Small Business Loan Brokers – Do You Need One?

by | Jul 7, 2022 | Finance

For small business owners it can be quite overwhelming to both make sure that the business stays afloat for the next days to come and make sure that daily operations and quotas are met. It is so overwhelming that small business owners don’t bother to apply for small business financing in order to grow. This is the reason why the growth of the business is usually stunted, and most of the time, this should be when small business loan brokers enter the scene.

Small business loans and financing options can be quite confusing to a small business owner and if you are part of the 40% who applied for a small business loan in order to fuel growth for your business, then you may need a little help, and a small business loan broker can be key.

A business loan broker can be key as this individual serve as a guide for small businesses in navigating the usually tricky waters of small business loans and financing options.

LOAN on wooden blocks with money on the side; small business loan broker concept
Business loan brokers have vast knowledge about business loans and have good relationships with different financial institutions.

BUSINESS LOAN BROKERS – Who are they?

Small business loan brokers are those who are commissioned by lenders to help small businesses and assist them in choosing the right business loan provider for their business. They usually get a commission price from the lender that the small business will eventually choose.

A small business loan broker has various business relationships with a lot of lending partners or financial institutions, they are also equipped with knowledge about the vast world of business loans and financial institutions. Most of the time, small business owners’ best bet in finding the best loan or financing options for their business is through a small business loan broker.

Small businesses that work with a small business loan broker are usually able to find better loan terms for their business and are able to know and meet other potential lenders or financial institutions that the business would not have found on their own.

Different kinds of Small Business Loan Brokers

There are a lot of small business loan brokers out there and there are also different kinds of small business loan brokers. Oftentimes, a broker will only focus on one type of business loan or at a particular industry.

short term and long term loans concept
Some small business loan brokers are focused on short term loans while some are focused on long term loans.

To help you get a vision of what the different kinds of small business loans are, here are some types that you might be able to encounter when it comes to small business loan brokers.

Small Business Administration Loan Brokers

This kind of small business loan broker can help small businesses in getting through to traditional financial institutions or lenders, usually these are banks and credit unions. The SBA loans have requirements that are very specific which most small businesses find challenging to even just qualify, let alone be approved.

Enter the small business loan brokers they will know the qualifications that the business has in order to be approved of the different types of small business loans that are out there, with them being able to walk the business through any application process for this kind of loan.

Start-up Loan Brokers

True to its name, these brokers specialize in start-up loans for businesses that are in the first phases of the business. Usually, businesses who do not have long and a solid credit history can find being approved for start-up loans tricky. 

credit history concept
Bad credit can make things tricky for start-up business.

A small business loan broker that specializes in start-up loans will be there to save the day, and usually because credit history is spotty during these times, they might require putting up a collateral as security against the loan.

Commercial Loan Brokers

Small business loan brokers that are experts in this kind of business loan are presumed to have wide knowledge about a lot of financing options, and have business relationships with most, if not all, of the lenders that they know offer these loans. This king of small business loan broker is also usually called the general loan broker.

Equipment Financing Brokers

For small businesses who are looking to purchase new equipment that they would need for their daily operations. There are, of course, small business loan brokers that can help any business owners looking for this kind of loan. Bad credit? Then worry not as the loan brokers know exactly which financial institution to lead you to in order for the business to get the loan that it needs.

equipment and asset finance concept

Factoring Brokers

For businesses that are in the textile industry, factoring is one of the possible small business financing loans that one may encounter. This kind of small business loan entails cash for the business to be able to stay afloat until their outstanding invoices are paid by their customers. A small business loan broker will be able to help out this way and help the business find a factoring broker who will take care of running after the unpaid invoices while being able to loan money to the business that it needs.

Merchant Cash Advance Broker

These are small business loans for companies that do not have good credit scores, have a need for quick financing and are actually good at being able to manage their finances, cash advances can be the answer when the time comes should the business need to access capital that is needed for the business. This is a kind of alternative lending which involves lenders looking at the revenues and cash flow of the business rather than looking at the business’ credit scores. A merchant cash advance brokers are small business loan brokers who specialize in helping businesses look for cash advances fit for their business. Although a cash advance loan is one of the most expensive loans out there, it is still a viable option for small businesses when it comes to capital financing.

Big Benefits A Small Business Loan Broker can give the business

Knowledge that only small business loan brokers have and the relationships they have with possible future lenders.

