How to Successfully Select a Small Business Loan Broker
It may take considerable time and research to find the ideal business loan product for your unique needs. In addition, traditional banks often are hesitant to work with small business owners, causing them to seek other funding programs.
Suppose you need to fulfill your cash flow needs or invest in other business areas. In that case, you may benefit from working with a knowledgeable business loan broker. Once they understand what you hope to accomplish with a term loan or other type of financing, they can do the heavy lifting for you. You can count on a business loan broker to help you select the best lender and business loan for your specific situation.
In this blog post, we’ll review what you should consider before moving forward with a business loan broker.
8 Factors to Consider When Selecting a Business Financing Broker
Before hiring a loan broker, we suggest looking into their educational history. Maybe they have a college degree in finance or earned certifications like the CFA, CFP, or CPA.
While education isn’t everything, it can give you a good idea of what a loan broker may or may not know about business funding. Ideally, the broker you choose should have some formal education.
Some loan brokers are more experienced than others, so you should always ask a broker how long they’ve been active in the financing industry.
If they’re new to small business loans or only have a few years of experience under their belt, you may opt for a senior-level broker. It’s likely that someone with more experience has developed stronger relationships with lenders and can therefore provide you with better options.
3. Industry Specific Knowledge
Many brokers specialize in providing funding to specific industries. Suppose you’re in manufacturing, for example. In that case, it may make sense to work with a broker who has expertise in financing manufacturing businesses.
A broker with industry-specific knowledge will better understand how your business works and what you may do with the funds.
4. References and Reviews
Even if a small business loan broker tells you they’ll do a good job, you should read reviews and call their references.
Objective, third-party opinions are far more valuable as many brokers will say anything to secure new business. Positive reviews and references may make you more confident in your decision or steer you toward another professional.
Like any other financial professional, a small business financing broker deserves to earn money for their work. However, this doesn’t mean you should pay any fees they impose on you.
If a broker asks for an upfront fee, run the other direction. A legitimate broker won’t ask you for money before they find you a loan; instead, they’ll charge a success fee at closing. If your business loan offer doesn’t close, you shouldn’t be required to pay any fees for applying.
When you work with a broker, you’ll need to share your personal and financial details. Find out how they will keep this confidential information safe.
Most business loan brokers will invite you to a secure portal, which you can use to upload documents and complete applications.
If a broker doesn’t seem to have any security measures in place, you should probably find someone else. Otherwise, you risk your private information being sold to third parties.
7. Solid Online Presence
In today’s digital era, an online presence is crucial for all types of professionals, including brokers. A quick Google search of a broker’s name should reveal a website, reviews, and potentially social media outlets. If you can’t find any information about a broker online, they probably lack an excellent track record in the financing industry.
While most small business loan brokers don’t work round-the-clock, reputable ones make themselves available to their clients. It’s essential to hire someone who will be there for you to answer questions, provide status updates, and address any concerns you may have. They should give you their email address and phone number so you can reach them whenever you need to.
The Benefits of Working with a Small Business Broker
Now that you know what to look for before committing to a business financing broker, we’ll review the benefits of working with one. While you can find a business loan on your own, you may enjoy these perks if you work with a broker.
1. More Financing Options
It would take you a great deal of time to research and find the various lenders and loans that may meet your needs. A broker can take care of this for you, but they may also open the doors to more options than you’d be able to find on your own.
For instance, if you have a specific funding need, they may be able to help you find a lender that offers tailored options. They could help you find an equipment financing lender if you need equipment. If you’re looking to invest in real estate, they may have connections to commercial real estate lenders.
2. Good Interest Rate
The interest rate you lock in will determine the overall cost of your loan. Since a broker can provide you with multiple loans to compare, you’re more likely to secure a reasonable interest rate. Of course, factors like your credit score and time in business will also play a role in your rate.
If you don’t have a good credit score, you can’t rely on a business loan broker to secure you a low-rate business loan.
3. Quicker Underwriting and Approvals
If you apply for a loan independently, a commercial lender may take weeks or even months to review your loan application. Due to their strong relationships with lenders, a broker can expedite the underwriting and approval process. If you need access to additional working capital as soon as possible, this is a huge plus.
Conclusion: Take Time to Consider Your Business Lending Options
Since the broker industry isn’t licensed or regulated, almost anyone can become a financing broker. Once you find a few brokers, consider the factors we discussed above. By doing so, you can ensure you work with a respectable, qualified professional and receive the best possible service.
Editor’s Note: This post was updated for accuracy and comprehensiveness in June 2022.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.