The main benefits of using a broker over going direct to a lender are choice, time and expertise. A business loan broker can compare offers from a panel of lenders on your behalf, match you with the ones most likely to approve your application, and handle much of the legwork, while a lender can only offer you its own products.
That doesn’t mean going direct is always wrong, but for many businesses, particularly those with less straightforward circumstances, a broker can make borrowing quicker and easier.
What Is the Difference Between a Business Loan Broker vs a Lender?
A lender is the bank or finance company that provides the money and sets the terms of your loan. A broker doesn’t lend money itself. Instead, it works with a range of lenders, assesses what your business needs and introduces you to the lenders that fit.
If you go direct to a lender, you only see what that one lender can offer. If it turns you down, you have to start again elsewhere.
Will a Business Loan Broker Give Me Access to More Lenders?
Yes. Brokers often work with high street banks, alternative lenders and specialist lenders, including some that don’t deal with businesses directly. This matters because lending criteria vary widely.
One lender may turn down a business that another would happily approve, for example if you are applying for a business loan with a CCJ on your file or have only recently started trading.
A broker knows which lenders are likely to say yes to a business like yours, whether you need an unsecured business loan, asset finance or a credit line.
Will Using a Business Loan Broker Protect My Credit Score?
It can help. Every full application to a lender usually triggers a hard credit search, and lots of these in a short space of time can count against you. A good broker will check your eligibility with a soft search first and only send your application to lenders that are a realistic fit, reducing the number of hard searches on your file.
Read more in our guide: Does Applying for a Business Loan Affect My Credit Score?
Does a Broker For a Business Loan Save Me Time?
Usually, yes. Instead of filling in separate applications for several lenders, you give your details once and the broker does the comparing for you. Brokers also know what each lender will ask for, so they can tell you upfront which documents to prepare and help you avoid delays later in the process.
Is It More Expensive to Use a Business Loan Broker?
Not typically, the main benefit of using a broker is that you get better rates than if you went to a lender directly.
As a customer, you may just go ahead with the first option, not realising that there are much lower rates and more competitive terms available (repayment, length of the loan) – so using a broker should typically help you save money by finding a lender with more favourable terms.
Whilst commission is usually charged (around 5-10% of the overall loan draw down), a lender will also typically charge a transaction fee of a similar amount.
How Do I Know If a Business Loan Broker Is Trustworthy and Safe To Use?
A reputable broker should be clear about which lenders it works with and how it is paid.
Be wary of anyone who asks for a fee before you receive your loan. Fraudsters sometimes pose as brokers or lenders, and the FCA explains how to spot loan fee fraud.
If something goes wrong and you can’t resolve it with the firm directly, small businesses may be able to take their complaint to the Financial Ombudsman Service, which is free to use.
When Might It Be Better to Go Direct to a Business Lender?
If you already have a strong relationship with your bank and only need a simple, small loan, going direct can work well. But if you want to compare options, have been turned down before, or simply don’t have time to research the market, a broker is often the better route.
See also: What Documents Do I Need to Apply for a Business Loan?