Differences Between Business Loan Brokers and Direct Lenders

by | Mar 31, 2023 | Business Finance, Resources | 0 comments

Most businesses need funding. It’s that simple. They require funding for a variety of reasons, from payroll to expansion projects to enhancing cash flow. Fortunately, there are a ton of lender options out there when it comes to getting funding. The question is: “Which lender is best for your small business?”

In this article, we take a look at the differences between business loan brokers and direct lenders, two of the main options that could help small business owners when they need cash most.

Direct Lenders & What They Do

Direct lenders are financial institutions or private entities that use their own resources to provide funding directly to companies. They essentially cut out middlemen such as investment banks, brokers, or private equity firms. Direct lenders can be banks or credit unions. But they also may not have any affiliation with either of those types of institutions. The potential benefits of using direct lenders include more flexible loan terms, easier loan approval, lower interest rates, and even higher loan amounts to certain businesses.

Direct lenders can often save you money because borrowers only pay costs directly associated with their loans. So you’ll avoid paying the additional fees some business loan brokers may charge for their services. Brokerage fees tend to vary but most brokers charge between 1% to 6% of your loan amount.

Business Loan Brokers & What They Do

A business loan broker is basically a third-party entity that works with small business owners to help them find the best loan options available. Think of the broker as the middleman between the business and the lender. They are independent of a bank or lending institution and most generally work for the business owner trying to attain that commercial loan.

The value in using a business loan broker is that they, in essence, do the legwork for you. So, it is their job to find the most suitable loan for your company; they will negotiate on your behalf, simplify the loan process, and break it down so that you comprehend all available options. Not to mention, come application time, the loan broker will also help you with the paperwork and requisite documentation.

Reasons Why Your Business Might Want to Avoid Using a Loan Broker

Transparency is everything. If you suspect a broker isn’t being sincere and clear with you during the initial application phase, look elsewhere. Some things that a broker might say/do that you should be wary of…

They Guarantee You Will Get a Loan

There is no guarantee and they cannot with absolute certainty know that you will get a loan. No broker should make such a claim.

They Offer No Client References

Or also a lack of reviews could indicate there is something wrong. A legitimate broker should not be fearful of sharing verifiable reviews left by past clients.

They Do Not Require a Credit Check

In order to see if you can potentially qualify for a loan, they need to know your credit score. Insisting they don’t need one may just be a ploy to lure you in.

You really do want to look at all relevant facts before deciding a) whether or not to use a commercial loan broker and b) which broker to use. Especially as a small business, you cannot afford to make costly mistakes.

If you are looking for funding, First Union is a licensed, accredited, and A+ rated direct business lender. We offer multiple loan products designed with small businesses in mind. Call 863-825-5626 today to find out more!

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