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Business Loan Broker: Do You Need One?

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Finding and applying for business financing can be time-consuming and complicated, especially if you don’t have much experience with the process. Business loan brokers can save you time, offer industry knowledge and hopefully help you get the best small-business loan offer. But they aren’t necessary for every business.

Here’s what you need to know about business loan brokers to decide if one is right for your needs.

What is a business loan broker?

A business loan broker is an intermediary between small businesses and different lenders. After learning about your business and financial goals, the business loan broker uses industry knowledge, experience and working relationships with lenders to find loan offers with the most favorable terms and competitive interest rates.

Instead of applying directly to lenders on your own, business loan brokers reach out to them on your behalf, help you complete and submit your loan applications and answer any questions throughout the funding process.

Although these professionals can save you time and help you access lower interest rates, you may have to pay a broker’s fee for their services.

Business loan broker fees

Ideally, the lender pays the business loan broker, but in some cases, these fees are charged to the borrower. Anecdotally, fees typically range from 1% to 6% of the total loan amount but can reach as high as 17%.

Some business loan brokers will add their fees onto the interest rate of your financing, while others will charge you separately after you close on your loan. A reputable broker will never ask for payment upfront before you’ve secured a loan.

When to use a business loan broker

A business loan broker can offer personalized assistance when searching and applying for small-business funding. Although working with a broker isn’t necessary for all businesses, startups that are looking for a first-time business loan — or companies that need specialized financing, like a commercial real estate loan — may find it particularly beneficial.

You might benefit from a business loan broker if you:

  • Don’t want to spend time searching for and comparing lenders on your own.

  • Want a personal relationship with someone who understands your financial needs and can help you get more competitive interest rates.

  • Want assistance submitting loan applications and general advice throughout the financing process.

  • Are applying for a business loan for the first time.

  • Need a specialized type of financing, such as commercial real estate loans, SBA loans or business acquisition loans.

How to find a business loan broker

To find a loan broker for your small business, you have a few options:

Online research

Starting with an internet search can be a fast and direct way to locate business loan brokers in your area. You might also visit your local secretary of state’s website and search for brokers that are registered or licensed in your state, although not all states require licensure.

Professional association websites, such as the American Association of Commercial Finance Brokers and Small Business Finance Association Broker Council, can also be useful resources to help connect you with reputable brokers.

Local small-business organizations

Local Small Business Administration offices, Small Business Development Centers or similar business organizations might be good resources for finding business loan brokers. These organizations offer a variety of free resources and advice to help you finance and grow your business.

You can schedule an appointment with your local center to discuss your funding needs. Staff can help you decide if a broker is right for you and offer guidance for connecting with a reputable one.

Referrals

Talk to fellow small-business owners in your area or in online communities and ask if anyone has worked successfully with a business loan broker. Getting a direct referral from another entrepreneur who had a positive experience can help you feel more confident that the broker is reputable.

Reading reviews on websites like Trustpilot or the Better Business Bureau can also give you a sense of what other business owners have said about working with an individual broker or brokerage.

How to choose the right business loan broker

A good business loan broker should have relevant experience, work with a wide network of lenders and be able to meet your unique financing needs. It can also be helpful to research or ask about a broker’s credentials and training, especially since licensure isn’t required and the profession isn’t subject to federal oversight.

Here are some questions you can ask a broker to help determine if they’re the right fit for your business:

  • How many lenders will see my application? A broker should have a sizable network and be able to submit your application to several targeted lenders to help you get the best possible loan offer.

  • What does your process look like? Before agreeing to work with a broker, you’ll want to understand exactly what’s included in their services and how they operate. If you want someone who will complete loan applications on your behalf, for example, make sure you express that upfront.

  • How long does it normally take to get funded? Timelines may vary depending on the broker and their lender network. If you need financing quickly, you’ll want to make sure the broker has access to lenders who offer fast business loans.

  • Do you make more money working with specific lenders? You want to make sure that regardless of the potential payment, your broker is still looking out for your interests and trying to get you the best loan offer.

  • How long will I have to decide once I receive a loan offer? A broker should give you time — typically a few days — to consider an offer before you need to give a decision. If someone is pushing you to make a decision faster, you’ll probably want to find another broker.

  • How do you charge fees? A broker should be upfront and transparent about the way they charge fees and how much their services will cost. Avoid brokers that won’t provide this information or ask you to pay their fees before securing you a loan.

  • Do you sell my information to third parties? Make sure that your information is protected before agreeing to work with a broker. A business loan application contains a variety of personal data, and a broker should be transparent about what they do with that information when you ask.

Business loan broker red flags

Unfortunately, not all small-business loan brokers are reputable. As you research and compare different brokers, look out for anyone with these red flags:

  • Isn’t concerned about your credit. Brokers need to check your credit to match you with a lender. Any broker claiming that they can get you a loan without a credit check is likely a scammer.

