Business loan brokers: Do you really need one?

Most common question about small business loan brokers in Australia:

  • What is a business loan broker?
  • What sort of value can a broker add in the quest for seeking a business loan?
  • How much will a broker cost?
  • Who is Australia’s best business loan broker? (and how to apply)
  • When to use a brokerage vs a direct lender or a marketplace?

These are the questions we look to answer as well as ultimately seeking to conclude if a broker is a reliable partner for your business funding.

 

Updated February, 2023,, with our most popular enquiry about business loan brokers –

What is a Business Loan Broker?

A business loan broker performs a role just like a mortgage broker or indeed any other brokerage firm. They act as a middle man between those seeking a loan and the loan providers. They’ll collect information on your business, use their industry knowledge to find you the best match, and, with your approval, apply to small business loan providers on your behalf.

What are the advantages of using a business loan broker?

1. Specialist knowledge and longstanding relationships

A good business loan broker should be able to guide business owners through the loan market and use their expertise and relationships they’ve built with lenders to recommend the most suitable loan providers to each business (including a bad credit business). They should have an awareness of which loan providers will be most likely to accept a business’ application and avoid unnecessarily contacting providers who are a bad match.

If, as a business owner, you’re only aware of a standard business loan and not sure what other products are out there such as invoice financing or a line of credit then a business loan broker should be able to add value in this respect too. Ensuring you receive the most suitable product for your business requirements.

Most importantly a good broker will speak to a much larger number of loan providers than perhaps you would do directly and save business owners precious time in applying to multiple loan providers themselves. 

2. Work with both banks and designated loan providers

If you are keen to use a bank instead of the many specialist loan providers that are now found in Australia, then good brokers should have relationships with banks too. And will manage the more onerous bank application process on your behalf. Remember that in order to work with banks you need a fairly good business credit score.

3. Better rates than going direct?

Theoretically, because the aggregated amount that business loan brokers source from banks is higher than just one sole application, they should be able to achieve a more favourable loan rate from the provider. What this doesn’t take into account of course is the costly fees the business loan broker will take themselves.

4. Cut through the jargon

When taking out a new loan, it’s vital to understand the loan’s terms and conditions to avoid being caught out later down the line. A good broker will be able to highlight all the important T&C’s that your business will need to consider and answer any questions you have about your loan agreement. 

What are the disadvantages of using a business loan broker?

1. They come at a cost

The most obvious drawback to working with a broker to get a small business loan is the cost involved. SME loans are oftentimes costly enough as they are – adding a small business loan broker to the process only further goes to raise the cost. If you do appoint a broker be sure to make the most of the added value they bring – learn more about the sort of fees you can expect to pay later in this guide.

2. May not necessarily find the solution which is in your best interests

Inevitably, small business loan brokers will also have various incentives put their way from lenders for continuing to push clients their way. If a broker is receiving better benefits from a particular lender, they may recommend you go with that lender even if it’s not the best option for your business.

3. Mixed reputation

The business loan broker industry is notorious for having a mixed bag of providers – some have a stellar reputation and high approval rates, others are just looking to make a quick buck. More on this below.

How Much Does a Business Loan Broker Cost?

Typically, a business loan broker will charge anywhere from 5-17% of the total value of the loan. A transparent broker should inform you of the interest rate provided by the loan provider and their markup too. If you’re in talks with a broker who seems reluctant to provide a breakdown of how their rate is calculated then it’s likely that they’re looking to charge unreasonably high fees.

Most commonly the fee will be included in the cost of your business loan but sometimes you may have to pay the broker directly for their services too. Some commercial loan brokers only charge you if they have successfully secured your business a loan, whereas others will still charge a fee even if you they’re not able to successfully match you with a lender.

Can I Trust a Business Loan Broker?

Australian businesses are generally fond of their business brokers. When you go online to read customer testimonials, you’ll see them praising the variety and depth of financing options the brokers have been able to present to them. As an example one broker prepared a cost benefit analysis for their client when comparing over 20 different funding options. 

However, it must be remembered, protection for SMEs with regards to small business loans, is less than that of the consumer protection offered with a personal loan. The ASIC is rather clear on this in a bid to better educate SMEs prior to taking out business loans. We then have to consider small business loan brokers are subject to even less regulation than loan providers themselves. Acting as a middleman between you and the lender you have to be sure the broker has your best interests at heart. Loan brokers will always have the motivation to maximise their own profits, so you have to be aware of this at all times. Each time they make a recommendation is it because it’s what’s best for your business or because it puts more money in their back pocket.

