Before you can decide whether you want to go it alone or use a broker for business finance you need to know what a broker does.

A broker, such as Pegasus, will take your information and search for suitable lenders or other sources of finance based on the information you give them. Brokers will do this for you for a fee, but that fee reflects their knowledge and experience in the marketplace as to who the right lenders to approach are and ensuring that they have the right information in the first place.

Going it alone means you won’t have to worry about fees, but you will have to find lenders and approach them yourself in order to secure the best funding terms. Most of the time, if you source funding yourself you will go with the first terms you receive as it is just easier, but these may not be the best or the right terms for you.

Benefits of Using a Broker for Business Finance

Brokers are a great means for introduction to lenders across the marketplace. You may not be able to approach certain lenders yourself. Some sources of funding will require you to go through an intermediary.

Here are some things to consider:

• What actually is a commercial broker?
• The pros and cons of using a broker
• Questions to ask
• The pros and cons of going it alone

Gone are the days when business finance was the exclusive preserve of your bank manager and a traditional bank loan. Now, commercial lending is increasingly dominated by alternative lenders who are bridging the gap left by major banks and their reluctance to lend to SMEs. Finance options include invoice discounting, commercial mortgages, merchant cash advances, crowdfunding and peer2peer lending amongst other.

This means you have greater access to business finance, but it can be hard to know where to start. This is true whether you’re a first-time business owner or a serial entrepreneur.

In this blog we delve into the advantages and disadvantages of approaching a lender directly versus appointing a commercial broker to handle your funding for you. With any luck we will leave you knowing whether you’re better off going it alone or appointing some help.

A commercial broker is essentially the ‘middle-man’ between you and a business lender. They aim to get you the best funding solution to meet your needs, in return for a fee.

There are hundreds of commercial finance brokers in the UK, ranging from one-man-bands and franchises with appointed representatives to national workforces. And they’re all working hard to keep up to date with the rapidly emerging alternative finance options available to SMEs, so you don’t have to.

The commercial finance sector is an unregulated market. Business finance brokers are a mixed bunch. They might not be as tightly regulated as say the personal mortgage market, and often lack the regulatory protections that we’re used to in personal financial matters. So, what can you expect them to bring to the table and what should you look out for?

Brokers should be authorised by the Financial Conduct Authority (FCA), this automatically sets them apart from those who aren’t. Certain lenders will not deal with brokers unless they are FCA authorised. Pegasus Funding are FCA regulated, and we display our registration number at the bottom of every page on our website, and on every email that we send out.

Some funding providers will only provide lending through a broker due to the particular nature of their products and services.

Brokers can look at a number of funding options and match them up with specific requirements of the borrower. And some brokers will have expert knowledge of specific types of lending.

Firms like Pegasus Funding are whole market brokers which means that they can source the widest possible range of funding solutions for you, something that would be virtually impossible to achieve on your own without the help of a broker.

And because they cover the whole market, they will be able to save you time — and money. After reviewing your business, they’ll be efficient in approaching the lenders with the best finance products for your needs and get you the best deal.

Finding lenders and applying to them directly is a time-consuming occupation. You may not be sure which options are right for you and there will be lengthy form filling to undertake for each lender.

Appointing a good broker means you only have to provide your information once, to them in one go. They’ll handle the individual applications and lender requests, so you can get on with running your business and await the results.

Because a good broker is worth their weight in gold in it’s worth getting your choice right from the start. Here are some questions you should ask yourself before appointing a broker.

1. Do they have real case studies?

Anyone can set up a website claiming they’re a commercial finance broker. Check if your broker has reviews or testimonials on an independent customer review site or named customer case studies on their website. Pick up the phone and call them to check that they’re legitimate and trustworthy.

2. Are they regulated by the Financial Conduct Authority (FCA)?

The business finance market is largely unregulated, and although many unregulated business finance brokers will provide a great service it is likely to be a safer bet to work with a commercial broker who is authorised by the FCA.

3. Are they restricted to one finance product or closely tied to specific lenders?

As alternative finance has evolved a vast number of new products have emerged. The traditional fixed term loan is just one of the many ways you can finance your business. From financing invoices to borrowing based on your card payments, there are hundreds of options. So, if your broker specialises in one product or represents just a few lender then it’s probably worth shopping around.

4. Are they part of the NACFB?

It shouldn’t be a deal breaker if they’re not, but if your potential broker is a member of the National Association of Commercial Finance Brokers (NACFB),it’s good indication that you’ll receive a good service. NACFB members are required to stick to an industry-recognised Code of Practice.

A business lender is a financial institution that makes loans directly to your business.

Scouting the market and applying directly means you’ll save on broker fees, which means it can work out to be the cheapest option – but only if you know how to pick the right product or lender. It only works if you have time on your side.

A broker can save you time and has access to the whole market. Some commercial lenders will not deal directly with customers.

All lenders will charge you an arrangement fee if you go to them. When you apply directly via a lender’s website there’s nothing to pay a broker.

If there is a story to be told, it is more likely that a broker will be able to do this with a lender than for you achieve this on your own – a lot of the alternative lenders run online systems which do not allow a human element and the results are purely based on the financial information you have supplied. Therefore the chance of less favourable terms or rejections are higher.

You could get the funding you need more quickly by going direct. Brokers are likely to obtain quotes and offers from several lenders. So, it could take longer to obtain finance than if you applied directly to a single lender, however you may not necessarily get the best terms.

But there is a major drawback to all this. You’ll need to do all the legwork. Even though most online business lenders have simple application forms with clear instructions on what documentation is required you may still need to approach more than one lender. If you’re unsuccessful with one lender, you’ll have to fill in more application forms. And you may be required to send in different documents, depending on their requirements.

And this is on top of the time you’ve already invested in researching and deciding which lender to approach. Essentially, unless you know exactly which lender you want to work with, and you’re approved immediately, you may need to invest a substantial amount of time.

That’s why, in the long run, a working with a reputable commercial makes more sense. You save on time and have access to a wider market, which may well save you money.