Australian small businesses have a lot more choice today when it comes to business financing than they used to have several years ago. The rise of online, friendly lenders like Prospa, as well as business loan marketplaces like Lend or Become, has offered a myriad of solutions, particularly in the unsecured business lending space, introducing strong competition to the traditional business loan broker model.
Are fintech lenders and online marketplaces truly alternatives to Australia's best business loan brokers? How do they differ, and when should each of them be used? This article will delve into these tricky but important questions.
To start, you can easily access both leading options - Australia’s number one business loan marketplace and a highly recommended business loan broker - using the forms below.
1. Applying for a Loan via a Marketplace
Use our form to get tailored business loan offers within minutes.
A simple and easy process which will not impact your credit score.
Provided by Lend Marketplace with its unique Lendscore™ algorithm.
2. Applying for a Loan with a Broker
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 decades of experience in the industry. Having met with them, we truly believe Finstead provides a more holistic solution, delivered by a team of business loan experts.
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.
Business loan brokers: Do you really need one?
Most common questions 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 July, 2023, with our most popular enquiry about business loan brokers –
What is a Business Loan Broker?
A business loan broker acts as a middle man between businesses seeking a loan and the various different business loan providers – whether that be a bank, an online lender or a specialist loan provider like an asset finance company. In this sense, they are just like a mortgage broker or indeed any other brokerage firm. 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 for each business (including a bad credit business). They should be aware of which loan providers are most likely to accept their application and avoid unnecessary contact with providers that are a bad match.
If you, as a business owner, are only aware of standard business loans and unsure of other products such as invoice financing or a line of credit, then a business loan broker should be able to add value in this regard too. They ensure 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 you would likely do directly, saving business owners precious time in applying to multiple loan providers themselves.
2. Work with both banks and designated loan providers
If you prefer to use a bank instead of the many specialist loan providers in Australia, then a good broker should have relationships with banks too. They can manage the more onerous bank application process on your behalf. Keep in mind that working with banks typically requires a fairly good business credit score.
3. Better rates than going direct?
Theoretically, because business loan brokers aggregate loan amounts from multiple applications, they should be able to negotiate more favourable loan rates from providers. However, this doesn’t consider the fees that the business loan broker will charge 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 highlight all the important terms and conditions that your business needs 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 of working with a broker to secure a small business loan is the associated cost. SME loans are often costly enough when you apply directly and involving a small business loan broker in the process will further increase costs. If you decide to appoint a broker, make sure to take full advantage of the added value they bring. Learn more about the expected fees later in this guide.
2. May not necessarily find the solution that is in your best interests
Small business loan brokers may receive incentives from certain lenders to continue referring clients their way. If a broker benefits more from referring to a particular lender, they may recommend 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 with high approval rates, while others are just looking to make a quick buck. More on this below.
Why opt for a Business Loan Broker?
SME research conducted by one of Australia’s largest online lenders Banjo found that a greater proportion of SMEs opted for a business loan broker in 2023 than 2022. Of the SMEs surveyed, 19% of them utilised a business loan broker in 2022 vs 29% in 2023.
The most common reasons cited by SMEs for seeking the support of a business loan broker included; making the process easy, achieving a lower interest rate and finding an appropriate lender for their business.
Source: Banjo SME Compass Report 2023
Ultimately, there was little variation between any of the responses, which centred on convenience and compatibility.
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, 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 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. If you take the time to read customer testimonials online, you’ll see the majority of borrowers praise 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 that protection for SMEs with regards to small business loans is less than the consumer protection offered with a personal loan. ASIC is rather clear on this in a bid to better educate SMEs prior to taking out business loans. We must then consider that 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 that 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. Every 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 offered to them by lenders to continue pushing clients their way. If a broker is receiving better benefits from a particular lender, they may recommend 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 is the “advance fee scam.” A scammer pretending to be a loan broker will ask for an up-front processing fee. Often with the false pretence of 0% interest offers from a number of different providers to follow. Of course, none of these materialise and once you pay the upfront fee, you never hear from them again. In the process, you may have even shared important information about your business and bank account.
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), these are most likely red flags indicating a scammer. Always choose brokers who 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 truly adds value to your business. Ask these questions each time you seek a new business loan, especially when working with a new broker for the first time.
Have you helped businesses in my industry successfully receive finance before?
Always check if they have successfully assisted businesses in your industry before. You may even find a business loan broker who 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 has financial incentives to refer to a particular lender. While the lender they recommend might be the best fit for you, it’s important to understand if other factors are influencing their recommendation, so you can make an informed decision.
What is the exact fee structure?
You’ll want a broker who is completely transparent about how they make money and how your fees are structured. If possible, 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 most significant benefits of 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 various 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 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 and you don’t have to pay unnecessary broker fees.
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. This will enable you to access lend.com.au and 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 decades of experience in the industry. We have met the team and truly believe that Finstead provides a more holistic solution than applying with just one lender, and more of a personal touch than you get with Australia’s online 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 loan broker will always bring negative connotations that arguably it deserves. In a less regulated environment, there will always be ‘sharks’ looking to do whatever they can for a quick buck. However, that doesn’t mean all business loan brokers are out there to take advantage of.The most successful brokers will always have their clients at front of mind in everything they do. Nevertheless, considering the expensive fees that could double the cost of your loan and the emergence 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.
