Startup

 

Finance and Financial Service

 

SMEs

 

   

Should I Use a Broker
To Finance My Business?

 

SPm

 

   

The fact is that all businesses need to obtain some form of financing at some stage. Whether itís a start-up loan, a commercial mortgage to buy company property or simply a cash injection to help through a tough time, business lending is an integral part of our economic landscape. In this post we are to look at how a business loan broker or a business finance broker can help your organisation to find the right form of finance for its needs.

What Is a Business Loan Broker?

A business loan broker (or business finance broker) is a financial services company that helps businesses to access funding. Much like mortgage brokers, they are able to advise a business what type of lending best fits their needs, advise which lender can offer the best deal and also assist in the application process.

 

 

 

 

Brokers (at least good ones) know the market inside out and have a full and detailed knowledge of interest rates, payment terms and lending criteria.

Ultimately brokers act as middlemen between lenders and businesses that need to borrow money. This means that they do work on a fee basis. In the next section we are going to look at exactly what they do to earn that fee and why it can be worth paying.

 

 

   

Why Use A Broker?

Of course, in this day and age any business owner can simply try to find a suitable lender on Google or on a comparison site rather than paying a broker. However, it is worth remembering that not all prospective lenders are featured on price comparison sites whereas a broker will hold up to date details of current loan offerings from all available lenders.

Secondly, brokers know the lending criteria of each lender intimately. As such, they can help a business to present its application in the best possible light in order to increase the chances of being accepted for the loan. This aspect of a broker's service is especially valuable for a new business, or for one that may have a poor business credit history.

Further in cases where a business is having to submit multiple loan applications to multiple different lenders this can prove very time combining. However when a business uses the services of a broker they complete all applications on the businesses behalf.

Finally, some brokers are able to exercise their volume leverage to secure special, preferential interest rates from lenders.

How Much Does a Business Finance Broker Charge?
Fee scales do vary pretty significantly between brokers and then alter again depending on the specifics of the loan being brokered. However as a rule business loan brokers can charge between 1 - 6% (although there are some instances of some brokers charging 17%) of the total value of the loan.

Can You Trust a Business Loan Broker?

Business loan brokers are providing important and sensitive financial advice. As such a business needs to know that they can trust their broker. Furthermore many brokers do receive a fee from the lender as well from the applicant - this could give rise to a conflict of interest and cause some to wonder whether brokers can really be trusted to work in their clients best interests.

However, all brokers are regulated by the relevant financial services authorities and are routinely reviewed and respected - penalties for falling short of the required standards are harsh and can include the revocation of trading licences.

Furthermore, any business that uses a broker does have a legal remedy and can seek damages in the event that the advice received turns out to be negligent or if the broker acted in bad faith.

Ultimately, brokers can be trusted as much as any other financial services institution or professional services provider.

Applying For Business Credit From a Broker vs Lender

As we mentioned earlier, applicant businesses don't necessarily have to go through a broker. It is possible for a business to identify a suitable lender themselves and then apply to them directly for finance. Indeed, many businesses do this perfectly successfully.

 

 

 

 

Generally using a broker is advantageous for a business seeking either large or complex lending. Also, a business with a poor credit score may well need a broker's assistance to pass the lending criteria.

In cases where a business with an acceptable credit score is seeking smaller amounts of unsecured financing though, there is less that a broker can offer.

 

 

 

   

Final Thoughts on Using a Business Finance Broker

In conclusion, business loan brokers can prove very useful in helping to facilitate business borrowing. While a business finance broker can prove costly, they offer tailored advice on where to obtain the best possible rates and how to pass lending checks.

In terms of using broker vs applying to a lender direct, it ultimately is a question of a businesses credit score, and its borrowing needs.