Finding the right small business loan can be a drain on your time, energy, and sanity. That’s why many entrepreneurs turn to commercial loan brokers.
There are a few benefits you get:
- Business financing can be confusing, but a knowledgeable broker will cut through the jargon.
- Getting a business loan can depend on who you know as much as how your business is doing.
- Shopping around. As with anything, you’re more likely to find the cheapest option if you compare different choices. That’s what good brokers do.
That said, it’s important to keep your eyes peeled, because loan brokers can be notoriously shady. It’s a lucrative but under-regulated industry—which means the customers often suffer.
So how can you figure out if your commercial loan broker is the real deal—or if they’re just out to score some quick cash?
Here are 6 questions you should ask to find out.
1. How Do They Find the Right Deal?
One of the biggest benefits of hiring a commercial loan broker is that they shop around.
It makes sense once you think about it. If you’re shopping for a new pair of shoes, how do you find the best deal? Do you buy the first ones you spot and hope you got lucky? Of course not—you find a couple of options, weigh their pros and cons, and go with the lowest cost and highest value.
But you have to do the legwork first.
So if you’re working with a broker, make sure they’re doing their due diligence. If your broker will only send your business loan application to one or two lenders, you’re probably missing out on better deals.
And if the broker says they already know what’s best? Make them prove it by showing you multiple offers—and pay extra attention to the next question.
2. How Do They Get Paid?
The name of the game here is incentives. What’s motivating your broker to get you into a loan?
Usually, brokers get paid from the lender when you successfully fund. But sometimes this “fee” is included in your loan cost. And, some lenders will pay brokers more than others, which might motivate them to push one lender over another.
Make sure you understand the fees that your broker will get paid by all lenders and loan products, across the board, to prevent this from happening.
3. Will Your Information Be Secure?
Brokers just looking for a quick buck will sell your phone number, business information, address, and other information to high-paying companies short on ethics.
So, do you want hundreds of calls a day asking if you need another loan? Letters stuffed in your mailbox bugging you to sign up for something you don’t need? Or, more dangerously, professional scam artists who have your business financials and personal credit score? It happens too often.
Ask your broker what their information selling policies are, and carefully read the footnotes on any paperwork you sign.
4. What’s the Actual Cost of Your Loan?
Like I mentioned, there’s not a whole lot of laws regulating what commercial loan brokers can charge you.
That’s why you need to ask for the details of your loan offers. What’s the interest rate? The annual percentage rate? The origination, processing, underwriting, and document handling fees?
Force your broker to break down the cost of your loan bit by bit so you fully understand what you’re paying (and if you’re paying them).
5. What are the Negatives?
No loan is perfect—but untrustworthy brokers will try to convince you that yours is, or that you have no alternatives.
(Hint: there are almost always alternatives. Don’t buy into scare tactics.)
A trustworthy broker will be able to explain the downsides of your loan offers. Maybe that short-term loan could arrive in your bank account in an hour… But it’s expensive. Or maybe you’re eligible for that big, low-cost SBA loan… But it’ll take a few months to process.
Either way, there’s always a negative. If your broker can’t find one, take it as a red flag.
6. Can I Have a Little Time?
Brokers get paid on commission, so they’re motivated to close deals as fast as possible. The longer you take to think about your options, the more opportunities they’re missing out on.
But here’s the thing: they’re working for you, not the other way around. If your broker pressures you into making a snap decision, they’re clearly not invested in what’s best for you and your business.
Taking out a loan is normal for healthy businesses, but that shouldn’t stop you from thinking things through. Make sure you’re comfortable with the deal before signing—and drop your broker if they’re pushing you into a loan you don’t want.
An honest broker can be a big help to your business, but a selfish one can do a lot of harm. Ask these 6 questions to find out which category your loan broker falls into.