If you’re considering taking out a loan to help your business to grow, congratulations! You’ve built your business up to a level where you can see a successful future in front of you if you choose the right commercial finance. Taking out a business loan is a big decision, and it’s not always an easy one. You need to think about the type of loan you want to borrow and how much you need and can afford. There’s also what you will spend the funding on and, of course, whether to borrow through a broker or a direct lender.
There are advantages to both approaches and to make a decision, you need to carefully consider your options. Luckily, we’re here to help you get to grips with these two approaches, which will at least get you started on your business finance journey.
What is a commercial finance broker?
Let’s start with the basics. A business finance broker, or commercial finance broker, as they are often called, is a company or individual who helps business owners find an appropriate business loan but isn’t actually a lender themselves. Instead, they are middlemen, or middlewomen, helping you to make sense of the business finance market and find the right loan, on the right terms for your unique needs.
Sounds pretty appealing doesn’t it? Especially if, like most business owners, you haven’t the time or energy to go through all the various lenders’ information, looking for eligibility criteria, loan amounts, terms, interest rates, charges.
A broker will do this for you, presenting financial solutions that are tailored to your needs and specific situation. They tend to work within large networks of lenders, who they can speak to directly on your behalf to get you a great deal. They can also help you get funding quickly, particularly if you’re new to borrowing and would find the applications process daunting.
Why use a business finance broker for your business funding?
Brokers usually work for the commission that lenders pay them. The commission is often based on the loan amount, which will usually reflect the amount of money a lender will make from a deal. It is in the broker’s best interest to find you a great deal, so that you happily sign on the dotted line.
Brokers sometimes have access to deals that you may not be able to get if borrowing directly. They have built relationships with lenders over the years and understand the market really well. Brokers can provide you with plenty of commercial funding options, including talking you through different types of funding, like invoice factoring, lines of credit and even merchant cash advance. If you are new to business borrowing, a broker’s experience could be an invaluable tool.
Brokers may also be more effective at finding you a business funding option if your enterprise has only been operating for a short amount of time. Equally, if your credit rating isn’t great, a broker may be able to find you business finance options you would struggle to get on your own.
So, what’s a commercial funding direct lender?
A direct lender is a business that will provide you with commercial finance directly. They don’t help you to find the right loan, they simply lend you money. A good business loan provider should be well-versed in the ins and outs of running a business. Always seek out business finance providers who speak to you on a level and are open, human and fair when it comes to their applications, approval and funding processes and practices.
Borrowing from a direct lender should feel like a new partnership. If the power imbalance is way off, think again. Always look for a direct lender who understands the opportunities and challenges involved with running businesses and who can help you achieve great things with the right kind of funding.
Is a direct lender a better finance alternative for my commercial loan?
Making a decision about whether to borrow with the help of a broker, or to go-it-alone and use a direct lender, is not always straightforward. It will depend very much on your circumstances and requirements.
Borrowing through a direct lender arguably gives you more control over your borrowing. It means you have responsibility for arranging a deal and can personally speak to lenders about your needs and your business. If you’ve built your business up from the ground yourself, you will be able to speak passionately about it and your plans for growth, which can be very appealing to a lending partner and can work in your favour.
No one understands your business like you do. Also, if you already have experience taking out business loans, you might find it quicker and more convenient to borrow directly, perhaps with a lender you have used previously.
Consider a broker if:
- You are new to borrowing
- You feel you need some extra advice and guidance
- You’re unsure about the type of finance you want
- You have no time to research loans yourself
- You want to know more about different types of commercial finance
Consider a direct lender if:
- You know exactly what you need
- You have borrowed before
- You want to speak to your lender directly about your options
- You want to stay in control of your borrowing experience
- You want to research your options yourself
What are the downsides to using a commercial finance broker?
Using a broker can cost you money. Brokers often make their money from commission paid by lenders, but some will also charge their customers a fee. There’s also the risk that you may not find a better deal, simply because you’ve opted to go through a broker. It would be a mistake to assume that using a broker automatically results in you getting a better rate on your business loan. Often, a direct lender will offer exactly the same rates to borrowers as they will to broker partners.
Another thing to consider, from a time-saving perspective, is that you still have to spend time and energy providing your broker with all the information they need about your business when you start working with them. You’ll need to talk through your business, your plans and your financial situation, a well as any issues with credit in the past and personal credit issues, for example. You may feel, by the end of the process, that you may as well have provided the information to a direct lender instead!
And the downsides to business loans from a direct lender?
If you’re looking for finance to help you take on more staff, you’re going to be far too busy to be able to do a decent job of finding a lender that suits your needs. If you’re spending all day with clients, or manning your bar all evening, are you really going to want to spend hours looking for online loans?
If you’ve been drumming up business all day, answering calls, overseeing franchisees or working on your website all week, are you really going to want to spend your weekend filling in online loan applications? Will you be able to do the research needed to make sure you will be accepted for the loan, or if your business plan is impressive enough? The answer’s probably no, and this is where a broker can be very valuable.
Very few business owners have the time, research skills or inclination, for that matter, to sift through masses of business finance options before taking the plunge with a direct lender. Without speaking to a broker, how do you know you’ve given due consideration to the borrowing choices out there?
We know what a difference the right business finance can make to small business wonders. We’ve seen our partners flourish and reach their potential when they have growth capital available to them. Whether you find your lender directly or through a broker, it’s worth checking reviews from previous borrowers.