Should You Hire a Commercial Loan Broker? (2023)

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Trying to figure out your financing options as a small business owner can be tricky. Many owners are so busy with their daily business operations that they don't have the time to also become a one-person finance department.

If this sounds like you, going to a commercial loan broker might be a good option. Business loan brokers can help you find the best financing options and simplify the loan application experience so you can focus on running your business.

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What is a commercial loan broker?

A businessloan brokeracts as an intermediary between you and creditors. You are certainly free to shop for a business loan with each individual lender, and many people do. However, if you don't have the time or are unsure about the loan research process, a commercial loan broker may be helpful.

Commercial loan brokers connect you with the lenders they work with. The working relationships they have with specific lenders allow them to know which ones are best for their company's specific financial situation. Brokers will submit applications to lenders on your behalf and, if approved, turn you over to the new lender to complete your loan payment.

Some commercial loan brokers may charge upfront fees to the borrower, but most reputable brokers are paid by the lender. The cost varies as there are no standardized or regulated commission rates. Most brokers charge between 1% and 6% of the loan amount.

Commercial Loan Broker vs. trade creditor

trade creditorsThey are institutions that lend money directly from their own accounts to entrepreneurs. Commercial loan brokers, on the other hand, don't lend you money, they find the best lender and help coordinate the process.business loan application process.

Types of commercial loan brokers

Most commercial loan brokers specialize in certain types of commercial loans. So first make sure you know what kind of product you're looking for, and then choose a commercial loan broker that specializes in that product.

commercial loan brokers

Commercial loan brokers have knowledge of and access to various loan products. If you're not sure what type of loan you need, a commercial loan broker can provide several options to help you determine which one is right for you.

Related: The best small business loans

startup loan brokers

Obtaining financing as a new business can be challenging because most lenders have a minimum time in business requirement. Commercial loan brokers specializing inseed foundationcan help you overcome this barrier.

Related: The best loans for startups

billing brokers

Invoice billing is a type of financing where you sell your invoices to a factoring company for a fee in exchange for cash up front, typically 85-95% of the total invoice amount. The factoring company is in charge of collecting the invoices and, once collected, you will receive the remaining amount, less the commission. Invoice factoring brokers can help you find factoring companies with the best terms.

Equipment Financing Brokers

equipment loansare secured loans that requireguarantee— something of value that creditors can recover if the company defaults. In this case, the guarantee is usually on the equipment that you are financing. It is ideal to use an equipment finance broker because of the additional requirements they understand.

Business Money Advance Brokers

Merchant Cash Advances (MCAs) give you an amount of money that you pay over time as a percentage of your receipts. This type of loan can be expensive, but it allows you to repay your loan with payments that increase with your cash flow. MCA brokers can help you determine if this expensive business financing is right for you and, if so, find a lender that meets your needs.

When should you use a commercial loan broker?

It's a good idea to consider a commercial loan broker if you want to find the best possible deal without doing the research yourself. Researching different loan options is time consuming and it is not always clear which one will be best for you.

Commercial loan brokers also have access to information that may not be available to you or listed on the lender's page. They are also often more familiar with each lender's approval criteria, which many lenders do not share with potential customers. Having someone on the inside with more knowledge than you can help you find the best fit faster than you would on your own.

This point is especially relevant if you have a less than ideal situation, such as if you are a startup or if you havedamaged personal credit. A commercial loan broker can help you find the best options among the lenders that can work with you.

How to choose the best commercial loan broker

You can find commercial loan brokers through a few different routes. A simple Google search is always the most direct route, but it's also a good idea to ask other business owners and even your local small business development center for recommendations.

Once you get a list of a few commercial loan brokers, contact them for more information and ask:

  • With how many creditors do you associate?A lender who works with more lenders is more likely to give you better results.
  • How many applications will you send?A lender who only applies to a few specific lenders shows that they have more experience than someone who takes a shotgun approach with many applications.
  • How is your process?Find out how much work is required of you before you start.
  • How long does the process take?Commercial loan brokers are usually very fast, but be sure to be on time before accepting their services.

It's also crucial to look for reviews from independent sites like the Better Business Bureau (BBB), Trustpilot, and Google. You can also ask your commercial loan broker for references from past clients that you can talk to.

Commercial Loan Broker Red Flags

Commercial loan brokers can make a lot of money, and that can attract some shady characters. Watch for these red flags when shopping, even if the broker:

  • it is hard to get
  • It has bad reviews, especially the most recent ones.
  • Requires you to pay for their services instead of the lender
  • He has a website with vague information and only one way to contact.
  • It only works with a lender (in this case it is a seller, not a broker)

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(Video) Hiring A Commercial Real Estate Broker

Conclusion

Commercial loan brokers can save you a lot of time and money when looking for a loan. Some people choose not to work with brokers because they fear they will be steered toward certain loans (ie, those with the highest rates) or that they will find cheaper rates by approaching lenders on their own.

