When pursuing external funding for your business, it can be tricky to determine what is your best route forward. With so many options available on the market and several factors to consider when finding the perfect fit for you, researching finance can easily become a full-time job. And when so much of your business potential rests on it, you naturally want to get it right.
If you need support in your funding journey, a business finance broker is a useful asset. By using someone with financial expertise, understanding of the market and the connections to find you suitable lenders and third parties, this allows your business to find appropriate sources of external finance quickly.
Below, we have explained the role of a business finance broker in more detail and why you might want to use one.
What is a business finance broker?
A business finance broker, also known as a commercial finance broker, usually refers to an individual, or firm, that aims to move you along your financial journey. They act as an expert go-between or intermediary between you and the lender by arranging loans and funding for you for a fee. They’ll deal with high street banks, the alternative lending market and other specialist lenders on your behalf. There is a vast range of funding options out there, and it can be a daunting task sifting through them to find the best solution for your business, so utilising a broker with broad knowledge of all types can help you pinpoint your options.
A broker essentially takes the leg work out of the process for you. They generally have access to the whole of the market with existing relationships with lenders and funders. They also understand the application process in-depth, which will ensure that they present the correct information to the right lender based on your businesses financial profile.
The broker will also be your source of commercial financial information. They can give you guidance and advice on all aspects of funding for your business. Because they have access to such an array of commercial lenders, they can ensure the perfect match between you and the lender to meet your funding needs, no matter what stage you’re at in the business lifecycle.
They can also help you to negotiate rates and terms to help you get the best rates possible.
Once you’ve built a relationship with a commercial finance broker, it’s possible to return to them again and again as different funding needs arise. They should spend time discussing your situation with you to identify the avenue to take, so you fulfil your requirements every time. In this sense, having a broker in your toolkit can prove incredibly useful in the long-term operation of your business.
Pros of using a financial broker
There are many advantages to utilising a business finance broker. We’ve listed them here:
- They can take time to understand your specific context. One of the reasons that seeking funding can be so tricky is that there are many factors to weigh up when considering the best fit for you. Brokers will have sight of the whole market and how its many options work. With this, they can find tailored solutions to help you, saving you time and effort on searching.
- They are trained experts. Brokers will have undergone training that makes them adept at finance. As such, they are likely to have a more in-depth understanding than someone who has just started seeking funding. This means they can determine what forms of finance will obtain the best solution in line with your ambitions, as well as flagging up any issues that might make a loan unacceptable.
- They’ve worked with businesses like you. The job of a commercial finance broker is to help enterprises access funding. When you approach one, they will have already worked with many businesses suffering the same issues as you. This means that they have a grasp of the process, what needs to be included in your application and steps you can take to increase your chances of success in line with lender preferences.
- They can refer you to contacts. Brokers tend to have comprehensive networks of contacts in the industry. If you have a specific need that ties in with one of those contacts, they will refer you to progress your funding journey. These contacts could include accountants, lawyers, tax experts, and funders.
- They can prepare you for finance. As well as understanding what funding type will work best for you, brokers can also explain the provisions you need to make when bringing external finance into your business. Examples including improving your business plan, ironing out cash issues in your operations, building your credit score and enhancing your eligibility in loan applications. This can remove hurdles associated with your access to funding so that your chances of approval increase.
Things to consider
If you do choose to use a financial broker, there are some things you need to consider first. This will help you to get the most out of the relationship and find someone who can genuinely benefit your business. Here’s what you need to think about:
- Aim to find a broker who encompasses multiple finance types. As we’ve already mentioned, the lending market is far-reaching with new options added every day. A broker who has knowledge of all the finance types and keeps on top of the market is more likely to understand them and have relevant contacts. This can help you access a more expansive range of support, even finding solutions if you are in a tricky situation (such as being seen as ‘high-risk’ and ineligible for traditional funding).
- There are fees. Brokers will charge for their services, which is an expense to consider on top of any financial commitments you take on. Speak to the brokers before you commit to find out what their fees are, and make sure you can account for this.
- Ensure they are FCA-regulated. The Financial Conduct Authority is the regulator for financial firms. Therefore, any reputable broker should be authorised by the FCA, as this is an indicator that they follow industry rules. If a broker cannot prove they are authorised, you need to be cautious. In extreme cases, they could be fraudulent or untrained. If you use them, it could mean you don’t get the best service or even end up losing money.
- Ensure they are a member of an accredited body such as NACFB. The National Association of Commercial Finance Brokers requires all members to have a Full or Limited Consumer Credit Permission, indemnity insurance, a Data Protection Licence and a proven track record as a broker. As such, membership to these sort of bodies can act as a badge that they can be trusted and reassure you.
The road to external finance varies for every business, but their intention is the same: to secure funding that enables them to achieve their goals without putting a strain on cash flow. This means finding the right solution for your unique needs.
In your bid to obtain funding, a business finance broker can prove a helpful resource. By accessing their expertise, support and networks, you can ensure you identify the best option for you and increase your chances of success in obtaining it.
For more information on choosing the right broker and how we can help you find funding solutions for your business, get in touch today. We’re always happy to help.