Commercial Finance Brokers
As a business owner, you’re likely to find yourself in need of business finance to help you acquire new customers, fund an expansion, or help you out in a tight spot. How, though, do you go about choosing the right type of finance quickly and effectively?
The answer to that question might be via a broker. In this article, we’re going to take a look at the role commercial finance brokers play within the business finance landscape, and help you determine what type of broker could help your business.
What is a commercial finance broker?
A commercial finance broker typically manages a portfolio of finance products, sometimes from a range of different lenders, rather than a singular product. They exist to connect business owners to the right finance products.
The term ‘commercial finance’ simply describes the B2B external finance a business uses. In a commercial finance agreement, a lender such as a bank or online lender, may offer a finance product to a business. Examples of this include:
- Business loans
- Invoice financing
There are a range of products in market, and once one has been chosen - the business must agree on repayment terms, interest rates, and the likes.
But which type of finance product should a small business owner choose? Which lenders are the most reputable, and which solution is the most tailored to their individual needs? These questions are often difficult to answer, and they’re exactly the kind of questions a broker could help with.
A broker’s key purpose is to connect businesses with the right type of finance products; leveraging their industry expertise and up-to-date financial product knowledge to help businesses find the finance package needed to grow, for a fee.
With that in mind, let’s take a look at some of the common types of broker you’re likely to encounter in your search for business finance.
Types of commercial finance brokers
These are relationship-based individuals, who liaise directly with businesses and seek to learn as much as possible regarding the business’ financial circumstances, business objectives, and external funding needs. Through this process, these brokers can offer tailored advice; sensibly suggesting appropriate finance packages.
For example, having learnt of the business’ vast inventory and accounts receivable, they may recommend an asset finance solution to a business owner seeking out a commercial mortgage.
Rather than suggesting only one product, a traditional broker will often present a range of options back to the business. Frequent communication and a direct connection between the two parties make this process extremely tailored and personal.
At the complete opposite end of the spectrum is an online digital broker, or affiliate service. Think along the lines of your typical Money Supermarket experience. It involves the following steps:
Step 1. Inputting your details into a digital platform
Examples of the kind of details you’ll likely need to share include your lending requirements, the level of insurance you’re able to offer, and relevant information about your company’s financial history.
Step 2. You’re served a range of different finance options
Depending on your search criteria, a digital platform could serve you up to a thousand results depending on how strict your search parameters are, likely giving you options to further filter the list.
Step 3. You can request a quote
Having identified a finance package that looks suitable for your business, or even multiple packages, you can request a quote via the platform. The lender will typically pay a fee to the broker platform once a quote has been requested.
This style of broker finance is useful for processing a high volume of customers given it is incredibly quick and low maintenance. However, these platforms are best used by those who understand the lending landscape, and know exactly what they are looking for.
If the person seeking finance doesn’t really understand which financial package they need, or what the difference between the hundreds of options in market actually is, then there’s a good chance they could end up choosing the wrong product.
In this instance, a traditional broker can better leverage their personal experience and insights to serve as a guide.
It’s also worth giving an honourable mention to hybrid broker models, whereby prospective borrowers fill out an application, and then are put in touch with a traditional broker. This approach can be particularly useful for lenders who want to put their product in front of a lot of potential customers, but have a complex offering that can’t be explained in just a few words.
Why use a commercial finance broker?
Now that we’ve mapped out the broker landscape, only one pressing question remains. Do you really need to use a commercial finance broker? Here are some pointers to help you answer this question.
It can depend on your expertise
Some of the offerings available in today’s market are significantly different to the traditional products known to all. That’s because open banking technology is enabling fintech innovations which are changing the fundamentals of business finance, such as how risk assessments are conducted and how quickly businesses can secure access to cash.
If you’re very clued in on the latest in SME finance, you may be able to manually locate external finance without too much difficulty. However, if you’re like the many business owners we’ve worked with at Rapid Cash, who are constantly pressed for time as they strive to push their businesses forward – then a broker could be incredibly useful.
Brokers are in demand
Brokers are becoming more relevant each year. That’s because conventional business loans and overdraft products were known to be quite cheap, which may have meant that investing extra time into researching products was deemed unnecessary. What we’re increasingly seeing today, though, is that some of the fintech products created are able to offer more competitive interest rates, with fewer barriers to entry. Consequently, there’s a decision to make on time versus money.
Would you be better off spending time learning about new products, contacting businesses to gain extra information, and mapping out the finance landscape yourself? Or would paying a small fee to have a broker lend you their knowledge be a more practical option for your business? That’s the challenge facing many business owners today.
How brokers assist Rapid Cash
At Rapid Cash, we offer a product that we feel can have huge benefits to businesses but doesn’t fit the mould of any traditional finance products. Our product integrates with your accountancy software, before using automation to conduct risk assessments and offer you an advance on your unpaid invoices.
In a sense it’s an upgrade to the traditional invoice financing model, however your customers will be paying into a NatWest bank account while you can gain quick access to cash based on your accounts receivable, if eligible.
Consequently, we recognise the impact and value brokers can bring to businesses; helping them spot opportunities that they may otherwise have missed. That’s because businesses often only actively look for cash when they need it.
To learn more about our product offering, visit our homepage for a walk-through. Or if you’re keen to dive deeper into the world of business finance, read our articles on alternative business funding and credit control insights.
To be eligible for Rapid Cash you must be trading for more than 6 months, have an annual turnover of at least £100k and either be a Limited Company or Limited Liability Partnership in England and Wales. Additionally, you need to invoice other businesses and use one of the following digital accounting software: Xero, Quickbooks, Sage 50, Kashflow, FreeAgent and Netsuite.
Security and guarantee required. Product fees may apply.