  • Has limited contact information available. You should be able to find multiple ways to contact a broker — a phone number, email address, physical address and a website. If it’s difficult to find information about the broker, go elsewhere.

  • Doesn’t have reviews or references available. A broker should have a list of previous business owners that they’ve funded and be able to provide reviews or contact information for references if you ask. If you can’t find reviews online, or the broker can’t provide any of this information, that’s a big red flag.

Alternatives to working with a business loan broker

Not all businesses need to work with a broker to get a loan.

Established businesses may be able to qualify for equally competitive interest rates on their own, and some small-business owners may prefer to handle the application process themselves. Other businesses simply may want to avoid paying a broker’s fee.

Here are two alternatives to consider when looking for small-business financing.

1. Use a business loan marketplace

A business loan marketplace helps you streamline the process of applying for financing and comparing lenders. You fill out a basic loan application and the marketplace uses their technology to match you with potential lenders.

Some marketplaces help you submit your information to small-business lenders and can provide you with potential loan offers, whereas others simply pass your information along to their partners. Unlike a business loan broker, these marketplaces typically do not charge the borrower a fee.

Using a business loan marketplace can be a good option for accessing faster funding, although you likely won’t receive the same level of personalized attention as you would with a broker.

2. Apply to lenders directly

You always have the option of applying to individual lenders directly, whether submitting a simple application to an online lender or working with a bank to apply for an SBA loan.

Established businesses with strong credit and solid financials will likely be able to access competitive interest rates even without a business loan broker, and they can avoid paying a broker’s fee by applying with a lender directly.

Similarly, if you have a previous relationship with a lender — or are certain of the one you want to work with — you can save time and avoid additional fees by applying with it first.

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Banking

How to Get a Loan to Buy a Business

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Not everyone wants to take on the challenge of building a business from the ground up. An attractive alternative can be to step into a business that’s already up and running by purchasing it from the current owner. Some advantages of buying a business may include easier financing, an established customer base and an existing cash flow.

Buying a business is different from buying a franchise. Franchises have a set business model that’s proven to work. However, when you buy an independently operated business, it’s important to show the lender that you, your previous business experience and the business you want to buy are a winning combination.

What lenders look at when you want to buy a business

Because lenders can view the performance record of an existing business, it’s typically easier to get a loan to purchase an existing business compared with startup funding. However, your personal credit history, experience and details about the acquisition business still matter.

Your personal credit and experience

Through credit reports and credit scores, lenders are able to assess how you’ve managed debt in the past and potentially gain insights into how you will handle it in the future. Your education and experience will also be evaluated.

Solid credit history: Lenders look to see if you have a history of paying your debts. Foreclosures, bankruptcies, repossessions, charge-offs and other situations where you haven’t paid off the full amount will be noted.

Business experience: Having worked in the same industry as the business you want to purchase is helpful. Related education can also be viewed as a positive.

Other businesses you’ve owned

Having a track record of operating other successful businesses can have a positive influence on lenders when it comes to buying a new operation.

Record of generating revenue: Business financial statements can help a lender document that your current or past businesses were well-managed and turned a profit.

Positive credit record: Lenders review business credit scores and reports to verify creditworthiness and to identify liens, foreclosures, bankruptcies and late payments associated with your other businesses.

The business you want to buy

Just because a business is operating doesn’t mean it’s a good investment. Lenders will ask for documentation, often provided by the current owner, to assess the health of the operation.

Value of the business: Like you, your lender will want to ensure that you’re buying a business that has value and that you’re paying a fair price.

Past-due debts: Lenders will be interested in the business’s past-due debts, which may include liens, various types of taxes, utility bills and collection accounts.

Documentation

Most lenders will let you know what they want included in the loan application package, but there are some personal documents that are typically requested, as well as ones related to the business you want to purchase.

Personal documents

The following documents are used to evaluate your personal finances, business history and plans for operating the business after its purchase:

  • Personal tax returns.

  • Personal bank statements.

  • Financial statements for any of your other businesses.

  • Letter of intent.

Business documents

Documents from the current business owner will also be evaluated. Some common ones requested by lenders include:

  • Business tax returns.

  • Profit and loss, or P&L, statements.

  • Business balance sheet.

  • Proposed bill of sale.

  • Asking price for inventory, machinery, equipment, furniture and other items included in the sale.

Where to get a loan to buy a business

Compared with finding a loan to start a business, getting funding to buy an existing business may be easier. Here are three popular funding options to check into for a business loan:

Bank loans

Banks generally offer the lowest interest rates and best terms for business loans. To qualify for this type of loan, you’ll typically need a strong credit history, plus the existing business will need to be in operation for a certain minimum of years and generate a minimum annual revenue amount set by the lender.

