Working with a Broker for a Small Business Loan? What you need to know.  

If you are a small business owner seeking funding, you may feel overwhelmed with the number of online sites. Brokers or Independent Sales Organizations (ISOs) have formed an important part of the small business financing landscape.  A representative from one of these organizations often plays the role of processor, educator, negotiator, and advisor.  Although some industry Brokers or ISOs have a challenging reputation, many are truly passionate about helping small businesses grow. After all, most are small businesses themselves and understand the day-to-day challenges of business owners. 

One of the challenges working directly with a Broker is the lack of mandate to share all approvals.  This can create a misalignment of interest with the client or business owner.  Some groups will only present opportunities that maximize their commission but are not necessarily the best financing opportunity for the business customer. 

In certain cases, it is better for the small business owner to work directly with a funder that has an established referral network.  The benefit is the funder will comprehensively underwrite your file, unlike many brokers, which provides greater insights into the business profile and type of funder is best.  If not a fit, most funders have other relationships your financing package can be discreetly provided to access alternative offers.  If you do choose to work directly with a broker, here are some tips to help you:

1. Research brokers: Look for brokers with experience working with small business owners in your industry. Check online reviews (Google, Trustpilot) and ratings, and ask for referrals from other business owners in your network.
2. Be prepared: Before approaching a broker, understand your capital needs and how you will utilize the capital.  Think about your desired term and repayment plan and what the business projections suggest can support payback. This is especially true if the business was recently impacted by seasonal revenue fluctuations.
3. Ask questions: Ask the broker about their experience working with small business owners, the types of loans they typically secure, and their fees.  Ask if the funder is paying the broker and if they expect to take fees directly from your business account after you receive the capital. 
4. Ask for All Offers: Don’t accept the first offer.  Ask your broker to provide you with other offers.  Compare offers to ensure you move forward with the funding that best fits your needs.  Make sure you understand the terms of any funding before you agree and sign the contract.
5. Stay involved: Keep in touch with your broker throughout the loan application process. Ask for updates and be responsive to any requests for information or documentation.

Remember, working with a broker can be a helpful way to access funding for your small business, but know your options and how they are being compensated for funding your deal.  Discussions directly with a funding source that has a network of additional referral relationships can provide greater credit profile insights and a more efficient funding process. 

Author: Tim Mages, Expansion Capital Group Chief Strategy Officer