What is a Business Loan Broker and Do You Need One?

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Exploring your business loan options can be a stressful and exhaustive undertaking when you’re trying to start or run a business. That’s why so many entrepreneurs turn to business loan brokers to help them through the loan process and find the best loan for their needs.

Business loan brokers are also known as commercial loan brokers, and they’re experts on the various types of business loans available to meet each unique need. They’re also familiar with the business loan process and what it takes to get approved for financing.

Because of their in-depth industry knowledge of business loans, they can save you the valuable time needed to focus on running your business while finding the best small business loan to fit your purpose and budget.

But do you really need a business loan broker to get funding for your business? It depends. If you’re a seasoned pro who’s already taken out several small business loans, a broker might not be as beneficial for you as it would for a startup business.

But for many small business owners, a business loan broker is an indispensable resource. Read on to decide if getting a business loan broker is right for you and your business.

What is a Business Loan Broker?

Just as a real estate broker works with clients to help them find a home, a business loan broker works with small business owners to help them obtain financing.

A business loan broker is a liaison between a business owner needing financing and a third-party small business lender. Commercial loan brokers typically work with online lenders, also known as alternative lenders.

It’s essential to understand that a business loan broker doesn’t directly approve financing for your business, nor do they provide it. They simply provide a service to connect you with a lender who can provide funding for your business.

Many business loan brokers have a bachelor’s degree in finance or business administration and are knowledgeable about various commercial loan products.

A good broker will take the time to learn more about your business, the goals you have for it, and why you need funding.

Then the business loan broker will leverage their industry knowledge to identify which type of small business loan will best serve your business needs.

The broker can also help determine which loans you’re eligible for and guide you and assist in navigating the loan application process. The best finance brokers will also help you complete your loan application and ensure it meets the lender’s requirements.

An experienced broker has typically spent years building working relationships with third-party lenders to help facilitate more favorable repayment terms for their clients.

Although brokers can save you time and help access the best interest rates for your alternative business loan, you may have to pay a broker’s fee for their services.

Because so much is at stake when you need financing for your business, it’s vital to partner with the right business loan broker as you explore your funding options.

Business Loan Brokers Vs. Traditional Financing

With traditional loans and lenders, you typically apply directly with banks or credit unions to get your business loan. Traditional lenders are more likely to provide a Small Business Administration (SBA) loan, term loan, or a business credit card to fund some of your business needs.

But some business loan brokers are also SBA loan brokers if you decide to go that route. They can also help you access other funding that a traditional lender doesn’t offer.

In addition to having access to the same funding as traditional lenders, a broker can connect you with lending partners that offer specific types of financing, including equipment loans, working capital loans, merchant cash advances, term loans, and commercial real estate loans. Some alternative lenders also offer lines of credit, which can be used to help with a business’s cash flow deficits, particularly during the down season.

When seeking a traditional business loan, you might have to apply multiple times with different financial institutions because getting approved for traditional financing is challenging.

Most traditional lenders require extensive documentation and other underwriting criteria, such as an established business credit record. Many business owners end up not qualifying for traditional loans and are turned down.

The traditional loan process is time-consuming, and business owners often discover that while they’re pursuing and getting denied funding, their business plans get further and further away from them. In the end, they feel the time would have been better served growing their business.

When you consider that you’re likely to need several different types of loans during the course of running your business, you might wonder if there is a better way.

That’s where a business loan broker comes in. They can easily match your business with an appropriate alternative lender who is more likely to approve your loan.

For instance, some lenders might only provide term loans, while others focus more on equipment financing and real estate loans. Other lenders, such as Biz2Credit, offer more comprehensive small business financing for every type of need.

What else can a business loan broker do for you?

A business loan broker has priceless knowledge and connections at their fingertips. They work with an extensive network of lenders and know which loan solutions each one offers.

In short, the suite of services a business loan broker can offer includes:

Helping you understand the business loan process and counseling you on how to expedite it
Finding the best rates for your loan
Negotiating loan terms with a lender on your behalf
Assisting in the underwriting process to help you close your loan more quickly than if you were doing it on your own, meaning faster funding for you

Most business loan brokers charge a fee in exchange for their services. Broker fees are usually a percentage of the loan amount and can vary widely between lenders.

