What is a Business Loan Broker (Video)?

We should begin this conversation by stating that our firm has some of the best business loan brokers in Canada and U.S.

Our mission is to understand the business funding needs of our business clients and to find and deliver the lowest-cost business loans to these clients.

Business Loan Broker (Video)

A more detailed article and a glossary of different types of business loans is presented below the video.

What is a Business Loan Broker?

Business loan brokers are professional intermediaries that work with multiple lenders to connect business owners/managers that are seeking business loans to the best lenders that are offering the type of loan that the business needs.

A competent business broker will identify and compare business loan rates and loan terms for the business owner.

In this way, the business doesn’t have to do the extensive research itself and submit loan applications to many possible lenders. This saves the business valuable time and money.

Business Loan Brokers Do Not Provide Business Financing Themselves

It is important to note that business loan brokers do not provide business financing themselves nor do they even approve the business financing.

The broker delivers financing options to the business, which must still apply to the lender that approves or declines the financing.

The broker can also assist the business with completing the business loan application process correctly in order to help the business put its best foot forward.

Communication Between the Business Loan Broker and the Business Borrower and the Business Lender

Note that some lenders insist on having the business (Borrower) communicate with and apply directly to the lender.

But other lenders are comfortable with having the broker handle all communication with its business borrower client, and pass this client information on to the lender.

However, when a loan is approved and confirmed, the lender will always then communicate directly with the borrower and deliver the funds to the borrower.

Typically, the communication process looks like this:

  • The borrower will provide the business financial information to the business loan broker.
  • The broker will assess this information and provide any feedback to the borrower. This might include the broker offering tips on how to improve the presentation of the information, or the broker might request additional information from the borrower.
  • Once the broker is satisfied with the information package, it will communicate with potential lenders and deliver the package to them.
  • The lenders will then review the information and present tentative business loan offers to the broker.
  • The broker will, in turn, present these offers to the borrower that will then decide on which offer(s) it would like to apply for.

As stated before, in some cases, the broker works with the borrower to complete the business loan application. And in other cases, the borrower will complete the business loan application directly with the lender.

  • The lender will review the formal business loan application and either approve or decline or amend the loan. This will be delivered to the borrower.

What Commission Rates Do Business Loan Brokers Charge?

SUCCESS FEE

Business loan brokers like every professional must receive compensation for their services. Generally, brokers receive a “Success Fee” equal to a percentage of the funding amount after the borrower is approved for and receives its desired funding.

It’s called a Success Fee because it is only received by the broker if the borrower is successful in receiving its desired business loan.

WHO PAYS THE SUCCESS FEE?

This Success Fee commission can be paid by the Lender or the Borrower.

In many scenarios, if it’s a relatively standard type of loan being sought, some business loan brokers may have existing contractual relationships with many lenders. As such, the fee is paid by the lender to the broker.

But in scenarios where the loan requested by the borrower is more complex, and the broker has no pre-existing relationship with the lender, the borrower will pay the fee to the broker.

There are no standard commission rates. Most brokers charge a fee percentage proportional to the level of difficulty in securing the loan.

The more difficult it is to obtain a loan, the higher the commission rate. The easier it is to obtain a loan, the lower the commission rate.

Commission rates are generally between 1% to 3% of the approved loan amount for standard loans.

ADVANCE FEE

In the case of large-sized loans of over $1 million dollars, or for complex loans, many brokers will charge a nominal upfront Advance Fee plus the Success Fee.

This fee is usually non-refundable. However, if the broker obtains the desired funding for the business, the Success Fee is reduced by the amount of the Advance Fee that was already paid to the broker. So the business pays a smaller Success Fee.

As this type of loan may take longer to obtain, the advanced fee covers the broker’s expenses as it works to find and secure the entire funding amount.

ASK THE BROKER

To understand the fee structure, the borrower should simply ask the broker before the broker is engaged by the borrower to obtain a business loan for the borrower.

How Long Does It Take to Obtain a Business Loan?

The speed at which a borrower will obtain a business loan will depend on the creditworthiness of the borrower and type and size of loan that is being sought.

Some simple business loans require minimal paperwork and thus can be obtained relatively quickly.