SBA loans

If borrowers don’t qualify for a traditional bank loan, then SBA loans, ones partially guaranteed by the Small Business Administration, may be the next option to explore. Because there is less risk to the lender, these loans can be easier to qualify for. Banks and credit unions frequently offer SBA loans in addition to traditional bank loans.

Online business loans

Another option to consider is online business loans. Online business loans may offer more flexibility when it comes to qualification, compared with bank and SBA loans. Minimum credit score requirements can be as low as 600, and in a few cases lower. Generally, interest rates are higher than what’s available with a traditional bank loan.

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Accounts Receivable Financing: Best Options, How It Works

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Accounts receivable financing, also known as invoice financing, allows businesses to borrow capital against the value of their accounts receivable — in other words, their unpaid invoices. A lender advances a portion of the business’s outstanding invoices, in the form of a loan or line of credit, and the invoices serve as collateral on the financing.

Accounts receivable, or AR, financing can be a good option if you need funding fast for situations such as covering cash flow gaps or paying for short-term expenses. Because AR financing is self-securing, it can also be a good choice if you can’t qualify for other small-business loans.

Here’s what you need to know about how accounts receivable financing works and some of the best options for small businesses.

How Much Do You Need?

with Fundera by NerdWallet

How does accounts receivable financing work?

With accounts receivable financing, a lender advances you a percentage of the value of your receivables, potentially as much as 90%. When a customer pays their invoice, you receive the remaining percentage, minus the lender’s fees.

Accounts receivable financing fees are typically charged as a flat percentage of the invoice value, and generally range from 1% to 5%. The amount you pay in fees is based on how long it takes your customer to pay their invoice.

Here’s a breakdown of how the process works:

  1. You apply for and receive financing. Say you decide to finance a $50,000 invoice with 60-day repayment terms. You apply for accounts receivable financing and the lender approves you for an advance of 80% ($40,000).

  2. You use the funds and the lender charges fees. After receiving the financing, you use it to pay for business expenses. During this time, the lender charges a 3% fee for each week it takes your customer to pay the invoice.

  3. You collect payment from your customer. Your customer pays their invoice after three weeks. You owe the lender a $4,500 fee: 3% of the total invoice amount of $50,000 ($1,500) for each week.

  4. You repay the lender. Now that your customer has paid you, you’ll keep $5,500 and repay the lender the original advance amount, plus fees, $44,500. You paid a total of $4,500 in fees, which calculates to an approximate annual percentage rate of 65.7%.

Because accounts receivable financing companies don’t charge traditional interest, it’s important to calculate your fees into an APR to understand the true cost of borrowing. APRs on accounts receivable financing can reach as high as 79%.

Accounts receivable financing vs. factoring

Accounts receivable financing is often confused with accounts receivable factoring, which is also referred to as invoice factoring. Although AR financing and factoring are similar, there are differences.

With invoice factoring, you sell your outstanding receivables to a factoring company at a discount. The factoring company pays you a percentage of the invoice’s value, then collects payment directly from your customer. When your customer pays, the factoring company gives you the rest of the money you’re owed, minus its fees.

With accounts receivable financing, on the other hand, your invoices serve as collateral on your financing. You retain control of your receivables at all times and collect repayment from your customers. After your customer has paid their invoice, you repay what you borrowed from the lender, plus the agreed-upon fees.

Invoice factoring can be a good financing option if you don’t mind giving up control of your invoices and you can trust a factoring company to professionally collect customer payments. If you’d rather maintain control of your invoices and work directly with your customers, AR financing is likely a better option.

Best accounts receivable financing options

Accounts receivable financing is usually offered by online lenders and fintech companies, many of which specialize in this type of business funding. Certain banks offer AR financing as well.

If you’re looking for a place to start your search, here are a few of the best accounts receivable financing companies to consider.

altLINE

A division of the Southern Bank Company, altLINE is a lender that specializes in AR financing. AltLINE offers both accounts receivable financing and invoice factoring, working with small businesses in a variety of industries, including startups and those that can’t qualify for traditional loans.

AltLINE offers advances of up to 90% of the value of your invoices with fees starting at 0.50%. To get a free quote from altLINE, call a representative or fill out a brief application on the lender’s website. If you apply online, a representative will contact you within 24 hours.

AltLINE’s website also contains a range of articles for small-business owners, covering AR and invoice financing, payroll funding, cash flow management and more. AltLINE is accredited by the Better Business Bureau and is rated 4.7 out of 5 stars on Trustpilot.

1st Commercial Credit

1st Commercial Credit offers accounts receivable financing in addition to other forms of asset-based lending, such as invoice factoring, equipment financing and purchase order financing. The company works with small and medium-sized businesses, including startups and businesses with bad credit.

