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Applying for a business loan takes time, energy and resources. Applicants need to make sure they meet lender requirements, gather necessary documents and find the right loan option.
Shopping around for the best loans and lenders can take time many business owners don’t have. If you need a business loan but don’t have the time to look for one, working with a business loan broker could be for you. A good business loan broker will help you prepare your application and submit it to several lenders they think will offer the best interest rates and fit your needs well.
- A business loan broker can help connect potential borrowers with business lenders.
- Working with a business loan broker can be a good idea if you don't have the time to look for and apply for loans or if you have a situation that makes it more difficult to get a business loan.
- You can still apply for business loans without a business loan broker.
What is a small business loan broker?
Like insurance brokers, a business loan broker is a liaison between a small business and a lender. A lender is a bank or entity you borrow from when you get a business loan. Typically, brokers have relationships with a wide network of lenders and can help connect you with the best fit for your needs.
Business loan brokers will support you throughout the loan application process, including getting your application ready for submission and any questions you may have. Once you submit an application, your broker will send it to multiple lenders. Brokers will then help you choose the best option. They can even help negotiate interest rates for the loan in some cases.
While borrowers can apply for a loan with the lender directly, working with a broker can simplify the process. The broker does the work of finding multiple lenders so the borrower doesn’t have to.
Types of business loan brokers
Business loan brokers typically specialize in a certain type of loan. However, some brokers may have a broader range of loan expertise. If you know the specific business loan type you want, look for a broker who is an expert in that area. Here are some examples:
- Commercial loan broker: A commercial loan broker can help you get a loan specifically for commercial uses. They have connections with multiple commercial loan lenders and can help you negotiate rates and terms for a loan.
- Startup loan broker: This type is best at finding loans for businesses just starting out and can help you apply for startup business loans.
- SBA loan broker: Looking to get an SBA loan? Work with an SBA loan broker to find the best lenders and loan options in your area.
- Invoice factoring broker: A broker for invoice factoring specializes in knowing the best invoice factoring companies. They can help you navigate the ins and outs of a factoring agreement.
- Equipment financing broker: Equipment financing is funding specifically for business equipment. A broker with this specialization can help you find the best lender for equipment needs.
- Merchant cash advance broker: As a specialized type of funding different from a conventional business loan, merchant cash advances can be confusing. Working with a broker specializing in this loan type can help you get the best deal with a lender.
Cost of using a business loan broker
When you work with a business loan broker, you’ll likely pay for their services, but in some cases, the lender will cover the broker’s fee.
The fee charged by a broker is typically a percentage of the loan amount. Commission rates for a business loan broker can be anywhere from 1 percent to 3 percent. For example, if the broker charges a 2 percent commission fee and the loan amount is $100,000, the total fee would be $2,000. Commission percentages can change depending on the size of the loan.
When looking for a broker, know the fees and who will pay them upfront. Understand any extra fees the lender may charge depending on loan type or size. Every broker has different payment terms, so make sure you understand them before working with one.
When to hire a business loan broker
Business loan brokers can give you extra information about loans and save you time looking for loan options, but it does come at a cost. Here’s when it might be best to hire a business loan broker:
- You don’t have the time to look for loans.
- You have a situation that makes it difficult to find a loan or qualify for one, such as bad credit or being a new business.
- You want extra support in finding loan options and getting insider info.
- You need help completing your loan application and getting all the documents together.
How to find the best business loan broker
All business loan brokers are not alike. If you are going to hire a business loan broker, make sure you have a great one. Here are some things to consider before signing on with one:
- Do you know someone who’s had a good experience with a business loan broker? Finding a friend or colleague who has first-hand experience with a broker they recommend can save you the time it takes to research a good one on your own.
- Do they have good reviews? When you look online at websites like Google or the Better Business Bureau, you can see how others rate the broker. Look for brokers with more good reviews than bad ones.
- How many lenders are in their network? You want a broker who will bring your application to a lot of lenders. This makes it easier to get a loan. If the broker doesn’t have a lot of lenders in their network, you may want to look for a different broker.
- How long does the process take? Understand how quickly they will get your applications out to lenders and get back to you with their answers. Consider each step — from submitting applications to signing the business loan agreement. Find a broker who has a timeline that works for your schedule.
- Do they make a better commission with certain lenders? If the broker has a partnership with a lender where they get an extra commission, they may not help you unbiasedly.
- What is their specialty? Finding a great business loan broker is the first step, but if they specialize in equipment loans and you need a startup loan, you may have better luck with a different broker.
Red flags when using a business loan broker:
- They won’t give you a straight answer about their commission fees.
- They guarantee that they can get you a business loan.
- They don’t consider personal or business credit scores to be important.
- They are slow to respond to you.
- You can’t find any reviews for them.
The bottom line
Business loan brokers aren’t for everyone, but they can be helpful resources if you want extra support in finding a small business loan.
If you decide to use a business loan broker, look for one who fits your needs best. Consider the cost of using a broker when deciding if using one is a good fit for your business. Ask friends for a referral or look for good reviews online when looking for a broker.
Frequently asked questions about business loan brokers
Business loan brokers make money by charging a commission fee. This fee is typically 1 percent to 3 percent of the loan amount. Sometimes the broker charges a fee to the lender. Other times the borrower is responsible for the fee. Depending on the situation, certain brokers may also add additional fees on top of their commission.
The purpose of a loan broker is to connect borrowers and lenders. They typically have a large network of lenders they know. They use this network to help borrowers submit several loan applications more efficiently. They also help provide support to borrowers throughout the loan application process.
No, a business loan broker is different from a business lender. Business lenders are the entities that lend money to borrowers. This could be a bank or an online lender. Business loan brokers serve as a bridge between the lender and the borrower. They help connect borrowers with multiple business lenders and find the best business loan for their needs but aren’t necessary to get a business loan.