Business Loan Brokers: Are They Worth Hiring?

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Small businesses that need financing often lack the time and expertise to properly research business loans when applying for funding. This can leave business owners struggling to qualify for reasonable rates, or worse, stuck with burdensome terms when they could have obtained better deals elsewhere. A reputable business loan broker could simplify your loan search and save you time and money.

Business loan brokers help small businesses secure loans. They are not employees of banks or other loan providers but are independent agents who shop your loan request across a network of lenders. As such, they are intermediaries between small-business owners and lenders, including banks, credit unions, online commercial lending companies and peer-to-peer (P2P) lending platforms.

Beyond finding you a loan, good business loan brokers provide support services, such as evaluating your loan requirements, ensuring all necessary paperwork is completed, educating you about your options and warning you away from lenders with unsavory reputations.

Business loan brokers charge fees for their services. This can be a percentage of your total loan amount or a flat fee. Some brokers charge their fees upfront, regardless of whether you obtain a business loan, while others charge you only after a loan is made. Brokers may charge you directly or have the lender pay their fees. You should always get a clear picture of how much a broker will cost before you select one or pay any fees. A reasonable fee will be in the 1% to 3% range, but may be higher, particularly if the loan you're obtaining lasts longer than 15 years, or is unusually large. Certain government-sponsored loans like SBA loans may cap or prohibit the types of fees that loan brokers may charge.

Should You Employ a Business Loan Broker?

A financially savvy business owner can certainly shop for their own loans without the aid of a broker. However, business loan brokers can be a sensible choice if you fall into one of the following categories:

  • You are pressed for time: It takes time to evaluate your financial needs, formulate your loan request, shop lenders and prepare the necessary paperwork. A good loan broker will be able to help with these tasks, saving you precious time and money in the process. Doing these things yourself will sometimes take days or weeks.
  • You lack financial expertise: You might be great at running your company, but shopping for business loans is a different animal altogether. A good loan broker will help you determine how much you need, how much interest you can expect to pay, your best options and the most competitive lenders that cater to your credit profile. For example, a broker questioning you about your business might discover that your customers are slow to pay and suggest an invoice-backed cash advance instead of a conventional loan. Be wary if a broker promises you any results without conducting a proper credit check.
  • You are unfamiliar with rates: Business lending is an opaque market, and government regulations in this industry are patchy at best, varying by state. A good broker has a reasonable sense of where rates are and can provide you with a decent estimate of what you can expect for the types of loan you are requesting. It there are any oddities in how rates are expressed or how a certain loan works, the broker should be able to explain the rationale in a transparent manner (e.g., merchant cash advances and factor rates).
  • You need a loan fast: Brokers are often well-positioned to connect you with lenders that can close quickly, however this may come at the expense of higher costs.

How to Evaluate a Business Loan Broker

The ideal loan broker has at least several years of experience arranging loans, perhaps working as a loan officer earlier in their career. A background in your industry is a plus and a degree or certificate in finance is certainly helpful, as are memberships in reputable professional organizations such as the Responsible Business Lending Coalition.

If you can qualify, it’s also a good idea to use an SBA loan broker who can prepare an SBA loan package and submit it on your behalf. SBA brokers can work with you to prepare the necessary paperwork required by the Small Business Administration and have mandatory caps on what they can charge. SBA loans are also reputed to offer some of the most competitive rates when compared to standalone bank financing.

Ask for references. A good broker should be able to provide two or three from legitimate businesses. It’s also a good idea to ask the following questions to better judge whether a prospective broker is truly working in your best interest.

  • What Will My Loan Cost Me?: In addition to the fee amount, it's important to understand how the fee will be incorporated into your bill. Will it be charged to you or the lender? Will you need to pay even if you aren't accepted for a loan? There isn't much regulation dictating how much business loan brokers can charge, with the notable exception of SBA loans. Therefore, it’s important to confirm that your broker charges reasonable fees and does so in a transparent manner.
  • How Many Lenders Do You Work With?: The famous slogan, “When banks compete, you win,” also applies to small-business lenders. A good broker works through a large network of lenders. If a broker tell you that they only use only one lender because it has the lowest rates, find another broker. Also ascertain whether the broker collects higher commissions from certain lenders.
  • How is My Data Being Treated?: Some brokers sell your information to third parties. If that bothers you, ask about the broker’s practices and whether language in the agent agreement covers your right to privacy.
  • What Are The Pros and Cons of My Loan?: A good broker should understand the advantages and disadvantages of each particular loan product and provide you with neutral advice based on your circumstances. For example, if you need a loan quickly, the broker should be able to quantify how much certain lenders might upcharge you for their abbreviated underwriting procedures. The broker should also be able to quote you a range of options aside from their recommendations and why they may or may not be a good idea.
  • How Long Do I Have to Decide?: You should be able to take two or three days to evaluate your options. Does your broker afford you that time, or do they pressure you for a quick sale? If the latter is true, the broker may be more concerned with their own bottom line than your interests.

Where Can You Find a Business Loan Broker?

An internet search for business loan brokers will yield hundreds of results. You can narrow the field by focusing on brokers that are members of the Marketplace Lending Association, Better Business Bureau or National Small Business Association.

You may also obtain broker recommendations from government or community agencies, such as your local chamber of commerce or SBA office.

Other options include shopping for business loans through banks and credit unions, who offer the most competitive rates but at the expense of stricter qualification procedures. Online personal finance sites, like ours, offer detailed guides on how to shop for small-business lenders and lender reviews, should you decide to go it alone, or simply want some insight on what loans are out there.

Kenny Zhu

Kenny is a Banking and Mortgage Research Analyst for ValuePenguin and has worked in the financial industry since 2013. Previously, Kenny was a Senior Investment Analyst at PFM Asset Management LLC. He holds a Bachelors of Science from Carnegie Mellon University, where he majored in International Relations & Politics. He is a CFA® charterholder.