This is certainly possible, but if you stick with reputable commercial loan brokers, you'll generally have a better experience than not. This is especially true if you're short on time, unsure of what to do, or have unusual funding requirements.

(Video) What is a Mortgage Broker & Why Should you Hire one?

FAQs

What questions should I ask a commercial real estate banker? ›

Do you lend on acquisition, construction, value-add, and stabilized perm projects? What are your typical loan terms? Do you lend only in the senior position or can you provide mezz / pref financing also? Are you able to provide equity?

Why is it better to go through a broker? ›

Working with a mortgage broker can potentially save you time, effort, and money. A mortgage broker may have better and more access to lenders than you have. However, a broker's interests may not be aligned with your own. You may get a better deal on a loan by dealing directly with lenders.

Can a broker get me a better rate? ›

In some cases, a mortgage broker can also find you a cheaper deal. This may be the case even if you have to pay a fee. However, it's always worth comparing the deals a mortgage broker finds with those you can get yourself. In fact, some lenders only make their best deals available to direct customers.

What questions should I ask a broker? ›

Ask These 20 Questions When Choosing a Real Estate Broker
  • What are your commission splits? ( i.e. does the broker get 40% and you take 60% of the commission earned)
  • Are there any franchise fees? ...
  • Do you offer a commission cap? ...
  • Are there any other brokerage-related fees? ...
  • What other expenses might I be responsible for?

What are the five fundamental questions that a bank asks when evaluating a commercial loan request from a customer? ›

Lenders score your loan application by these 5 Cs—Capacity, Capital, Collateral, Conditions and Character.

What are good questions to ask a banker? ›

10 questions to ask about your checking account
  • Does the bank have online banking and a mobile app? ...
  • Where are the bank's branches? ...
  • What are the bank's fees? ...
  • What are the minimum balance requirements? ...
  • Can I use an ATM for free? ...
  • What happens if I try to withdraw more money than I have in my account?

What is the best way to choose a broker? ›

Key Takeaways
  1. Your choice of broker should reflect your investment style—whether you lean toward active trading or a more passive, buy-and-hold approach.
  2. Always make sure your broker is fully licensed by state regulatory authorities and FINRA and registered (individually or via their firm) with the SEC.

Why a broker is better than an agent? ›

Real estate agents and brokers are both specialists adept at helping their clients navigate the tricky process of selling, buying or renting homes. But brokers typically have more in-depth training than real estate agents, and they often operate in supervisory roles, overseeing agents who work for them.

When should you start talking to a broker? ›

When should you speak to a mortgage broker?
  1. When you're first thinking about buying a home or investment property. ...
  2. When you've saved up a deposit. ...
  3. When you're going for pre-approval. ...
  4. When you're actively going to house inspections. ...
  5. When you're refinancing your current home loan.

Can you trust a broker? ›

In short, yes, many are. Real estate agents, realtors, and brokers are like most professionals working directly with clients. They know to build a strong career, they need their clients to trust them.

Is it better to use a mortgage broker or a bank? ›

Are brokers better than banks for getting a mortgage? Mortgage brokers typically have two main advantages over banks. They offer access to a wider selection of mortgage products and they can leverage their relationships with multiple lenders to get their clients better rates.

How do brokers make so much money? ›

How does a broker make money? Brokers are typically compensated through a commission on each trade. Investors have historically paid a broker a commission to buy or sell a stock.

What kind of advice can brokers provide? ›

Specifically, they can help you make informed decisions about investments to buy and sell stocks, bonds, mutual funds and other financial products. Often, an individual broker works for a large brokerage firm, like Merrill Lynch or Morgan Stanley. You work with this person to buy and sell investments.

What to expect in a meeting with a broker? ›

Going to your first meeting with all the information prepared, will make it much easier for you. You should expect your finance broker to ask a range of questions about your current and future lifestyle and financial situation, so they can take into account factors such as whether you are planning to start a family.

What questions to ask a business broker when buying a business? ›

Questions To Ask Your Potential Business Broker
  • What's Your Valuation Process? ...
  • How Will You Protect The Confidentiality Of The Process? ...
  • Do You Have Qualified Buyers For Businesses Like Mine? ...
  • What's Your Pricing Strategy? ...
  • How Many Years Of Experience Do You Have As A Broker? ...
  • What Do You Charge?

What are the 5 Cs of commercial credit? ›

One way to look at this is by becoming familiar with the “Five C's of Credit” (character, capacity, capital, conditions, and collateral.)

