What is a Business Loan Broker?
A Business Loan Broker (Commercial Loan Broker) helps small business owners by arranging business financing through a network of business financing products and lenders and funders that the business loan broker has built a relationship with. Business loan brokers identify the need of small business owners and then offer the financing products to suit those needs. Business loan brokers charge typically earn fees from the referring source (lender or funder) and do not collect fees upfront or at funding or closing for their services from their client, the small business owner.
A Business loan broker (Commercial Loan Broker) generally specializes in a variety of small business financing products including, but not limited to; Long-Term Business Loans, SBA Loans, Business Lines of Credit, Short-Term Business Loans, Merchant Cash Advance, Business Cash Advance, Equipment Financing, Invoice Financing, Asset Based Lending, Accounts Receivable Financing, Commercial Loan, Commercial Real Estate Loans, and other small business funding options as well.
Do Business Loan Brokers Specialize in Certain Business Funding Products?
Every commercial loan business broker represents different business loan products and services that they sell, so it’s important to ask what type of finance products does the loan broker offer upfront to see if they are diversified enough and can provide small business owners the best loan options available in the marketplace.
AdvancePoint Capital is a Business Loan Marketplace that offers all available loan products that a business loan broker can offer and more. As with any loan, it’s important to choose the best financing product for the job.
A Business Loan Broker Versus a Direct Business Lender: What are the Differences?
A direct lender offers specific products that they originate, process, fund, and service payments. Business Loan Brokers refer to direct lenders and funders but do not fund or service the finance products themselves.
It is not a bad thing to deal with a Loan Broker because they can compare business loan products in the marketplace that match your need verses a Direct Business Lender who will only of their loan products that they underwrite and fund and forgo any other loan financing options available in the marketplace. Many lenders have no obligation to offer you the best loan product for your specific funding needs. A loan brokers’ value will be determined by their knowledge, product diversity, and relationships that entity has within the financing community.
The 9 Best Business Financing Options that Business Loan Brokers Provide
Long Term Small Business Loans
A Long term business loan is defined as business loan with a length of time of repayment greater than two years. A Long-Term Business Loan provide a loan with a lump sum upfront, with a fixed term, and fixed monthly payment based on principal & interest. You cannot draw funds from the loan as you go and must determine your need upfront. The most popular use of funds for long-term business loan is business expansion, general growth, finance long term purchase orders, or large long term projects.
Rates: Interest Rates starting at treasury index plus 1% to 2.5%
Term: 2 to 10 years
Loan Amount: Loan amounts typically starts at $25,000 and can go up into the millions
Fees: 0% to 3% Origination Fee
Payments: Monthly or Bi-Weekly payments
Credit Standards: Good to excellent credit score preferred. All credit considered
Small Business Line of Credit
A business line of credit is a lot like personal credit cards, in that it is an open revolving line of credit and not a fixed term loan. The product allows the business owners to draw funds at will or make purchases up to a set credit limit. A business line of credit charges a principal & interest rate and requires either a renewal semi-annually or annually to be extended. Business lines of credit offer flexibility in accessing capital that many other loans do not have.
Rates: Interest Rates starting treasury index plus 1% to 2.5%
Term: Open Revolving line of credit with no term limit.
Loan Amount: Typically starts at $25,000 up to millions
Fees: Origination Fee ranges from 0% to 3%
Payments: Monthly, Bi-Weekly or Weekly payments
Credit Standards: Good to Excellent credit score preferred. All credit considered.
Small Business Administration (SBA) Loans
The Small Business Administration (SBA) administers loan programs, guidelines, and offers loan guarantees to approved lenders to deliver business loans for businesses. The SBA is not a lender. They merely issue a loan guarantee, with all rights reserved, to those approved lenders to recover a certain percentage of the loan if it were to default as long as they follow the loan guidelines and requirements set by the SBA. This guarantee of the loan provides protection and reduces risk. Without the loans guarantee, by the SBA, the lender would not be comfortable with the attractive rates and terms that are offered by SBA. The credit and document requirements can be lengthy as well, and it is difficult to meet the loan requirements and get approved. Loan decisions take longer than most other financing products, but if you can get approved for an SBA loan, it’s worth it!
Rates: Loan interest Rates starting at Treasury index plus 1% to 2.5%
Term: 3 to 25 years
Loan Amount: Loan amounts typically starts at $25,000 up to millions
Fees: 0% to 3% Origination Fee
Payments: Fixed monthly payments
Credit Standards: Good to excellent credit score preferred. All credit considered.
