and you want to ensure that they’re the right fit for your specific needs as a borrower.
Where Did They Get Their Business Loan Broker Training?
It’s important to know that not every state requires business brokers to be licensed. There are all sorts of training programs available, all with varying levels of education and hands-on training. A bachelor’s degree is generally not required.
You want a broker who has gone through a rigorous training program so that they are up to speed on commercial loan regulations and requirements, as well as business financing options.
How Many Lenders Will They Work With?
Some brokers take the shotgun approach, submitting a borrower’s application to many banks and online lenders without taking the time to truly understand the borrower’s needs.
You want a broker who, yes, has relationships with many lenders, but who ultimately analyzes your profile to select the lending option with the best chance of being approved.
Do They Do Any In-House Underwriting?
A broker doing some sort of pre-underwriting will have better placement results than someone who uses the shotgun approach. You want a broker who will spend time checking your personal and business credit, as well as your financials, to find the best lending options for you.
A broker should understand each lender’s underwriting criteria and know if you’re a good fit. As a metaphor: if one bank likes lending to triangles, and your business is a square, you don’t want a lender who’s going to try to force you to apply for a loan you have no chance of getting.
How Quickly, On Average, Can They Find You Money?
If you need money quickly, ask how long it typically takes a broker to fund a deal. Because brokers have lots of alternative funding sources, they should be able to provide funding much faster than traditional bank loans, which take, on average, 45 days to fund a loan. The average loan with a broker takes 10-15 days.
How Does the Broker Keep Your Data Secure?
Unfortunately, the small business lending industry is so new that there aren’t rules or regulations in place regarding a borrower’s sensitive information. Still, a good broker will take measures to protect your data online through encrypted technology.
What Do Reviews Say?
A seasoned broker will have reviews that give you a sense of what he or she is like to work with. You can find reviews you can trust on:
You should find a mixture of good, great, and perhaps even a bad review or two when dealing with a seasoned broker.
How Much Do Loan Brokers Charge?
Because industry is unregulated, there is no standardized or regulated commission rate. Some brokers charge upfront fees, while some charge fees based on successfully helping a borrower obtain funding. The most reputable broker gets paid by the lender for successfully matching them with a borrower.
Most loan brokers earn an average commission of 1-6% of the amount of your commercial loan or working capital agreement.
Before you start your loan application, discuss not only loan terms for the funding but also whether you will be required to pay the broker anything. There’s really no good reason you should pay a broker upfront. Make sure you understand all the terms before you sign on the dotted line. If the broker can’t, or won’t, give you full disclosure, you shouldn’t work with that broker.
Disadvantages of Using a Small Business Loan Broker
While there are many, many reputable small business loan brokers out there, there are also, unfortunately, some sharks who are not professional and who may only have their best interests in mind.
If a broker doesn’t have a website, a phone number, a physical address, or a professional email address, they probably aren’t all that invested in their work, and likely won’t be able to best serve you.
If you can’t find reviews or get references from past clients, that’s a red flag.
If they are not concerned about your credit history, that’s another potential red flag. A true broker will look at every aspect of your business’ finances to assess the best financing option for you.
If you sense that the broker will only get you the funding deal that makes them the most money, find someone else. You are not there to make a broker rich; you’re there to find a partner who will help you find financing that suits your immediate, intermediate, and long-term needs.
These Types of Small Businesses Should Consider Using a Loan Broker
When finding and applying for small business funding, a business loan broker can give tailored advice to startups that are searching for their first business loan options. They can also help small businesses that need specialized financings like commercial real estate loans or equipment loans. Some examples that fit into this category include:
- Restaurant owners
- Construction companies
- Commercial real estate owners
- Salons and spas
Nav’s Verdict: Small Business Loan Brokers
If the idea of going at it alone to find business capital makes you break out in hives, consider working with a business loan broker. As a business owner, you have enough on your plate without having to become an expert in business financing.
Many of these professionals want to help. They will strive to help you find the best loan for your business needs, and to help you get financing with an affordable interest rate and repayment schedule. But there are some who just want to sell you the financing option that pays them the highest commission. Steer clear of those brokers.
Frequently Asked Questions About Business Loan Brokers
Will Working With A Small Business Loan Broker Hurt My Credit Score?
Working with a loan broker in and of itself should not hurt your credit. However, if you apply for financing, some lenders may check your personal credit and that will create an inquiry that may have a small effect on your personal credit score. Multiple applications could result in multiple credit inquiries, though, which could lower your credit scores by a lot more. Ask the loan broker if she will be submitting multiple applications, and if so, which ones may result in hard inquiries on your personal credit.
What Is A Business Loan Broker’s Job?
A business loan broker’s job is to help small business owners to help business owners successfully get funding to meet their financing needs. They often work with multiple providers and will help business owners find and apply for financing.
Some online loan brokerage firms primarily offer loan options that can be secured online, while other professionals may work with a wider variety of lenders.
How Many Business Loan Brokers Are In The US?
It’s difficult to ascertain the number of business loan brokers in the US. The U.S. Department of Labor Bureau of Labor Statistics tracks the number of loan officers, but that may include individuals who work for lenders as well as those who work with personal loans (such as home loans).
How Can I Get The Best Business Loan?
The top three factors many business lenders will consider are credit—personal and/or business credit scores; revenues, and time in business. A few tips for improving your chances of getting approved:
- Check and monitor your credit so you know where you stand.
- Establish business credit if you haven’t done so.
- Use a business bank account and do not mix business and personal finances.
- Keep your business bookkeeping up to date so your financial data is easily available.
Nav helps business owners understand their business financial health and find financing based on their qualifications.
This article was originally written on March 2, 2020 and updated on April 20, 2023.