What Is a Business Loan Broker, and Do You Need One?

By Julija A.

June 19, 2023

Starting and running a business is a real juggling act. In the midst of all the chaos, the process of getting a business loan can seem daunting. You may not even know where to start, but that’s where a business loan broker can help. 

Successful brokers can assist you in finding the right lender, getting the best interest rate and term, and submitting your application. But is the service worth the cost? And are there other options available to you? You should find this article helpful in finding answers to these questions.

What Is a Business Loan Broker?

Once you’re beyond the intricacies of how to become a business owner and are in a growth stage or are running a mature firm, you’re likely to find yourself in need of a business loan. This is where a business loan broker can help.

Business loan brokers work with both banks and alternative lenders to find the best financing options for their clients. They also help with the application process and, in some cases, may be able to negotiate the terms on behalf of their clients.

Types of Business Loan Brokers

Brokers generally specialize in one market segment. Depending on your business size or the type of financing solutions you require, you can opt for one of the following:

• Startup loan brokers: You should go for this type of business loan broker if you are running a startup that’s finding it difficult to acquire a loan due to a short or no credit history.
• SBA loan brokers: These business loan brokers specialize in government-backed loans disbursed by the Small Business Administration (SBA).
• Factoring brokers: They help companies boost their cash flow while waiting for their invoices to be paid by customers. These professionals assist their clients in obtaining invoice financing and factoring products, which involve selling invoices to a third party, or factor.
• Equipment financing brokers: These business loan brokers help companies finance the purchase of new equipment by offering them loans or leases.
• Merchant cash advance brokers: The job of these brokers is to ensure their clients get cash upfront in exchange for a percentage of their business’s future sales.

When Do You Need a Business Loan Broker?

When deciding whether to hire a loan broker, you should consider if that would be the most cost-effective course of action for your business. 

For example, startups that have never applied for a loan before could benefit from hiring a professional with industry experience and connections, while businesses eligible for an SBA loan would do best to consult an SBA loan broker.

Or, if you’re struggling to get approved for a loan from a bank or credit union, working with a broker could help you secure financing from an alternative lender. Brokers may also be able to help you get a better interest rate or other terms for your loan.

On the other hand, if you’re comfortable with the lending process and confident in your ability to secure financing, you may not need a broker. Just consider if working with a broker would end up costing you more in fees than what you would save on interest.

How to Choose a Business Loan Broker

Should you decide that hiring a small business loan broker would benefit you, there are a few things you should know before settling on one. First off, you should know where to look for brokers.

A simple Google search is one way to find a business lending broker. Another is to go to specialized websites, including those of the American Association of Commercial Finance Brokers, Small Business Finance Association Broker Council, or the local secretary of state, which will list brokers licensed in your state. And if you’re not keen on finding a broker online, you can always visit the office of a local small business organization.

When it comes to choosing a particular loan broker for your business, you should first look into how many and which lenders they collaborate with. This will give you an insight into the kind of offers they can get you.

You should also inquire about the broker’s experience and success rate. This will help you gauge whether they’re likely to be able to get you the financing you need. It would be a good idea to check whether the business loan brokers you are vetting have a Better Business Bureau accreditation and rating.

Finally, it’s important to find out about broker fees and how they’re paid. That way, you can compare the offers of different brokers and find the one that suits you based on the cost and the quality of service.

Once you have a list of business lending brokers who might be a good fit, it’s a good idea to look for customer reviews. The experiences of other people can tell you if a broker is worth working with.

Business Loan Broker Fees

Brokers typically charge a commission expressed as a percentage of the total loan amount. A majority of brokers charge between 1% and 6%, though some may ask for as much as 17%. Some brokers ask for the money upfront, while others take a percentage of the overall interest you end up paying, which, of course, translates into a higher interest rate.

Alternatives to Hiring a Business Loan Broker

If you decide that working with a small business lending broker isn’t for you, there are other options available. You can work directly with some of the best banks or credit unions, or use an online lending platform like Lendio to compare multiple loan offers at once. If you have a poor credit score, you may want to check out some loans for business owners with bad credit.

No matter what route you choose, be sure to compare interest rates, fees, and terms before selecting a loan. And remember, always read the fine print.

Bottom Line

All in all, a business loan consultant can serve as a link with the right lender and get you the best possible terms on your loan. However, they typically charge a commission for their services, which can add to the cost of your loan. Therefore, you should do the math to find out whether hiring a broker would pay off before you make the final decision.