What are the 5 Cs of credit in commercial banking? ›

The five Cs of credit are character, capacity, capital, collateral, and conditions.

What are the four 4 Cs of lending? ›

Standards may differ from lender to lender, but there are four core components — the four C's — that lender will evaluate in determining whether they will make a loan: capacity, capital, collateral and credit.

What is secret question in banking? ›

Secret questions are an extra layer of security for your online banking – they'll help keep your details safe and secure if you're not registered for SMS code.

What are some high gain questions? ›

There are many types of high gain questions.
...
Sentiment Gaugers
  • “How are you feeling about this conversation so far?”
  • “How are you feeling about the product now vs. ...
  • “We covered a lot of ground just now. ...
  • “What's exciting you most about the product?”
  • “Have I said anything that's raised any concerns?”
Dec 1, 2022

How much should I pay to broker? ›

Realtors and real estate brokers typically charge around 5% to 6% of the selling price of a house. 2 This is often split between the seller's agent and the buyer's agent. Some discount real estate brokerages may charge a lower rate or instead offer a fixed-fee service. E-Trade.

What percentage do most brokers take from agents? ›

The brokers then split their commissions with their agents. A common commission split gives 60% to the agent and 40% to the broker, but the split could be 50/50, 60/40, 70/30, or whatever ratio is agreed by the agent and the broker.

What are the two most important qualities that a broker should look for in choosing a carrier? ›

What are the two most important qualities that a broker should look for in choosing a carrier? The carrier has a valid motor carrier license and proper insurance to protect the shipper.

What are the disadvantages of agents and brokers? ›

Taking undue advantages of their position, the middlemen may even alter the marketing of services of the principal. This issue could be detrimental when a service provider relies on a high price to indicate a level of service quality. If the price can be reduced, it may undermine the brand image.

What are the 2 main differences between agents and brokers? ›

Agents represent insurance companies. Brokers represent consumers. Agents sell policies from insurance companies they represent. Brokers search for policies from different insurance companies.

How important is a broker? ›

A broker is a person that facilitates transactions between traders, sellers, or buyers. Think of a broker as a middleman who ensures that the transaction can run smoothly and that each party has the necessary information. Brokers exist in many industries, including insurance, real estate, finance, and trade.

What is the difference between a lender and a broker? ›

A lender is a financial institution that makes loans directly to you. A broker does not lend money. A broker finds a lender. A broker may work with many lenders.

Do brokers give you clients? ›

Yes, most brokers do not provide leads. All the leads are usually generated by agents themselves. Some of the larger firms with a bigger footprint the broker will give leads to the top producers in the office. You should look for a bigger firm to work for with a few big producers in the office.

When should you approach a mortgage broker? ›

When should I speak to a mortgage broker? Ideally, you should speak to a mortgage broker as early as possible in the house-buying process. This is because you need to begin your mortgage application before you have started to seriously look at buying a property.

How do you know if a broker is scamming you? ›

Visit FINRA BrokerCheck or call FINRA at (800) 289-9999. Or, visit the SEC's Investment Adviser Public Disclosure (IAPD) website. Also, contact your state securities regulator. Check SEC Action Lookup tool for formal actions that the SEC has brought against individuals.

What happens if a broker is wrong? ›

In theory, if you have lost money because your broker (or any financial institution) gave you bad advice, mismanaged your investments, misled you, or took other unlawful or unethical actions, you can sue for damages. If these breaches of duty are provable, the "merits of the case" are strong, as a lawyer would say.

How do I find a trustworthy broker? ›

It's just a matter of knowing where to look in order to find it.
  1. Is Your Broker Trustworthy? How to Find Out.
  2. #1 – Check Out Independent Review Sites.
  3. #2 – Go Directly to the SEC.
  4. #3 – Take the Word of People You Trust.
  5. #4 – Talk Directly to the Broker.
  6. Summary.
Mar 13, 2017

Do billionaires use brokers? ›

What brokerage firms do billionaires use? Many very wealthy individuals use the top brokerage firms, such as Fidelity, Schwab, Vanguard, and TD Ameritrade, among others. They invest in private equity and hedge funds.

Why do brokers charge so much? ›

Why are broker fees so high? Almost all brokers are independent contractors, meaning they don't have a salary and their broker's fee is the only money they make when they rent an apartment.

Do brokers give financial advice? ›

Online brokers are Internet-based platforms that allow clients to buy and sell securities on their own. Stockbrokers do not provide investment management advice or portfolio management as part of their basic description.

What do brokers want from lenders? ›

The clearest incentive for an agent or broker to work with a lender is a strong service experience, but product availability is equally as important. An agent has to know the lender will be able to serve referred clients, which means having access to a variety of loan products with competitive pricing.