Short Term Small Business Loans
A Short term business loan is a great alternative when you cannot get approved for more traditional business financing products. A lump sum is provided upfront with a fixed period of time to repay, typically within 6 to 18 months. A “factor rate” or fixed cost of money is charged for most short term business loans. This product offers reduced documentation requirements, and more lenient credit requirements than traditional business loans. Payments more frequent (bi-weekly, weekly, or in some case, Mon-Fri), and length of time of repayment is shorter to compensate for the higher risk that they are taking. The good news is a short term business loan has a higher approval rate than traditional business lending options due to it’s structure.
Rates: factor rates that range from 1.09% up to 1.45%
Term: 6 to 18 months in loan duration (typically 12 months or less)
Loan Amount: Loan amounts typically start at $10,000 and can go into the millions
Fees: 0% to 5% Origination Fee
Payments: Weekly, Bi-Weekly and in some cases daily Monday-Friday
Credit Standards: All credit types considered, prefer above 550 credit score
Businesses that rely on equipment as the backbone of their operations often require equipment financing for the purchase of equipment because they don’t want to deplete cash flow. Equipment financing secures the equipment as collateral to reduce risk. Good to excellent credit is required because credit and the equipment are the only areas that are reviewed other than time in business and overall business assets. Limited paperwork is necessary to get approved.
Rates: Factor Rates from 1.09% up to 1.45%
Term: 2 to 7 year term
Loan Amount: Equipment price greater than $10,000
Fees: Origination Fee ranges from 0% to 3%
Payments: Weekly or daily Monday-Friday Fixed ACH payments
Credit Standards: Good to excellent credit preferred.
Business Cash Advance
Business Cash Advances (BCA) is also known as a Purchase of Future Sales Agreement. The business owner receives an advance off of future sales and is responsible for paying back a fixed payback amount known as the specified amount, which is greater than the amount that was advanced to the business. A “factor rate” is charged, which is the difference between the advance amount and payback amount and is a fixed cost. Factor rates do not function like principal & interest rates in that you are responsible for the payback, fewer payments made if you pay off early. The BCA is repaid by taking a fixed percentage (specified percentage) of future overall sales deposits. The payments are collected by an ACH fixed daily or weekly payment deducted from bank account based on the specified percentage of future sales. Reconciliation can occur at the end of every month if the fixed payments exceed the month’s fixed set percentage of sales, as described in the agreement. There is no term limit to a BCA.
Rates: Factor rates range from 1.09% up to 1.45%
Term: No term limits. Repayment period dependent on future sales
Fees: Origination Fee 0% to 5%
Payments: Weekly or daily Monday-Friday Fixed ACH payments
Credit Standards: Poor to Excellent credit accepted.
Merchant Cash Advance
Merchant Cash Advance (MCA), also known as a Purchase of Future Sales Agreement, like a BCA and is very similar, but the biggest difference is the repayment process, which is connected to the future credit card sales instead of overall sales. MCA’s take a set percentage of future credit card sales until the advance is paid back in full.
Rates: Factor rates ranging from 1.09% up to 1.45%
Term: No term limits (payoff depends on future credit card sales)
Fees: Origination Fee 0% to 3%
Payments: Set fixed percentage of future credit card sales withdrawn at time of batch of credit card sales
Credit Standards: All credit Considered
Invoice financing advances money from issued invoices that the business has in accounts receivable, but not yet collected. With an invoice advance, there is no need to wait for outstanding invoices to be paid by the client. The invoice finance company advances the money to the business in exchange for a fee taken off of the face value of the invoice advanced. The collection of the invoice is assumed by the invoice factoring company and relinquishes the responsibility of collecting on those invoices by the business.
Term: No term limits
Fees: 1% to 3% fee based off Invoice. Monthly Service fee depending on volume of invoices factored
Credit Standards: Credit of the Clients need to be favorable NOT the business owner advancing off invoices
Processing Times: Advances daily off of invoices created. 1 to 2 weeks to set up Invoice financing relationship.