Inevitably small business loan brokers will also have various incentives put their way from lenders for continuing to push clients their way. If a broker is receiving better benefits from a particular lender they may recommend you go with that lender even if it’s not the best option for your business.

Watch out for business loan broker scams

Perhaps most pertinently business owners should also be aware of the rise in scammers acting as small business loan brokers. The most popular con being the “advance fee scam.” A scammer pretending to be a loan broker will ask for an up-front processing fee. Often with the false pretense of 0% interest offers from a number of different providers to follow. Of course none of these do follow and once you pay the upfront fee you never hear from them again. You may have even shared important information on your business and bank account in the process.

If a ‘broker’ doesn’t seem particularly interested in your credit history, or is trying to guarantee they will get your business a loan (learn why there is no such thing as guaranteed approval business loans for bad credit) then these are most likely red flags which tell you this is a scammer. Always opt for brokers that can demonstrate strong customer feedback.

Getting Value From a Business Loan Broker

If you do opt to work with a business loan broker, asking the right questions will ensure you receive a bespoke and professional service that really adds value to your business. Ask these questions each time you seek a new business loan, particularly if you’re working with a new broker for the first time.

Have you helped businesses in my industry successfully receive finance before? 

Always check they have successfully helped businesses in your industry before. It might even be that you’ve found a business loan broker that specialises in your industry, whether that’s agricultural finance or you’re seeking a commercial construction loan.

Are you incentivised to refer to particular lenders?

Check to see if the broker is financially incentivised to refer to a particular lender. It may turn out that the lender they’re incentivised to refer to happens to be your best fit, but always understand if other factors are at play so you can make a holistic decision on whether or not to proceed.

What is the exact fee structure? 

You’ll want a broker which is completely transparent about how they make money and how your fees are structured. If possible, you’ll want to find a broker that only charges you when you’ve successfully received a loan.

How many lenders will you approach for quotes?

One of the biggest benefits to working with a business loan broker is that they’ll approach a number of lenders and do a lot of the heavy lifting for you. Ask your lender to provide you with the quotes they have received from multiple lenders to ensure they are indeed comparing your options to find you the best deal and not only approaching one lender, which you could have done directly.

How long does the process take and what are the next steps?

Be sure to get realistic advice from your broker who should understand the usual turnaround times for different types of finance, through different types of lenders. You’ll want them to be upfront and honest if the process will take a while, such as when taking a loan from a bank or for more niche asset financing. Honesty is the best policy and you don’t want a broker which is promising a fast turnaround just to win your business.

Better Alternative Solutions to Using a Broker

If your goal is to be matched with a small business lender for unsecured financing or secured financing like equipment finance or vehicle finance, then the matching is pretty straightforward. You don’t necessarily need to use a business loan brokerage to do that and you don’t have to pay a markup on your loan to the broker.

Getting matched online (for free)

The most current and up to date solution for business loan financing, which is far more technology-oriented and hence quicker, more straightforward and efficient than brokers, is an online business matching platform.

Below, you can make a 100%-online enquiry to find relevant lenders in Australia. It’s as simple as filling a 2 minute form and hitting the submit button and will enable you to access lend.com.au to see what kind of business loan offers are available to you. This is a powerful tool that is actually used by many business loan brokers in Australia.

Australia’s Best Business Loan Brokerage

When it comes to commercial loan brokers, our choice is Finstead. Finstead is a relatively new brokerage in Australia but the people behind it have dozens of years of experience in the industry. We have met the team and we truly believe that Finstead provides a more holistic solution than one you would get by applying with one lender, and more diversity than you can get with Australia’s lending marketplaces.

  • Use our form to get tailored business loan offers from Finstead: our #1 rated broker.
  • Access to 100+ business lenders with a single application.
  • Clear and transparent terms. Secured and Unsecured financing available.
  • A simple and easy process which will not impact your credit score.

Finstead is a:

  • Commercial loan broker
  • Equipment finance broker
  • Truck finance broker
  • An overall business finance broker that can handle unsecured business loans as well

Bottom Line – Business Lending Brokers

The idea of using an online business broker will always bring the negative connotations with it that arguably it deserves. In a less regulated environment there will always be ‘sharks’ looking to do whatever they can for a quick buck. That doesn’t mean all business loan brokers are out there to get you, and the most successful brokers will always have their clients at front of mind in everything they do. But with expensive fees that could double the cost of your loan, coupled with the rise of free, verified and safe business loan marketplaces, it just doesn’t seem logical to work with a business loan broker until you’ve at least tried these free services first.