What Is a Business Loan Broker and Do You Need One?

A business loan broker is an intermediary between small businesses and different lenders. After learning about your business and financial goals, the business loan broker uses industry knowledge, experience and working relationships with lenders to find business loan offers with the most favorable terms and competitive interest rates.

Instead of applying directly to lenders on your own, business loan brokers reach out to them on your behalf, help you complete and submit your loan applications and answer any questions throughout the funding process.

Although these professionals can save you time and help you access lower interest rates, you may have to pay a broker’s fee for their services.

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There are different types of loan brokers that may make sense for you based on your industry or your lending needs, including:

• Commercial real estate loan brokers. Can help you find the best rates on commercial real estate loans, and may even be able to help you find deals on commercial real estate. 

• SBA loan brokers. Specialize in SBA loans and lenders, which can be especially difficult to navigate on your own. 

• Franchise loan brokers. Can help you find franchises for sale, buyers, and lenders who finance franchise purchases. 

• Merchant cash advance brokers. Can assist you in finding merchant cash advance companies and help you navigate those agreements and identify red flags. 

Ideally, the lender pays the business loan broker, but in some cases, these fees are charged to the borrower. Anecdotally, fees typically range from 1% to 6% of the total loan amount but can reach as high as 17%. The percentage of commission can depend on the size of the loan, with smaller loans subject to a higher percentage.

Some business loan brokers will add their fees onto the interest rate of your financing, while others will charge you separately after you close on your loan. A reputable broker should not ask for payment upfront before you’ve secured a loan.

A business loan broker can offer personalized assistance when searching and applying for small-business funding. Although working with a broker isn’t necessary for all businesses, startups that are looking for a first-time business loan — or companies that need specialized financing, like a commercial real estate loan — may find it particularly beneficial.

You might benefit from a business loan broker if you:

• Don’t want to spend time searching for and comparing lenders on your own.

• Want a personal relationship with someone who understands your financial needs and can help you get more competitive interest rates.

• Want assistance submitting loan applications with general advice throughout the financing process.

• Are applying for a business loan for the first time.

• Need a specialized type of financing, such as commercial real estate loans, SBA loans or business acquisition loans.

» MORE: How to apply for and get a business loan in 5 steps

To find a loan broker for your small business, you have a few options:

Online research

Starting with an internet search can be a fast and direct way to locate business loan brokers in your area. You might also visit your local secretary of state’s website and search for brokers that are registered or licensed in your state, although not all states require licensure.

Professional association websites, such as the American Association of Commercial Finance Brokers and Small Business Finance Association Broker Council, can also be useful resources

Local small-business organizations

Local Small Business Administration (SBA) offices, Small Business Development Centers and similar business organizations offer a variety of free resources and advice to help you finance and grow your business, and may also be good resources for finding business loan brokers.

You can schedule an appointment with your local center to discuss your funding needs. Staff can help you decide if a broker is right for you and offer guidance for connecting with a reputable one.

Referrals

Talk to fellow small-business owners in your area or in online communities and ask if anyone has worked successfully with a business loan broker. Getting a direct referral from another entrepreneur who had a positive experience can help you feel more confident that the broker is reputable.

Reading reviews on websites like Trustpilot or the Better Business Bureau can also give you a sense of other business owners’ experiences working with an individual broker or brokerage.

A good business loan broker should have relevant experience, work with a wide network of lenders and be able to meet your unique financing needs. Be sure to research or ask about a broker’s credentials and training, especially since licensure isn’t required, and the profession isn’t subject to federal oversight.

Here are some questions you can ask a broker to help determine if they’re the right fit for your business:

• How many lenders will see my application? A broker should have a sizable network and be able to submit your application to several targeted lenders to help you get the best possible loan offer.

• What does your process look like? Before agreeing to work with a broker, you’ll want to understand exactly what’s included in their services and how they operate. If you want someone who will complete loan applications on your behalf, for example, make sure you express that upfront.

• How long does it normally take to get funded? Timelines may vary depending on the broker and their lender network. If you need financing quickly, you’ll want to make sure the broker has access to lenders who offer fast business loans.

• Do you make more money working with specific lenders? You want to make sure that regardless of the potential payment, your broker is still looking out for your interests and trying to get you the best loan offer.

• How long will I have to decide once I receive a loan offer? A broker should give you time — typically a few days — to consider an offer before you need to give a decision. If someone is pushing you to make a decision faster, you’ll probably want to find another broker.

• How do you charge fees? A broker should be upfront and transparent about the way they charge fees and how much their services will cost. Avoid brokers that won’t provide this information or ask you to pay their fees before securing you a loan.

• Do you sell my information to third parties? Make sure that your information is protected before agreeing to work with a broker. A business loan application contains a variety of personal data, and a broker should be transparent about what they do with that information.

Business loan broker red flags

Not all small-business loan brokers are reputable. As you research and compare different brokers, look out for anyone with these red flags:

• Guarantees loan approval. A broker can never guarantee that you’ll be approved for a loan, and a legitimate broker wouldn’t make that promise. Be wary of any broker or lender that guarantees approval — it’s likely a scam.

• Isn’t concerned about your credit. Brokers need to check your credit to match you with a lender. Any broker claiming that they can get you a loan without a credit check is likely a scammer.

• Has limited contact information available. You should be able to find multiple ways to contact a broker — a phone number, email address, physical address and a website. If it’s difficult to find information about the broker, go elsewhere.

• Doesn’t have reviews or references available. A broker should have a list of previous business owners that they’ve funded and be able to provide reviews or contact information for references. If you can’t find reviews online, or the broker can’t provide any of this information, that’s a big red flag.

• Asks for payment upfront. A reputable loan broker should never ask you to pay them before they do their job. Their success is based on your success. Be sure to discuss their fee structure when vetting potential brokers, since it’s possible that the lender will pay them or you can use your loan proceeds to pay the broker fee. 

» MORE: Best business loans for bad credit

Not all businesses need to work with a broker to get a loan.

Established businesses may be able to qualify for equally competitive interest rates on their own, and some small-business owners may prefer to handle the application process themselves. Other businesses simply may want to avoid paying a broker’s fee.

Here are two alternatives to consider when looking for small-business financing.

1. Use a business loan marketplace

A business loan marketplace helps you streamline the process of applying for financing and comparing lenders. You fill out a basic loan application and the marketplace uses their technology to match you with potential lenders.

Some marketplaces help you submit your information to small-business lenders and can provide you with potential loan offers, whereas others simply pass your information along to their partners. Unlike a business loan broker, these marketplaces typically do not charge the borrower a fee.

Using a business loan marketplace can be a good option for accessing faster funding, although you likely won’t receive the same level of personalized attention as you would with a broker.

2. Apply to lenders directly

You always have the option of applying to individual lenders directly, whether submitting a simple application to an online lender or working with a bank to apply for an SBA loan.

Established businesses with strong credit and solid financials will likely be able to access competitive interest rates even without a business loan broker, and they can avoid paying a broker’s fee by applying with a lender directly.

Similarly, if you have a previous relationship with a lender — or are certain of the one you want to work with — you can save time and avoid additional fees by applying with them first.

» MORE: Business loan requirements: 7 things you’ll need to qualify