Going from lender to lender and repeatedly applying for business financing can be stressful and time-intensive, especially when you also have to keep up with your day-to-day responsibilities.

Hiring a business loan broker can help streamline the process, but their services may not be free, and not all of them are trustworthy. Here’s what you should know about them to determine whether using one makes sense for you.

What Is a Business Loan Broker?

A business loan broker is a professional that works as a middleman to connect small business borrowers with lenders. Instead of spending time searching and applying for financing, you can hire them to do the work for you.

You typically only need to give them information about your company and funding needs. They’ll use it to reach out to the various lenders in their network on your behalf, determine which ones suit your needs and qualifications, and help you apply.

In addition to taking the burden of searching for financing off your hands, the best loan brokers can help you get more favorable terms than you would receive on your own.

Since they often specialize in specific types of financing, they know the market well and can steer you toward the best accounts available with your qualifications. They may also have relationships with lenders that could help you get a better deal.

Some loan brokers receive payment from lenders for referring each borrower, but many will charge you for their services instead. The fees vary significantly, but they’re usually more expensive for online loans and less expensive for bank financing.

What Are the Different Types of Business Loan Brokers?

Small business loan brokers often specialize in a specific type of financing. Here are some of the most common.

Commercial Loan Brokers

Commercial loan is a broad term that can refer to any term loan for businesses. A commercial loan broker has a more general knowledge base and can connect you with many different types of lenders and loan programs.

If you’re unsure which type of commercial lender is best for your situation, you can consult one of these brokers to keep your financing options open.

Startup Loan Brokers

Young small businesses and startups often struggle to qualify for loan products with traditional financial institutions. They usually lack sufficient time in business to meet lending requirements or established business credit scores.

Startup loan brokers specialize in helping these companies connect with lenders who work with less established businesses and help them grow.

Invoice Factoring Brokers

Invoice factoring involves selling your outstanding invoices to a factoring company at a discount of around 5% to 15%. The factoring company is responsible for collecting the invoices and gets to pocket the difference while you get your cash upfront.

Invoice factoring brokers specialize in putting businesses that need accounts receivable financing in touch with the best factoring companies. 

Equipment Financing Brokers

Equipment financing is usually a type of installment debt that helps businesses purchase equipment for their operation. It’s more accessible than other business financing because it uses the underlying asset as collateral.

If you need business funding to purchase an expensive piece of hardware, an equipment financing broker can help you get the most favorable terms.

Merchant Cash Advance Brokers

A merchant cash advance is an expensive type of business financing that typically requires you to repay the loan amount with automatic daily or weekly deductions from your debit and credit card sales.

This type of business line is usually a last resort for those who need working capital but haven’t built personal or business credit. Merchant cash advance brokers can help you find trustworthy providers with the most favorable terms and the fewest hidden fees.

Should You Use a Business Loan Broker?

If searching through lenders and submitting repeated applications seems daunting, you should consider using a loan broker business. They can save you significant time and effort and get you better results.

As professionals who specialize in the process, brokers often have information that would be unavailable to you otherwise, including which lenders have the most favorable terms and their specific qualification requirements.

Startup founders and new small business owners who are busy trying to gain traction or feel unconfident in their knowledge of financing often benefit the most from their services.

However, that doesn’t mean that any business loan broker will do. Not all of them are trustworthy or affordable, and your finances will suffer if you choose the wrong one.

For example, a broker could push you toward an unnecessarily expensive lender because it gives the best commission, especially since regulations restricting them are much weaker than those on a consumer mortgage broker.

As a result, you should feel confident that your business loan broker has your best interest at heart, knows enough to steer you in the right direction, and is worth their fees before you decide to work with them.

If you can’t find one who checks all those boxes, you’re likely better off foregoing their services.

How To Find the Best Business Loan Broker

Unfortunately, finding the best business loan broker can be almost as time-consuming as searching for the best lender. You’ll need to do research to narrow down potential candidates, and you may have to speak with several before settling on one.

Some good places to start looking for prospects include:

• Referrals: If you have a network of other small business owners you know and trust, that’s often the best place to begin your search. Reach out and ask if they’ve ever worked with a loan brokerage firm that they’d recommend.
• Professional organizations databases: Reputable brokers often belong to professional organizations that provide publicly available lists of their members and whether or not they’re in good standing. The American Association of Commercial Finance Brokers is one great example.
• Local small business owner centers: You can also reach out to small business resource organizations near you for broker recommendations. For example, consider contacting your local Small Business Administration (SBA) office, especially if you want an SBA loan broker.

Once you have your shortlist of brokers to consider, set up a call or virtual meeting with them before deciding whether they’re right for you. Develop a list of critical questions to ask, such as:

• What are your fees, and how are they structured?
• Do you earn more for recommending specific lenders?
• How many and what type of lenders are in your network?
• How long does it take for you to complete your process?

When assessing a small business loan broker, watch for any red flags. For example, these include negative customer reviews, guarantees of loan approval, upfront fees, and a lack of concern for your credit score.

Alternatives to Working With a Business Loan Broker

Working with a loan broker can be beneficial for some businesses. However, the time and effort necessary to find one that’s affordable and trustworthy may not be worthwhile or even possible.

Fortunately, you don’t need one to get affordable financing. In fact, you can get many of the same benefits from a business loan marketplace. After filling out an application, these can match you with multiple potential lenders.

BusinessLoans.com is a good example. Like loan brokerages, these marketplaces often specialize in specific types of business financing, so it’s helpful to define your funding needs before choosing one.

If all else fails, you can always look for suitable lenders and apply yourself. It will be more work, but it’s rarely impossible to manage. Do your research to minimize wasted applications, and pace yourself to avoid getting overwhelmed.

If it seems likely that you’ll struggle to qualify for affordable financing, consider waiting to apply for a loan until you’ve been in business for a year or two and have established better business credit.

If you have the cash runway to sustain yourself in the meantime, you’ll often be better off delaying your loan application if it means qualifying for significantly more favorable terms.

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