What Is a Business Loan Broker?

Business Loan Brokers Explained in Less Than 5 Minutes

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A business loan broker is someone who acts as a connector between a business seeking financing and a lender.

Commercial loan brokers can save you time by identifying the best loans for your business’s needs. They can also help you navigate the often complicated process of identifying eligibility and applying for financing. Because loans can be highly specific, there are various types of loan brokers who specialize in different commercial loans. Finding the right broker can be as important as selecting the right loan for your business.

Definition and Examples of a Business Loan Broker

A business loan broker specializes in connecting businesses with third-party lenders and investors to secure loans for their business’s needs.

  • Alternate name: Commercial loan broker

For busy business owners, working with a commercial loan broker can streamline an inherently tedious process, allowing them to focus on running their business rather than spending their valuable time tracking down funds.

How Business Loan Brokers Work

When it comes time for your small business to grow or access capital to purchase equipment, for example, there are many avenues to secure funding. Identifying and vetting each lender and loan to find the right fit for terms and eligibility, however, can be time-consuming. Rather than going from bank to bank or lender to lender and assessing each loan’s pros and cons, you may opt to use a loan broker. A broker can assess your company’s financial goals and streamline the loan process by pairing your business with the most appropriate lenders.

A good commercial loan broker can save you time and effort by using their vast network to aggregate specific products and partners that are the right fit for your business. Loan brokers may even be able to:

  • Leverage their connections to find you lower interest rates
  • Negotiate terms on behalf of your business
  • Expedite the underwriting process so you can gain quicker access to funds than you would on your own

Business loan brokers charge a fee for their service, which can range from 1%-17% of the loan amount. This may be charged to the lender or the borrower, so it’s important to understand the fee structure and how it affects you. Doing so will help you evaluate if the time saved is worth the cost.

Types of Business Loan Brokers

There are many different kinds of funding available for small businesses, and commercial loan brokers often specialize in specific types of financing. Business owners must understand the type of financing they’re looking for and identify a commercial loan broker with a network to service their needs most effectively. Some specific types of loan brokers are listed below.

Conventional Commercial Loan Broker

The most generalized type of loan broker, a basic commercial loan broker, typically maintains strong relationships with major banks and credit unions. They also possess extensive knowledge of their respective loans and line-of-credit products. A commercial loan broker can help you sort through the financial details to find a loan that’s right for you.

SBA Loan Broker

Brokers specializing in Small Business Administration (SBA) loans can connect new and existing small businesses with loans provided by banks, community lenders, and credit unions. Some businesses may find it easier to secure these types of funds over others since the lender’s risk is minimized due to the SBA guaranteeing the loan. SBA brokers can help small businesses navigate this process with a third-party lender, identify which SBA loan may be right for them, and help expedite the process as much as possible.

Equipment Broker

Small businesses looking to purchase machinery to grow their business may look to equipment financing brokers. Depending on your credit score, your business track record, and your sales projections, brokers may connect your business to financiers who can help fund large equipment purchases.

Equipment loans can be complicated, but they can also be more flexible than other types of financing since there is a clear piece of collateral. A good loan broker might explore a lease-back purchase option. This means a third party purchases the machinery and the business leases it while in use, usually with an option to buy outright at the end of the lease.

Franchise Broker

Franchise loan brokers understand SBA and conventional loan practices to help a business owner acquire and purchase a franchise. This type of broker can also assist in securing funding for commercial real estate as well as cash flow for your new business.

Merchant Cash Advance Broker

Small businesses can find quick and relatively easy access to funding through merchant cash advances. These can be from major financial institutions like American Express or specialized merchant cash providers.

Business loan brokers can often identify fast funding and competitive rates, but they may charge high fees. It’s critical to find a broker with the needs of your business in mind—not just the most lucrative option.

Key Takeaways

  • Business loan brokers connect small businesses with third-party lenders to help identify the best loan product for each business’s unique financial needs.
  • Commercial loan brokers can save business owners time and energy by streamlining and expediting a tedious process, though they do charge a fee for the service.
  • Loan products and lenders are specialized for specific financing needs, so it is important to work with a loan broker that has a network to service your company’s goals.