What a business loan broker does, and how they get paid

A business loan broker — sometimes called a commercial finance broker — sits between a business and the lenders. You give the broker one application; the broker takes it to the lenders it works with and comes back with what they offer.

We are one, so take this with that in mind. But the questions below are the right ones to ask any broker, including us.

What a broker actually does

• Collects the file once. Statements, incorporation documents, ID, the owners. You gather it once rather than for every lender.
• Matches it to lenders. Lenders have different appetites — industries they like, amounts they write, how long they want you to have been trading. A broker knows which ones are likely to say yes to your file.
• Presents it. A file that explains its own soft spots up front reads better than one that leaves an underwriter to find them.
• Brings back the offers. And ideally puts them in a form you can compare.

A broker is not the lender. The lender decides whether to lend, how much, and on what terms. The loan agreement is between you and the lender.

How brokers get paid

There are two models, and you should know which one you are dealing with:

• The lender pays the broker a commission when a loan is funded. This is how we are paid. You pay nothing to us.
• The borrower pays the broker a fee, sometimes up front, sometimes as a percentage of the loan.

Either can be legitimate, but it should be stated plainly before you start. If a commission affects the cost of the loan, the total you repay is still the number that matters — compare that.

When a broker is worth using

• The bank has said no, or not yet, and you are looking at the alternative market.
• You would otherwise apply to several lenders yourself, with the same documents and the same questions each time.
• You want offers you can compare side by side rather than one take-it-or-leave-it quote.
• Your file needs explaining — seasonality, a one-off bad month, a concentration in one big customer.

When it is not

• Your bank will lend to you on good terms. Go to the bank. No broker will beat bank pricing for a business that fits the bank. Bank, BDC or broker covers where each fits.
• You need a government program. The CSBFP goes through your bank; Futurpreneur and Community Futures you apply to directly.

Warning signs

• An upfront fee to "guarantee" approval. Nobody can guarantee a lender's decision, and a fee taken before anything is funded is the oldest trick in the business.
• Vague answers on cost. A broker who cannot tell you the total you will repay, in dollars, before you sign is not helping you compare.
• Pressure to decide today. A real offer is still there tomorrow morning.
• Applications you did not agree to. You should know which lenders see your file.
• No address, no company name, no one to call.

Questions to ask any broker

1. How are you paid, and by whom?
2. Which lenders will see my file?
3. Will applying affect my credit, and when?
4. Will I see the total repayment, the payment and the number of payments before I decide?
5. What happens if I do not accept any of the offers?

Our own answers: the lender pays us; we take your file to the lenders we work with; you see the total you would repay before you decide anything; and if you do not like the terms, you do not take them.

For the steps from here, see how to get a business loan in Canada.