Business loan brokers: what they do and how they are paid

What does a business loan broker do?

Four things, in order.

Choose the product

They assess the business, the purpose and the security and decide which product fits: term loan, line of credit, invoice finance, asset finance or a property-backed loan.

Pick the lender

They know the lender panel, which in business lending runs from the four banks through the mutuals to thirty or more online and specialist lenders, each with its own turnover, trading-history and industry policy, and they pick the lender likely to approve at the best price.

Package the application

They prepare the file in the form that lender wants: bank statements, financials, BAS, and a cash flow forecast for larger loans.

Negotiate

Fee waivers, the rate, the security position and the term. A good commercial broker also tells you when not to borrow, and when a cheaper structure, such as asset finance for a vehicle rather than an unsecured loan, does the same job for less.

How are business loan brokers paid?

Usually by the lender, as a commission on the settled amount, sometimes with a trail. Some brokers also charge the borrower a fee, either instead of commission or on top of it, particularly on complex or small deals; business.gov.au puts it simply: some brokers charge for their services, while others are free and get a commission from the lender.

Because business lending is outside the National Credit Act there is no legal requirement to disclose commissions in the form that applies to home loans, and no Best Interests Duty. Reputable brokers disclose anyway; ask for the fee and commission arrangement in writing before you sign an engagement, and walk away from one who will not provide it.

If you are matched through Your Finance Guide: Your Finance Guide is free to use. Licensed brokers who meet our criteria pay Your Finance Guide a partnership fee to receive enquiries from this site. The fee is paid by the broker, not by you, and is not added to your loan. Brokers are usually also paid a commission by the lender when a loan settles. Full details are in our Credit Guide.

Why is there no Best Interests Duty on business loans?

Because the duty is part of the consumer credit regime. ASIC's position is that a loan that is not predominantly for personal, domestic or household purposes is not regulated under the National Credit Act, and "predominantly" means more than half the purpose.

Business loans, investment lending to property developers and most commercial finance fall outside it. The consumer protections you may know from a home loan, responsible lending assessments, commission disclosure and the Best Interests Duty on brokers, therefore do not apply. The industry bodies (FBAA and MFAA) set conduct standards for their members, which is why membership is worth checking.

When is a business loan broker worth using?

When the loan is large enough that lender choice changes the price, which is anywhere above a small unsecured loan. When there is security involved, because the structure of a property- or asset-backed deal is where brokers add most. When a bank has declined you, because a broker knows which online and specialist lenders say yes to that file.

And when time matters more than money: a broker who has done the same deal before knows which lender's criteria fit, rather than a first application to the wrong lender. For a $10,000 to $50,000 unsecured loan from an online lender, the online lenders' own applications are fast and the broker adds less; some still use one to avoid a string of declined enquiries on the credit file.

What should you ask a business loan broker?

• How are you paid, and by whom? Commission, fee, or both, in writing.
• How many lenders are on your panel, and which ones? Fewer than 15 for business lending is narrow.
• Have you funded a business like mine? Industry and structure matter; a broker who works cafes and tradies may not know medical practice lending.
• Are you a member of the FBAA or MFAA? The conduct standards fill part of the gap the Credit Act leaves.
• Will you tell me if I should not borrow, or should use a different product? The answer tells you whether they are advising or selling.

What can a broker not do?

Make a lender say yes to a file that fails its published floors. Every unsecured lender sets minimum trading history and turnover, from four months and $12,000 a month at Bizcap to twelve months and $100,000 a year at OnDeck, and a broker cannot move those. What they can do is know which floor you clear today, and which lender to use first so a later loan still fits another lender's policy. The borrowing capacity guide lists the published thresholds.