Business loan brokers don’t lend you the money for your small business. They act like a middleman between you and the commercial loan you need.
What is a business loan broker?
A reputable broker will connect you to the lenders they have partnerships with. A good business loan broker specializes, and they look after specific types of small business financing.
What does a business loan broker do?
Small business loan brokers match small business owners with third-party investors and lenders. Commercial loan brokers can help you apply and sort through eligibility requirements for this type of business financing.
There are several different types of lenders to choose from.
Types of Business Loan Brokers
Most loan brokers specialize. The idea is to check out your options first and then choose from the potential lenders in that field.
Here’s a list to pull the best business loan broker.
Merchant Cash Advance Broker
A shop owner needs to be careful with these. They are one of the more expensive business loan options. A merchant cash advance fronts you the money. You pay the loan amount back over time as a percentage of receipts. This type of loan broker works to find you a lender.
Commercial Loan Broker
These business loan brokers can supply you with different options when you need small business loans. They understand the various products.
Equipment Financing Brokers
These are reputable brokers that understand the ins and outs of equipment loans. They know what kind of collateral this type of financing requires.
Startup Loan Brokers For Business
Many lenders have requirements that make it tough for startups to get financing. These brokers specialize in the part of the application process that deals with time in business requirements.
Invoice Factoring Brokers
This type of small business funding involves selling your invoices to a factoring company. You get the cash and they get a fee for collecting the money. A business loan broker works to help find you the best terms.
Should you use a small business loan broker?
Even established businesses can have cash flow and financing problems. Running the day-to-day of any enterprise can leave little time to sort through loan products.
Business loan brokers can help. Here are a few of the pros and cons of this financing option.
Pros:
- An entrepreneur can get great rates on a variety of business loans. The application process through a broker goes to different lenders directly.
- Most business loan brokers have excellent market knowledge. They understand all the different terms and how things like a personal credit score apply in the application process.
- You get quicker approvals and underwriting on the loan amount. An internet-based broker using an online lender can speed up the business loan application.
Cons:
- A broker’s services aren’t free. These financing options can cost between 5% to 15% as a percentage of the total loan
- The loan offers that you get might be from a broker’s favored service provider. They might try and sway you and provide funding from a particular lender.
- You need to be careful to avoid bad lenders. Make sure to look for approval ratings from clients. Don’t hesitate to ask how many different business lenders will see an application for your short-term loans. Watch out for brokers that don’t have any contact information online. And ones that don’t have clear privacy policies about what they do with your personal information.
When should you use a business loan broker?
These types of loans are excellent for small businesses looking to expand or get past an unexpected financial shortfall. These are great for startup owners who don’t have experience filling out loan applications. Some entrepreneurs just don’t want to spend time sorting through certain loans.
How much do small business loan brokers charge?
Most brokers working in a business loan marketplace will charge around 1% of the loan. There is a wide variance, however. Some lenders can charge as much as 17%.
How to Choose a Business Loan Broker
Choosing the right broker is easier when you’ve got a few steps to follow:
- They should have experience from a financial institution and or in the industry.
- Sort through a few options when you’re looking to choose one of these lenders. Stay away from the ones that try to charge you upfront fees.
- They should have a website with past clients you can contact. Plus they should be able to tell you what the exact cost of your loan will be.
- You can check out their rating with a place like the Better Business Bureau. A good broker also has a network of lenders. These can include everyone from banks to private lenders.
- They should be able to discuss the pluses and minuses of each type of loan. A good candidate has knowledge about how your business credit situation fits in with industries and rates. Plus, they’ll want to see at least some of your financial credentials before they proceed.
- They should be able to help you with all of the details including loan documentation.
- They should be in good standing with national financial and local associations.
- You can even ask direct questions like how many lenders they have associations with. Remember they are candidates for your business.
Small Business Loan Broker Red Flags
Small business loan brokers are good and bad. It’s pretty much the same as in any other industry. Here are some red flags you need to look for when you’re sorting through these lenders.
There’s No Fine Print Online
A legitimate broker should include all the information and legal disclosures like privacy policies, conditions and terms. That kind of info should be on their website. Or it should be documented somewhere where you can read it.
The Broker Won’t Supply All The Details
If the broker you’re looking at won’t supply all information on the amortization schedule and the terms of the loan, they aren’t credible. That includes the fees.
Not Checking Your Credit Score
Something is usually off if a loan broker does not want to take a look at your credit score. They should want to have all the information to make a sensible decision. That should include a soft credit pull and even a look at your annual revenue. Not checking your credit should be an initial red flag.
Offering Unrealistic Rates
Watch out if you’re offered something like a super low-interest rate for a specific period of time. Checking the annual percentage rate can be a way to spot any unrealistic numbers.
If you’re not convinced a small business loan broker is right for you, there are some other options. Take the time to make an informed decision that includes considering the following choices.
Alternatives to Business Loan Brokers
If you have your own business, you might want to look for alternatives to business loan brokers. Remember, if you can qualify, credit unions and banks offer good rates. But a bad credit score might narrow your choices. Here are some choices you have beyond business loan brokers.
- Business grants offer free financing. A business insider knows these are available from local, state, and federal governments. The eligibility criteria are fairly strict. You can start your search here.
- Online lenders are another option if you don’t mind the fact borrowing costs are usually high. They usually offer a streamlined application process. And some can have the money in your business bank account in as little as 24 hours.
- An equity crowdfunding platform is another online option. You’ll need to put together an equity crowdfunding campaign with this route.
Remember when you’re using any of these alternative lenders, you’ll need to watch out for red flags. These can compromise the financial protection you’ll get otherwise.
The ones you need to watch out for don’t have a paper trail. Like a social media presence and authentic customer reviews.
Watch out for ones that want you to borrow a larger amount than what you need. One of the biggest red flags is a lender that wants you to sign an agreement before you’re comfortable with the payment schedule and contract terms.
Should you use a broker for an SBA loan?
The small business administration offers SBA loans. They specialize in setting the guidelines for these loans while reducing the lender risk at the same time. Some loan brokers like SBG, specialize in these. Brokers like this can walk you through the process and they have fast application times.
Is it worth it to use a business loan broker?
Trying to sort through your financing options as a small business owner can be overwhelming. The business loan broker can be the middleman you’re looking for between your company and lenders.
Remember that some charge fees. However, the more credible loan brokers get paid by the lenders who supply the loan.
These loan brokers come in handy if you don’t have the time to find financing yourself.
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