With 1st Commercial Credit, you can finance $10,000 to $10 million in receivables with fees ranging from 0.69% to 1.59%. You can start the application process by calling a sales representative or filling out a free quote form on the company’s website. After your application is approved, it typically takes three to five business days to set up your account, then you can receive funds within 24 hours.

1st Commercial Credit is accredited by the Better Business Bureau and has an A+ rating.

Porter Capital

Porter Capital is an alternative lender specializing in invoice factoring and accounts receivable financing. The company also has a special division, Porter Freight Funding, which is dedicated to working with businesses in the transportation industry.

With Porter Capital, you can receive an advance of 70% to 90% of your receivables and work with an account manager to customize a financing agreement that’s unique to your business. Porter funds startups and established businesses, offering fees as low as 0.75% monthly.

You can provide basic information about your business to get a free quote and receive funding in as little as 24 hours. Although Porter Capital isn’t accredited by the Better Business Bureau, it does have an A+ rating; the company also has 3.7 out of 5 stars on Trustpilot.

Additional options

Although AR financing and factoring are distinct, many companies blur the lines between the two. As you compare options, make sure you understand the type of financing a lender offers.

If you decide that invoice factoring may be a fit for your business, you might consider companies like FundThrough, Triumph Business Capital or RTS Financial.

Find and compare small-business loans

If accounts receivable financing isn’t right for you, check out NerdWallet’s list of the best small-business loans for business owners.

Our recommendations are based on the market scope and track record of lenders, the needs of business owners, and an analysis of rates and other factors, so you can make the right financing decision.

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Finance & Accounting

SBA Loan Collateral vs. Guarantee: What’s the Difference?

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Personal guarantees and collateral are both ways of promising a lender that you’ll make good on your debt. You may have to offer both to get an SBA loan.

Collateral ties a loan to a specific asset, like your business’s inventory or your home, which the lender can seize if your business can’t repay the loan. A personal guarantee promises the lender that you will repay the debt using your personal assets, but may not specify how.

In general, SBA lenders require anyone who owns 20% or more of a business to provide a personal guarantee. SBA loans larger than $25,000 usually require collateral, too.

Do SBA loans require a personal guarantee?

SBA loans usually require unlimited personal guarantees from anyone who owns more than 20% of a business. Lenders may ask for limited or unlimited personal guarantees from other business owners, too.

Unlimited personal guarantee: This is a promise that the guarantor (the business owner) will pay back the loan in full if the business is unable to. The lender doesn’t have to seize collateral or seek payment from any other source before going straight to the loan applicant for loan repayment.

Limited personal guarantee: If you own less than 20% of a business, you may have the option to sign a limited personal guarantee instead. The limited personal guarantee caps the amount you’ll have to pay the lender, either as a dollar limit or a percentage of the debt.

Limited personal guarantees can be secured by collateral, which means the lender will seize those assets when they recoup payment instead of asking you to pay back a certain dollar amount.

Who has to personally guarantee an SBA loan?

The SBA requires personal guarantees from:

  • Individuals who own more than 20% of a business.

  • Spouses who own 5% more of the business, if their combined ownership interest is 20% or more.

  • Trusts, if the trust owns 20% or more of the business.

  • Trustors, if a revocable trust owns 20% or more of the business.

SBA lenders may require additional personal guarantees.

Do SBA loans require collateral?

For SBA 7(a) loans of between $25,000 and $350,000, SBA lenders have to follow collateral policies that are similar to the procedures they’ve established for non-SBA loans. Banks and credit unions are usually the intermediary lenders for SBA 7(a) loans.

If you use an SBA loan to finance specific assets, like an equipment purchase, the lender will take a lien on those assets as collateral. The lender may also use your business’s other fixed assets as collateral, and you may have to offer personal assets, too.

For SBA 7(a) loans larger than $350,000, SBA lenders need collateral worth as much as the loan. The lender will start with your business assets. If they need more collateral, the SBA requires them to turn to the real estate you own personally, as long as you have at least 25% equity in the property.

Live Oak Bank is the largest SBA 7(a) lender in the U.S. by volume. Its loans may require collateral in the form of:

  • Personal residences.

  • Retirement accounts.

  • Commercial real estate.

  • Equipment.

  • Commercial vehicles.

  • Accounts receivable.

  • Inventory.

What if I can’t provide collateral or a personal guarantee?

If you’re seeking any type of SBA loan, there’s a good chance you’ll have to provide both collateral and a personal guarantee. Even SBA microloans usually require collateral and a personal guarantee. Without them, you’ll have trouble getting an SBA loan.

Some online lenders offer unsecured business loans, which don’t require collateral. But you may still have to sign a personal guarantee.

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