Direct Lender vs. Business Loan Broker
There are a lot of factors to take into consideration when getting a small business loan. Choosing the loan with the right terms, payback structure, and funding amount are all important, but choosing who to work with can be equally as important. There are a lot of different Lenders in the small business loan industry, but in general you will either be working with a Direct Lender or a Business Loan Broker. We are going to break down the pros and cons of each, so that you can decide what works best for your situation. You may be surprised which route is the best for your business.
Direct Lender
A lot of Business Owners assume that working with a Direct Lender is going to be where they are going to get the best deal, and therefore be the best option for their business. The assumption is that by eliminating the middle man (the broker), and working directly with the Lender, you are eliminating any broker costs and getting a better deal. In some cases this may be true, but is definitely not always the case.
Most Direct Lenders are going to have their own underwriting criteria, and their own products. Some lenders will also operate as a Brokerage, so this isn’t always the case. For the Lenders that only offer their own business funding products, that is what they are going to review your application for. If approved for a business loan, that is also going to be the offer that they present to you. Sometimes that is going to be the best funding option for your business, but a lot of times there are better options available, and that is where a Business Loan Broker come in.
Benefits of Working with a Direct Lender:
You can potentially eliminate some broker costs
Work directly with who will be issuing the business loan
Application is not being shopped to multiple business lenders
Business Loan Broker
Working with a Business Loan Broker, is similar to working with an Insurance Broker. Instead of submitting your application to several Direct Lenders to compare offers, you can submit an application for a business loan to a Broker, and they can use their network of Lenders to find the best loan for that Business Owner’s situation.
Business Loan Brokers typically offer a wider range of products, and have less restrictive underwriting criteria. Not only does this increase your odds of getting approved for a business loan, but it also gives them the ability to shop offers, and get the best deal for the merchant. If you have a specific need, for example; needing a fast and easy business loan, or a loan based on the revenue of the business, then they can shop Lenders that offer those programs. Opposed to working with a Direct Lender, where they are going to pitch their offer, even if it may not be the best option.
Benefits of Working Directly with a Business Loan Broker:
Compare multiple business loan options
Shop around for best rate & terms
Have one point of contact while comparing multiple lending options
In Conclusion
Whether you choose to work with a Direct Lender or a Business Loan Broker, really just depends on what your needs are. If you do not want to have your business loan application shopped around, then a Direct Lender may be a better fit. If you want to be able to compare different loan options, and make sure that you are getting the best business loan for your business, then working with a Business Loan Broker may be a better fit.