Sometimes the lender pays for the fees, but often a borrower is charged the fees. Some lenders also work these fees into the loan balance, while others require upfront fees. So it’s important for you to understand how each loan broker operates and what your loan will cost you. But for most business owners, the fees associated with using a business loan broker are well worth the time it saves them from applying independently for their business loan.

That being said, as with any major financial decision involving your small business, it pays to look at the pros and cons of using a commercial loan broker.

Commercial Loan Broker Pros and Cons

A business broker provides an easier alternative to the complicated traditional loan process. They work with lenders that have more lenient underwriting requirements.

For instance, an alternative lender doesn’t often require extensive business credit. Quite often, a personal credit history will suffice, and even then, their credit score threshold is lower than that of traditional lenders.

As previously pointed out, a primary advantage of using a business loan broker is that you’ll receive your funding more quickly without all of the added stress that comes with applying for a business loan directly.

But a major downside can occur when you choose a business loan broker that places their needs over yours. For instance, some brokers receive commissions from the loans they service by the lender. This might prompt some brokers to encourage you to apply for more funding than you actually need.

And if a broker earns a higher commission from specific lenders, they might show favoritism and pair you with those lenders, rather than the lender that is best for you.

Each of those scenarios is unethical. Finance brokers have a moral and legal obligation to make recommendations and facilitate transactions that are in the best interest of the borrower. That’s why it’s important to choose a reputable business loan broker.

If a commercial loan broker charges the borrower rather than the lender, it also pays to compare brokers because fees can add up and nullify the benefits of using a broker.

Compare the pros and cons of using a business loan broker by considering the following:

Business loan broker PROS

Conserves your time, allowing you to focus on running your business
Expert industry knowledge from skilled professionals
Higher loan approvals than if you apply for loans alone
Help you find the best loan for your needs
Fast funding so you can move forward with your business plans more quickly

Business loan broker CONS

Some brokers could have a conflict of interest if they earn commissions
A broker might show favoritism towards a lender, even if they’re not the best one to meet your needs
There is no guarantee they can get you a loan if you don’t meet the lenient underwriting criteria of an online lender
You’ll need to factor in and compare any broker fees charged to you as well as any benefits the loan offers

How Do I Know if I Need a Broker?

Choosing whether to secure business financing through a loan broker or on your own through a traditional lender is a big decision. But there are some circumstances where it’s a no-brainer that a business broker can be an asset.

If you answer “yes” to any of the following, you should strongly consider getting a commercial loan broker to help you get business financing:

Do you have less than stellar credit or even poor credit? Most commercial loan providers would prefer borrowers with good credit. This is especially true with traditional lenders. But a business loan broker will know which lenders are more likely to look beyond your credit profile and provide funding for your business venture. Some alternative lenders have lower credit underwriting guidelines and specialize in business loans for borrowers with poor credit scores.
Are you too busy running your business or working on your business plans to evaluate your financing options? A business broker has already done all of the homework for you. They are professionals who’ve honed their skills and have established working relationships with online lenders. They’ll be able to match you right away with a lender who can provide the appropriate loan and best financing deal for you and your business.
Do you own a new business or are you a more inexperienced entrepreneur? If so, chances are you’re not highly experienced with the process of borrowing money for your business. A commercial loan broker can offer you the expert guidance needed in understanding your funding options and the underwriting process involved with various business lenders.
Do you need funding immediately? Most small business owners need financing sooner rather than later when they need funding. A business loan broker can usually help you get your business loan approved immediately. That means you can get your loan proceeds in your bank account faster and move forward with your business plans.

The Bottom Line

Because today’s business landscape is more competitive than ever, it can be to your advantage to work with a business loan broker to service your financing needs. But it’s important to compare all of your options to make the best decision for you and your business.

In the end, you’ll want to not only evaluate the benefits and disadvantages of using a business loan broker, but you’ll want to do your research and make sure you choose a seasoned broker that comes highly recommended by other small business owners.

For instance, a quick visit to the Biz2Credit success story page illustrates numerous testimonials from small business owners who attribute a large part of their success in getting funding to Biz2Credit’s brokers. So, if you’re exploring working with a brokerage that doesn’t have a decent online reputation, it’s a red flag warning that it’s probably best to avoid doing business with them.