A standard loan such as a Term Loan or Line of Credit of less than $500,000, which is sought by a borrower with good creditworthiness, can be obtained in as fast as 24 to 48 hours from the time the business loan application form is received by the lender.

A complex loan such as a Bridge Loan can take 10 days from the time the business loan application form is received by the lender.

Ever more complex loans such as Business Acquisition Financing require much more paperwork and can take anywhere from 30 to 120 days from the time the business loan application form is received by the lender.

Types of Business Loans that a Business Loan Broker Can Obtain for a Business Borrower

Depending on the type of business and its financial strength at any given time, the loan funding needs of a business will vary.

Generally, loans are needed for either short-term or long-term business expenses.

Short-term Expenses are covered by working capital loans. These are funds that are needed for day-to-day business expenses such as rent, utilities, or any other immediate cash needs. These loans normally have shorter repayment terms of less than 1 year and also have higher interest rates.

Long-term Expenses include the purchase of long-term assets such as vehicles or equipment for the business. These loans normally have longer repayment terms of over 1 year and even up to 10 years. These loans have lower interest rates.

These are a few of the most common types of loans sought by businesses:

MERCHANT CASH ADVANCE

A merchant cash advance is probably the most common type of loan sought by small businesses.

It allows even businesses that don’t have high creditworthiness to borrow money based on the debit and credit card revenue receipts of the business.

The lender offers an “Advance” against the merchant account revenue receipts of the business.

As the business receives future revenue receipts each week or month, the lender withdraws the loan payments directly from the bank account of the business borrower.

This form of advance funding is technically not a loan and comes with higher interest rates and short repayment periods.

But it allows millions of small businesses worldwide to get cash early upfront in return for a portion of the future revenues of the business.

TERM LOAN

A business can obtain a term loan that is repaid in regular installments over a specific period of time called its “term”.

Term loans for businesses usually last between 1 and 10 years. They can be as long as 30 years for real estate transactions.

In a term loan, the borrower pays a fixed or variable interest amount plus the principal loan amount.

The fixed or variable interest rate depends on the credit rating of the borrower.

LINE OF CREDIT

A line of credit is a credit facility provided by a financial institution to a borrower. It provides a certain maximum amount of money that the borrower can use whenever it needs the funds over a specific period of time.

It is not a loan with fixed interest payments. It is simply an extra source of funds in a bank account that can be used if or when the borrower decides to.

Interest, which depends on the borrower’s credit rating, is only paid on money that is actually withdrawn from the bank account.

A line of credit can be secured by some form of collateral. Or it can be unsecured with no collateral.

INVENTORY LOAN

A business that has unsold inventory can obtain a loan secured by a percentage of the value of the inventory.

The inventory is used as collateral for the loan.

Examples of such businesses include retail stores and wholesalers.

VEHICLE AND EQUIPMENT FINANCING

A business that needs vehicles or equipment to operate its business can obtain a loan to purchase the vehicle or equipment. The loan is secured by a percentage of the value of the vehicle or equipment that will be purchased.

The vehicle or equipment is used as collateral for the loan.

Examples of such businesses include farms and manufacturers that need vehicles and factory equipment.

We provide a more in-depth article about equipment financing here.

ACCOUNTS RECEIVABLE FINANCING

A business that has not yet received payment from its customer invoices can obtain accounts receivable financing or invoice factoring.

This is a form of short-term financing where the business will sell its outstanding unpaid invoices to a lender at a discount.

The lender will immediately deliver the funds for the invoices to the business. And it then becomes the lender’s responsibility to collect payment from these customers in order to recoup and profit from its investment.

BUSINESS ACQUISITION FINANCING

An individual or business that seeks to buy a business can obtain some of the purchase price of the business by obtaining a loan in business acquisition financing.

Effectively, the assets of the business that is being acquired will be the collateral for the loan.

Need Additional Help From Business Loan Brokers?

We have business loan brokers in Canada and the U.S. that can assist any business with its complex business loan needs.

And we also encourage businesses that have much simpler business loan needs to apply directly for a loan with any of our lender partners here.

You can also Contact Us if you need more help.

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