Business Loans

Should I Use a Business Loan Broker?

Aug 08, 2022 • 7 min read
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      Applying for small business loans can be a complicated process. Some lenders require expansive application packets and want to see detailed business plans. Here’s where a small business loan broker comes in—good brokers connect you with the funding that will grow your business best. You can ask them any question, and they’ll help you stay motivated throughout the loan process. If you want to expand your company, linking up with a commercial loan broker is a great first step.

      What Is a Small Business Loan Broker?

      A business loan broker—sometimes called a commercial loan broker—is an individual, company, or service that helps small businesses apply for small business loans or other financing.

      Importantly, the broker does not actually approve or deny loan applications or service loans themselves: instead, the broker connects businesses with financing. A quality broker will help you research which business financing options make sense for your needs and help you set up your application for approval. In return, the broker receives a fee based on the size of the loan, either paid by the borrower or financier.

      Online financing platforms like Lendio are small business loan brokers, and they have expertise in a wide range of commercial financing options.

      Types of Business Loan Brokers

      Because many different types of small business financing exist, business loan brokers specialize in various niches. However, some brokers have experience with connecting small businesses with a wider range of funding options.

      SBA Loan Broker

      Small Business Administration (SBA) loans are serviced by a lender, like a bank or credit union, but they are partially guaranteed by the federal government. As a result, lenders aren’t totally on the hook if a borrower defaults, meaning these loans are less risky for lenders. Loans backed by the SBA, like the SBA 7(a) Loan, are popular because they have great interest rates, but the application can be hard to navigate and a fair amount of documentation is required. This is where SBA loan brokers come in—they make sure you understand the loan that works best for your business and how to optimize your application for approval.

      Commercial Loan Broker

      Many brokers specialize in financing that you’d probably think of as conventional small business loans. This includes term loans, where a business receives a large disbursement of money at once and then repays the loan over decades. Traditional small business loan brokers can also help you apply for revolving lines of credit, where a financier approves a certain amount of potential funds—or credit—that it will lend to borrowers. Borrowers access these funds as expenses appear. Commercial loan brokers can help you gather and prepare all the documentation needed to apply for these types of loans, which often require hefty application packets—especially for larger loans.

      Franchise Loan Broker

      Buying a franchise is a great way to become your own boss and is now a fairly standardized process, which is why finding a franchise loan broker that understands this procedure can be a huge help. Loan brokers that specialize in franchising typically understand SBA, conventional, and alternative loans, and they can help you find the best option that works for you and the franchisor.

      Equipment Financing Broker

      Equipment financing has become very common for small businesses, especially companies that require expensive equipment or machinery to grow. With equipment financing, you receive a piece of needed equipment and then pay off the cost of the equipment over its lifespan. Notably, the equipment itself serves as collateral. An equipment financing broker can help your business find the best equipment and determine the best financing options to pay for it.

      Alternative Financing Broker

      Over the past few decades, largely due to the advent of the internet, the variety of small business financing options has exploded. Entrepreneurs are thinking way beyond the term loan, and alternative loan brokers help them understand this new world of cash advances, inventory financing, startup loans, and more. Many of these options deliver funds into your bank account within a few days of approval, and there are options for small business owners with poor credit.

      Some Small Business Brokers Do It All

      Some brokers and broker services, like Lendio, specialize in all or most of the above categories at once. By working with a wide range of financiers, these comprehensive brokers can help you compare options ranging from term loans to alternatives like accounts receivable financing. With some, you can even look at options like business credit cards.

      What Does a Commercial Loan Broker Do?

      A small business loan broker works with small businesses to identify and apply for commercial financing from lenders, like banks. In some cases, you give all the documentation needed and the broker applies for financing. In other cases, the broker helps you fill out an application, but you have to submit it.

      Sometimes applicants pay a broker’s fee, but usually the fee is paid by the lender. Fees vary, but 1–6% of the amount of the approved loan is common.

      When to Use a Broker

      Small business loan brokers are great for small businesses at any stage and size. As long as you do your research and ensure the broker is reputable, they can help you find the financing that can help your business expand to the next level. You should compare brokers based on their online reviews, the financiers that they work with, and the variety of funding types that they specialize in.

      How to Use a Broker

      The best way to find a reputable small business broker is to ask other entrepreneurs for recommendations. Beyond personal references, look at options online—and financing platforms like Lendio make seeing all your options for free a snap.

      Remember that a broker is there to serve you, so don’t be afraid to ask any and all questions you might have.

      Potential Red Flags

      As with anything involving small business lending, you need to do your due diligence with finding a small business broker. Here are some potential red flags that should raise suspicions:

      • No online reviews
      • No physical address or phone number available
      • Broker pressures you to apply for a bigger loan than you think you need
      • Broker charges an upfront fee before working with you

      Business Brokers Help Small Businesses Grow

      If you’re thinking about a small business broker, you’re already on the right track. With Lendio, you can easily compare small business loan options in minutes. Looking at your options is free, and it won’t ding your credit score. You also can peruse options beyond term loans, including equipment financing and merchant cash advances.

      About the author
      Barry Eitel

      Barry Eitel has written about business and technology for eight years, including working as a staff writer for Intuit's Small Business Center and as the Business Editor for the Piedmont Post, a weekly newspaper covering the city of Piedmont, California.

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