Purchase Order Financing
Purchase Order (PO) financing does not require any money out of the pocket of the business owner. It is a short-term business finance option that provides the ability to raise capital to pay suppliers upfront for verified purchase orders. The advance frees up cash flow for the business that they would ordinarily need. This process can finance an entire order or a portion of it, depending on the purchase order and scenario. At the time when a supplier is ready to ship the order, the supplier will request payment. The purchase order financing company advances the money to the supplier and then collects payment directly from the customer. The purchase order funder then will subtract their fees and then sends the balance of the invoice, so they act both as the cash advance company and collection company for the business.
Term: No term limits
Fees: Each Purchase Order will cost between 1% to 5%
Credit Standards: All parties need favorable credit history but all credit considered
What types of Lenders work with Small Business Loan Brokers?
- Traditional banks
- Credit Unions (credit unions have limited product lines but include a Commercial Loan)
- Private Lenders
- Online Business Lenders (Fintech)
- Long-Term Business Lenders
- Equipment Financing Companies
- Invoice factoring Companies
- The Small Business Administration (some products require collateral)
- Alternative Lenders
- Hard Money Business Lenders
- Commercial Lenders
What are the Pros and Cons of Working with a Small Business Loan Broker?
- A business loan broker has access to many lenders in the business finance marketplace
- No Upfront or funding/closing fees for services rendered
- Can provide multiple solutions at the same time
- Can save time, energy, and the hassle of comparison shopping
- Could be a specialty business loan broker that only focuses on certain areas of brokering business finance products
- Not directly regulated by any Federal or State agency. It’s important to screen the reputation of the business loan broker you are working with.
How to Choose the Best Small Business Loan Broker
- Evaluate the expertise of loan brokers loan product knowledge
- Determine the variety of product offerings the business loan broker has at their disposal.
- Ask how quick and efficient is the loan brokers process
- Check Reviews with third-party companies that don’t work directly with a business like the Better Business Bureau and Google. Trust Pilot is not reliable because they work directly with businesses and are compensated for their services.
- Cost or fees-Make sure all offers are fully disclosed with disclosures or term sheets at time of offer. Request a copy of a loan agreement before signing anything.
12 Warning signs Small Business Owners should look out for when dealing with a small business loan brokers
- Physical Address-Google searches the loan brokers address and on google maps for a picture of the location. Check to see if it’s a true business address or if it’s shared office space, co-work office, residential address, UPS Store, or mailbox center. Obviously, you would want to be working with a company or someone who is an established business location. A loan broker should be able to demonstrate they have an established location.
- Company History-Check history of the loan broker with third party sources like the Better Business Bureau. If the finance broker is less than three years brokering loans, you may want to ask for a resume of the loan broker or company you are dealing with to see if they have a good experience.
- No Independent Reviews-Check for independent reviews of a loan broker from Google or Better Business Bureau. Do not rely on companies like Trust Pilot, who work directly with the loan brokerage for a monthly service fee and have a controlled review model. They do not have proper independence when considering customer reviews.
- Access/Communications-Does a live person always answer the phone? Is there a general phone number that you can talk to a customer service representative other than the loan broker you are working with at the company? Always ask for direct numbers for the loan broker and general company phone number. Check for service and response levels, such as returning voicemails and email response times. If they take more than an hour or two to respond that should raise warning flags.
- Better Business Bureau-Is the finance broker a member of BBB? Are they in good standing? Do they have any customer reviews? A loan broker should be able to be accredited or at least be on file with the BBB.
- Any Federal, State, or Local Actions. Has the commercial loan broker complied with all fair-lending laws? Are there any negative actions about the commercial loan broker from Federal, State, or local governments? Any customer lawsuits? Any employee lawsuits or actions?
- No Clear Fee Disclosure or Term Sheet-The financing broker should have Disclosures such as a “Term Sheet” or “Smart Box Disclosure” that detail all terms, conditions, costs, and fees as well as what brokers charge. Do not rely on an offer disclosure that is in the body of an email like they were just giving you a general idea. Small business loan brokers must have disclosures that can be emailed to you.
Samples of “Smart Box Disclosures”
- Credit Report Disclosure-Does the business loan broker offers a free copy of a credit report so you can see your personal credit they are evaluating? There are many business loan originators, both lenders or business loan brokers that will downplay your credit to convince you that you don’t deserve a better business funding product than the one they are offering. If the lender or business loan broker provides a free credit report at the time of the offer, this is a great sign that the company or business loan broker is transparent and trustworthy.
