Posted on April 15th, 2022

Getting funding for your small business—that’s tough work. It takes a ton of time to do all that research, analyze what your business needs, find a respectable lender, negotiate a deal you can live with, understand the terms of your financing, etc. The list goes on and on.

So why not just hire someone to do it for you?

That’s right -- we’re talking about small business loan brokers. These people match up business owners and business lenders like it’s their day job. A broker could save you time, energy, and maybe even money, if you consider the opportunity costs of searching on your own.

Let’s talk about why small business owners get brokers for their business loans—and what you should look out for if you do so. After all, some brokers are known for being "loan sharks" more interested in making a quick buck than helping small business owners get the funding they really need.

Like we mentioned, the conventional wisdom behind hiring a broker deals, mostly, with saving yourself the time and effort. It’s the same principle behind using travel agents, real estate agents, and concierges, if you think about it.

Besides saving time and energy, what are the supposed advantages of partnering with a loan broker?

Get the best rate. Brokers are supposed to float your loan application to a bunch of different lenders so that they can find the best rate possible for your financing. If you went straight to one lender instead, you’d never know if you could have gotten a better deal somewhere else.

Explore alternative options. Even if your funding application gets denied by a bank, a broker should be able to help you look into the alternative lending landscape.

Don’t sweat the details. This goes hand-in-hand with not wasting your time and effort, but the point is really that you can focus on running your business while your broker works on funding it. The nitty gritty? Let a professional handle with it.

They’re experienced. The best brokers have relationships with an extensive network of lenders. They’re people people -- and getting good deals is often all about having the right contacts. Plus, they’ll be able to tell quality deals from highway robbery -- they’ll have seen it all before.

They’re knowledgeable. Debt service coverage ratios? Invoice financing versus merchant cash advances? Business credit versus personal credit? A loan broker’s area of expertise, unsurprisingly, should be loans -- so your broker would ideally be able to explain all the complicated words and acronyms to you without a problem, and navigate all the options out there to save you time and money.

These all sound like great advantages. Except, more often than not, they’re unfulfilled. With so little regulation and so much incentive to make money, the small business loan brokering industry has largely turned to sly and dishonest tactics. And small business owners are the ones who get hurt.

There are still some loan brokers out there who genuinely want to help you and your small business—but be careful. Think through and ask these questions to figure out if your broker is trustworthy.

Original article: https://www.entrepreneur.com/article/269924