Really good small business loan brokers can help get businesses in their search for a business loan in the loan market. They will be able to use all of the knowledge and expertise they already have and all of the business relationships that they have in order to recommend and provide loan options that are the most suitable for the small business they are helping. The really good small business loan brokers are actually able to provide a short list just by hearing what the business needs, and the guarantee that loans that are a bad match with the business will altogether be removed from the equation.

small business loan broker showing a short list; vector illustration
Small business loan brokers are able to provide a short list just by hearing what the business needs.

If a business owner is only aware of standard business loans and are not aware of what other business loans are available out in the loan market, then a small business loan broker can be key in helping the business find the correct business loan and ensure that they get the most suitable business loan for their everyday transactions.

The most important part of this is that the small business loan broker will be able to reach a lot more business lending institutions than a regular small business looking for a loan. This saves the business precious time that they could have spent in looking for actual lenders to apply loans from.

Be able to work with financial institutions and loan providers. 

Banks are often the number one go to lenders when it comes to business loans. This is because banks are often the most trusted financial institutions all around the world, and while they might have the strictest of requirements, they are still the number one business loan provider everywhere.

If a business owner is bent on getting a small business loan with a bank, the small business loan broker’s business relationships have good relationships with banks too! One of the key things here is that the small business loan brokers will be the ones to handle most of the tiring requirements needed in the bank application process for the business loan. If the business has a good credit score, the banks and the small business loan broker will have an easier time to both process and approve the loan application.

bank manager and small business loan broker shaking hands in front of the bank with 'loan approved" document; vector illustration
Business loan brokers will handle most of the tiring requirements needed in the bank application process.

How Much Does Getting a Small Business Loan Broker Cost?

There is more than one way of actually paying for the services of a small business loan broker. The typical way is when a business loan broker charges the business for about 7 to 17% of the total loan value that the business was able to achieve because of the services of the small business loan broker in the form of a markup fee included in the loan interest rate of the loan payable.

In getting the services of a small business loan broker and paying for it, transparency is key. The business should be made aware of all of the interest rate from the loan and the markup that their services entails. If the broker is reluctant to provide the breakdown of just how the rate is calculated, then that should automatically become a red flag and the business should be aware that the loan broker might be charging unreasonable high fees.

At times, the small business loan broker may ask to be paid upfront instead of having it included in the loan payable. Most of the time, small business loan brokers will only charge the business for their services when the business actually and successfully manages to secure a loan. Other small business loan brokers will charge you a fee just for their services in helping the business find a business loan.

Can a business put its trust in a small business loan broker?

The best business loan companies in Australia have been recognized for their top notch performances for the past 2 years, the praises that the clients sing vary from the different financing options available with the loan companies, most of which they would not be able to get without a small business loan broker.

no advance fee concept

But what all small business owners and small businesses alike should remember is that when it comes to protection for small to middle sized enterprises (SMEs) regarding small business loans are less than that of consumer protection offered when it comes to personal loans. This means that small business loan brokers are subjected to less regulations than the actual financial institutions themselves. A small business owner should be one hundred percent sure that the small business loan broker has the business’ best interest at heart when it comes to them acting as the middleman between the business and the financial institution.

Small Business Loan Brokers have all the motivation in the world to maximize their profits, and this means that they can easily be swayed by cheap tricks of the trade. They may also receive a lot of benefits or incentives from the financial institutions that they are serving and may end up only pushing for that certain institution instead of what actually is best for their clients. In line with this, there has also been an increase in the number of scammers that guise themselves as small business loan brokers.

The most popular scam today would be the “advance fee scam.” This is when a scammer pretends to be a small business loan broker who will ask for a processing fee up-front. Along with this comes various promises including false pretenses of a 0% interest rate offer from various financial institutions that the scammer is supposedly working with. Once the scammer is paid with the upfront fee, the business will never hear from them again. To make matters worse, the business might have also gone and shared information not meant to be shared to anyone like the business’ bank account or some insider information on the business itself.

female small business loan broker showing a short list to a client

All in all, bringing up the idea of working hand in hand with a small business loan broker can guarantee negative connotations with it. There will always be a lot of negative connotations due to the fact that there will be a lot of sharks waiting for a quick buck. But while this one is true; it does not mean that all small business loan brokers are sharks just waiting for gullible businesses to pounce on them. Businesses should weigh carefully their decisions on whether or not to get the services of a small business loan broker.

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