Is it worth going through a broker? ›

Working with a mortgage broker can potentially save you time, effort, and money. A mortgage broker may have better and more access to lenders than you have. However, a broker's interests may not be aligned with your own. You may get a better deal on a loan by dealing directly with lenders.

Why should I go through a broker? ›

The first thing a broker will do is meet you and get a better understanding of what it is you want. Brokers are, after all, your finance professionals, so the better they get to know you, your financial circumstances and long-term goals, the better they can match you with a product that is right for you.

What obligations does a broker have to the customer? ›

A broker who becomes a fiduciary of his client must act with utmost good faith, reasonable care, and loyalty concerning the customer's account, and owes a duty to keep informed regarding changes in the market which affect his customer's interests, to act responsibly to protect those interests, to keep the customer ...

What benefits might you realize from using a business broker? ›

If you're thinking about selling your business, consider the advantages of using a business broker. An experienced, professional business broker will ensure confidentiality, attract the right buyers, negotiate the best terms, and bring your sale to a successful closing.

What do I need to know about commercial banking? ›

What Is a Commercial Bank? The term “commercial bank” refers to a financial institution that accepts deposits, offers checking account services, makes various loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses.

What makes a good commercial banker? ›

Successful bankers possess a combination of service-based skills (such as relationship building, organizational, and management skills) and technical skills (such as business and financial assessment).

What to expect in a commercial banking interview? ›

In-depth commercial banking interview questions

What types of loans do commercial banks offer? How might you evaluate the creditworthiness of a company? State three issues facing commercial banks today and offer potential solutions. How do you analyze a set of financial statements?

What is the goal of a commercial banker? ›

Developing, negotiating and closing commercial loans. Managing corporate, government or institutional accounts. Marketing their bank to attract new clients. Offering financial advice tailored to a client's specific needs.

What are the five 5 key functions of a commercial bank? ›

General Utility functions: To provide safety locker facility to customers, provide money transfer facility, issue travellers cheque,provide debit cards and credit cards and provide merchant banking facility.

Should I go into commercial banking? ›

If you like working with numbers and are finance-focused and people-oriented, working in commercial banking might be a good field to break into. You could explore a variety of different roles while pursuing your education. It could also be a good option if you're looking to make a transition into a new field.

What are the most important assets of a commercial bank? ›

The bank's assets include cash; investments or securities; loans and advances made to customers of all kinds, though primarily to corporations (including term loans and mortgages); and, finally, the bank's premises, furniture, and fittings.

What are the most important ratios for commercial banking? ›

Among the key financial ratios, investors and market analysts specifically use to evaluate companies in the retail banking industry are net interest margin, the loan-to-assets ratio, and the return-on-assets (ROA) ratio.

What is the difference between business banker and commercial banker? ›

'Business' banking generally refers to the services used by smaller companies, including sole traders. 'Commercial' or 'corporate' banking generally refers to the services used by larger enterprises with a high turnover.

How stressful is commercial banking? ›

Stress. Some jobs in commercial banking might lead to a lot of stress, given the sensitivity of dealing with money and customers. Also, you might feel plenty of pressure if you're not wild about handling financial matters or not especially comfortable with technology.

How do I prepare for a commercial interview? ›

If you are preparing for a job interview and want to demonstrate your commercial awareness, here are some quick tips to help you shine in the process:
  1. Do your research. Try to know the ins and outs of the company. ...
  2. Demonstrate your willingness to learn. ...
  3. Be confident in your ability and knowledge.
Apr 20, 2023

How can I impress in bank interview? ›

Once you master the small talk, here are some tips that will help you impress your interviewer.
  1. Work on your handshake. Don't offer up a flimsy or sweaty hand. ...
  2. Get serious. ...
  3. Get the practice. ...
  4. Be enthusiastic. ...
  5. Ask questions. ...
  6. Tell a story. ...
  7. Show restraint. ...
  8. Be memorable.

How to answer the why commercial banking interview question? ›

Common perks include high salaries, good benefits and excellent working conditions. Even if these are your main motivation for working in banking, focus most of your answer on personal goals or interests related to banking. This may show your interviewer why you're a good candidate.

What do commercial bankers do in simple terms? ›

Commercial bankers provide clients with information about banking solutions and credit products. They advise customers on loan options and cash management services, analyze credit conditions, and manage accounts.

What is the life of a commercial banker? ›

On a typical day, commercial bankers may be involved in reviewing loan applications, supervising bank staff, coordinating personnel, meeting with customers, offering proper financial advice, preparing lease agreements, promoting the bank's services, and reviewing the status of accounts.

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References

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