What are Business Loan Brokers and How Do They Operate?

Securing business financing has never been an easy task. But over the past five years, things have gotten even more bothersome. Ever since the Royal Commission, the Big Four have tightened their purse strings. And ever since COVID started, liquidity (outside government sources) has slowed to a trickle. For many, using a business loan broker has become their last hope.

If you’re reading this, you may be in the same position soon. Fortunately, a small business loan broker can make it far easier to track down financing. In today’s blog, we’ll show you how to find a business loan broker that you can trust.

The Basics – What are Business Loan Brokers?

In Australia, there are two main sources of commercial loans – banks and private lenders. Business loan brokers fall under neither category – rather, they are professionals that seek out the best possible loan on their client’s behalf.

Think about it – as an entrepreneur, you have enough on your plate already. Getting a small business loans is just one more “to-do” on top of a pile of existing tasks. As a result, you might not treat this important job with the due diligence it deserves.

Business loan brokers know their industry inside & out. Reveal key details about your business and your goals, and they’ll find the loan package that’s right for you. What’s more, an established business loan broker has a network of providers they trust. Because of this, you won’t have to worry about ending up in a loan with ridiculous fees and interest rates.

How Exactly do Business Loan Brokers Work?

The loan application process can be confusing. Thankfully, the job of a small business loan broker is to make that process as simple as possible. These professionals will start by asking questions about your business. By learning its age, monthly turnover, credit score, and other important details, they’ll get an idea of what loans you could qualify for.

After that, they’ll inquire about your goals. As business owners, we all need capital, but the reasons vary dramatically. A freelancer may be short on cash due to a deadbeat client, a coffee shop could be suffering from COVID-related cash flow problems, and an import business may want to expand its operations.

All three scenarios call for different loan structures. An invoice factoring loan will best serve the freelancer, cafe owners will likely want a merchant cash advance, and a construction loan might be right for our importer.

The experienced small business loan broker has dealt with all types of business owners. So, when they learn more about your operation and goals, they can recommend a specific type of business loan. Once they have a clear understanding of what you need, they can get to work on your behalf.

How Do I Pick the Best Business Loan Broker?

We’ve all heard the horror stories. A business owner gets caught in a loan with oppressive interest rates and slowly bleeds out from egregious payments and penalties. So, when you choose a small business loan broker, it’s important to choose one that’s competent, skilled, and ethical.

Never hire a business loan broker sight unseen. Before hiring these professionals, always ask tonnes of questions. Start by asking about their experience – the longer they’ve been in business, the more chances they’ve had to learn valuable lessons. Also, the longer-lived a broker, the less likely they are to engage in shady practices.

Next, ensure a prospective broker understand the needs of your sector. For instance, a business loan broker that works primarily with construction companies might not understand the issues faced by a restaurateur. So, ask them a few questions about problems unique to your business. If they answer in a way that inspires confidence, you’re on the right track.

After that, ask them about their relationships with local lenders. Brokers who take the time to network with local bankers and private lenders have a better grasp of loans that are possible in your area. Additionally, these players are more likely to cut a deal with brokers they know and respect. As a result, you’ll find it easier to access loans with good terms.

Lastly, inquire about their educational background. Whilst some good brokers haven’t completed an undergraduate degree, credentials imply a knowledge base that non-college-educated brokers might not have.

After your meeting, ask for/speak with their references. These contacts may reveal tidbits that your broker might not. Also, find as many online reviews as you can. As you check them, pay attention to any two to four-star reviews you come across. These entries contain a level of nuance that you won’t find in one and five-star reviews.

Beware of Predatory Brokers

Anywhere money changes hands, you’ll find hucksters out to make a quick buck. In the case of business loans, hiring a predatory broker could cost your company thousands of dollars over the long-term.

First and foremost – brokers should never ask for money upfront. If they even hint at this, end the encounter abruptly. Any ethical small business loan broker takes payment on performance – not at the start.

Secondly, they should not, at any point, engage in pressure tactics. Good business loan brokers come up with several options and discuss the pros & cons of each approach. Hard selling isn’t part of their process.

Thirdly, any broker you consider should belong to trade associations like the FBAA (Finance Brokers Association of Australia). CAFBA, or the Commercial & Asset Finance Brokers Association of Australia, is another organisation they should have membership in. If your prospect does not have membership in at least one of these groups, run.

Will Working With a Broker Cost Me More?

Ever mindful of the bottom line, many small business owners seek out business loans on their own. After all, why pay someone to get them a loan when they could do it themselves?

There is a method to their madness – according to industry data, the average small business loan broker takes a fee equivalent to 7% to 17% of the loan amount. In some cases, the savvy, cost-conscious entrepreneur can save capital by sourcing their own financing.

However, less-experienced businesspeople can save cash by using a small business loan broker. By trusting their guidance, you’ll pay less (broker fees included) than if they had gone their own way. And even if they pay a bit more, the time saved often makes the added expense worthwhile.

Business Loan Brokers Can Save You Time & Money

Applying for financing takes you away from your business. By delegating this task to a small business loan broker, you can focus on running your enterprise whilst an expert saves you thousands in long-term interest charges.