- Time to consider offers and Quotes– Business loan brokers should give you the time to make decisions. Are they giving you enough time to consider an offer? Are they pushy and giving you an unreasonable amount of time to consider an offer? Most offers or approvals should be good for at least one week before any secondary credit review would be needed.
- Style and Presentation- Listen to your business loan broker. Evaluate his speaking skills and see if his or her approach is educational, informative, consultive, and not aggressive or fast-talking. Does the business loan broker listen and answer your questions fully? Does the commercial loan broker use terms like “guarantee,” “no credit check”? If so, run the other way!
- Deceptive Marketing Practices-Are you receiving cold calls from small business loan brokers related to getting small business loans? THIS IS A BIG RED FLAG! Never work with a lender or commercial loan broker who would use this marketing technique unless you have an existing relationship with them. Stay away from these boiler room tactics. Receiving offers in the mail can be quite an acceptable way for a business lender or small business loan broker to market their services but beware of deceptive mail pieces that over-promise or use words like “guarantee,” “95% approval rate”, “no credit check,” or “no paperwork needed” or over emphasize getting money fast.
Frequently Asked Questions about using a Small Business Loan Broker
Where do I find a Small Business Loan Broker?
It is not difficult to find or obtain business funding. A simple google search for “Business Loan Broker,” or a specific product you are looking for like “small business loans,” “Long-Term Business Loans” will do the trick and provide many options. Another option is any recent mail offerings that you may have received and saved.
Should I pay any fees Up-front or separate outside of funding fees to Small Business Loan Brokers?
You DO NOT need to pay for upfront fees to a business loan broker to get most business loan products. Keep in mind, business funders and/or business lenders will charge fees that are deducted from proceeds at the time of funding. Always check the terms and conditions of all financing you are considering.
Can I qualify for a Small Business Loan with Small Business Loan Broker if I have bad credit?
Yes, you can get approved for business funding if the business owner’s personal credit is considered bad credit. Be aware, the offer will be affected by your credit risk and what can be offered to you.
If I am a Start-up business, can I get a business loan from Small Business Loan Brokers?
The short answer is Yes and No. It depends if the business loan broker is connected with SBA loan offerings or Private business loan investors. If they are, then yes, they may be able to help you secure a “Start-Up” business loan.
Can I Trust Small Business Loan Brokers with my Personal and Business Information? Is my Data Safe and Secure?
If you do a proper check using the “How to Choose the Best Business Loan Broker” and “Business Loan Brokers or Business Lender: The 11 Warning signs to look out for when dealing with a business loan originator” then you have taken the necessary precautions to consider your data safe and secure. Remember, there are no guarantees, so always use credit monitoring services and take the security steps to always protect your personal data and information.
Does a Small Business Loan Broker Provide any Direct Lending as well?
Some business loan brokers engage in direct business lending. You will need to ask the business loan broker who you are dealing with as the business financing products the broker and which do they direct lend when being presented offers.
The Bottom Line: Advice, Tips, and Benefits about using Small Business Loan Brokers
Whether it’s a Business Loan Broker, Direct Business Lender, or a Business Finance Marketplace Platform, there should always be a basic approach as to who you would want to work with. It’s important to ask questions and do your research and homework about the business loan broker you are choosing.
As a business owner, always ask yourself the key questions when getting a business loan for your business. What types of financing products are offered? Does the Business Loan broker have the experience and knowledge to assist me in finding the best product for my needs? Does the business loan broker not only have great customer service on the origination of my loan but also on the processing, funding, and servicing of my loan on the back end?
Once you make your decision on who you want to work with, you still are the final decider on what if any business finance product you choose. Always start by asking why do I need the money and how am I going to put it to good use for the business? Have I been given all business funding options in the marketplace? Am I getting competitive rates, costs, and terms for my situation and credit profile? Have I done my cost verse benefit analysis for borrowing money for the business?
Always check your proposals, term sheets, and agreements. These offers should include the cost of money (interest rate or factor rate), all closing or funding fees, term duration, payment frequency, personal or business guarantees, and any collateral requirements.
If you ask the tough questions of yourself and the business owner, you will be better armed to make great decisions about products and terms offered.
How to Apply for a Business Loan Using Advancepoint Capital’s Business Loan Marketplace
Applying for a loan with AdvancePoint Capital is as simple as a 1, 2, 3, 4 process. Start with this online form, then fill out the short application page, wait a few hours for your approval, and then get your money!