Business Loan Brokers: Should You Use One?
Say you need financing for your small business but have a full agenda. Shopping for the best business loan takes time and how can you know if you explored all the possible options? Fortunately, you can turn to business loan brokerage to handle the leg work by locating the best loan terms in the industry.
How Does It Work?
Like mortgage brokers, their business loan equivalent can help you explore financing options. You may need financing to help with cash flow shortages, purchase equipment, or expand your market, but you simply do not have the time to find all the options. Business loan brokers have relationships with traditional and non-traditional lenders that can help.
For example, you might want to apply for an SBA loan. SBA 7(a) loans are provided through lending partners but guaranteed by the SBA. However, you need to be clear about the requirements and qualifications before applying. An SBA loan broker can improve the chances of success. This individual will be well versed with SBA qualifications, know the full menu of 7(a) loans, and can assist you with completing the application forms.
Costs
When it comes to compensation, there is no single pricing structure for this type of lending relationship. Most individuals charge a commission ranging between 1-6% of the amount of your business loan. Some loan brokers charge an upfront fee, but the majority charge only after you have been approved for the loan. Before you start working together, it is important to discuss payment expectations.
The Pros
- These individuals have expertise in business lending so they know what lenders look for. By examining your financials and business credit score, your selected brokerage partner can advise you as to your likelihood of being approved. After reviewing your credit history, this person can steer you to the loan option that is best for your situation
- A go-between person can help you secure the best APR on your business loan, saving you thousands of dollars over the life of the loan
- Business loan documents are written in complicated language. Your brokerage partner will explain the language, so you understand all the requirements of the loan offer
- Time is money. As a small business owner, you already have a packed day. If you need to take time away to navigate through the business loan industry, this is time taken away from business operations. Accordingly, someone helping you through the process can save you money and time.
The Cons
- There is little federal oversight over the business loan brokerage industry. Very few states require brokerage providers to be licensed. Each individual operating in this area has the freedom to set his or her requirements. You are on your own to protect yourself, therefore caution is advised
- You will need to pay a business loan brokerage fee, adding to the total cost of your financing package
- While one of the benefits of accessing help is the individual’s knowledge of the market, they also may lean too heavily on relationships they have developed with certain lenders. The broker’s interests may not be aligned with your own. By steering you toward favored lenders, they may not put effort into finding the best offer for you
- At the end of the day, there is no guarantee that you will secure better financing terms than you might have obtained on your own
What About A Business Loan Marketplace?
- Like a brokerage service, a marketplace saves you time. However, rather than an individual, an algorithm computes the information you provide on the online form and finds lenders that fit your profile
- An online business marketplace is free, faster than loan brokerage and the platform is not involved in your loan repayment
- A brokerage delivers one offer at a time to consider, whereas the business loan marketplace returns offers from several different lenders simultaneously
- You are limited to the network of lenders that work with the marketplace, unlike loan brokers who are confined only by their contact list
How To Tell That A Business Loan Broker Is Legit
Utilizing the services of a loan broker can be advisable in certain circumstances. Still, you should watch out for these red flags:
- A brokerage outfit guarantees you will be approved for the loan or tells you that your credit score is not important
- The broker appears to be narrowing options down to those that pay the highest commission
- The individual or company has no physical address, phone number, professional email address, or a website
- There are no reviews from previous clients
- The brokerage firm does not have a privacy protection plan. When you ask about how your identity and financial information will be protected, they shrug it off or change the topic
Conclusion
A business loan broker is in the business of helping you get loans. Their valuable relationships with lenders and knowledge of the market mean they can speak the language and filter through a large lending network to unearth the best possible loan terms.
You could accomplish the feat on your own. Still, conducting the research, identifying lenders that offer the most favorable terms, and pouring through the documents takes time. Therefore, loan brokerage can save you valuable time while securing your financing rapidly.
