Alternative Financing Broker – Should SMBs use this service?

Should small and medium-size businesses use the services of an “Alternative Financing Broker”?

If all the alternative financing solutions are available directly to a small business owner then why would/should they use the services of an “Alternative Financing Broker”?
Do brokers not charge fees? Won’t their fees increase the financing costs? If the broker gets paid by the lender, won’t the broker take the business to the highest paying commission lender?

All reasonable questions, so let’s discuss them one by one.

1. Why use an Alternative Financing Broker? The broker is going to save the business owner a considerable amount of time, since it will be the broker looking for the financing options and not the owner. So the immediate benefit is efficiency of time and labour. The broker has numerous contacts in all areas of alternative financing, therefore they can choose the best lender in that field for your needs. The broker understands all the different forms of alternative financing available to businesses. The broker will be able to determine if more than one form of financing is needed for the business. Unlike an account manager for an alternative lender who only offers their line of financing, the broker is not limited to just one alternative specialty to advise the client. 

2. Do brokers not charge fees? Brokers do earn a fee. Most of the time the fee is paid by the lender in the form of a commission. However, on some financing, the broker will charge a fee directly to the borrower. Generally this is a percentage of the financing delivered to the business. Most brokers (the ones you should work with) will charge only on successfully delivering your business the financing it needs in order to grow. 

3. Won’t their fees increase the financing costs? In some cases the cost of borrowing will increase because of the broker’s fees. In other cases the commissions are already included in the posted financing charges by the lender. Generally, the lender is not going to lower their rate just because they are not paying a broker. What did the business owner get for the fees paid to the broker? The broker saves the owner time looking for financing. The broker goes to the best lender for the businesses situation. If factoring is the solution, then the broker knows which factoring company is best suited for the industry. The broker will be able to determine if more than one form of alternative financing is needed to meet the financing needs of the busines. They will help arrange the merging of more than one financing for the business.

4. If the broker gets paid by the lender, won’t the broker take me to the highest paying commission lender? The answer is “NO”. You are now a client of the broker. In order to keep you as a client, the broker must do the best for you that he/she can. Your business will always be looking for financing, therefore the better the broker does for you the longer you will use that broker. The longer you use the broker the more fees the broker will earn. The better you are treated by the broker the easier it is for the business owner to refer others to the broker. The broker is better off earning less per deal and participate in many deals then to charge the most the first time and never see another commission or a referral. The higher the commission the more the lender has to charge and the less chance they will be successful in getting business. Therefore, in order to be more successful, the lender also doesn’t want to be known as having the highest rates.

5. The expertise of the broker: most brokers come from one area of alternative lending and are an expert in that area and maybe one or two others. However, they are familiar with all areas and have strong ties to lenders in each area. This gives them an advantage when coming up with a financing plan for your business. Most importantly they are not locked into one area of financing in order to help you.

At Money Consultants, we understand the complexities around Alternative Financing Brokers and how these services help small and medium-sized businesses. Write to us or give us a call for a confidential and free consultation.