It’s a valid question. We’ll discuss this along with other questions you may have.
What is a finance broker?
A business finance broker is an individual, or more commonly business, that specialises in matching businesses seeking funding to sources of finance. A broker will not use their own finances to provide funding.
Is an IFA a broker?
IFA stands for Independent Financial Advisor, and are very different to finance brokers. IFAs are professionals that offer independent advice on financial matters, such as where best to place investments.
Conversely, finance brokers seek to source client’s business finance for a specific reason, they are not allowed to offer investment-related advice.
Do finance brokers charge fees?
Like most businesses, finance brokers need to make a profit, and will generate revenue in a number of ways.
Typically, brokers will have commercial agreements in place with lenders that pay them a commission for each agreement taken out. This however doesn’t necessarily mean they do not charge for their services.
Although some brokers do not charge client fees, others may do, sometimes called admin or finders fees. These may be fixed, or based on a percentage of the funding being arranged. When using a broker its best to ask about their fee structure at the beginning to avoid unexpected costs further down the line.
Finance brokers must follow certain rules when charging fees. These include:*
- The broker can only charge you a fee if it’s been explained in writing and you’ve agreed to it in writing.
- The broker has made it absolutely clear that they’re acting as a credit broker and not a direct lender.
- You have a 14-day cooling off period, during which you can change your mind and get your money back.
*These rules do not apply to finance that is secured on land.
Wouldn’t it be better to go direct?
Not necessarily. The world of business finance is complicated, and there is no ‘one-size fits all’ method of business finance.
Finance brokers can offer a variety of benefits, including:
- Brokers will likely have a good understanding of the business finance market and know where best to place an application to obtain a deal that’s most suitable for your business. Using a finance broker could result in getting a much more suitable finance package than you could find yourself.
- Some brokers have preferential agreements with commercial lenders which offer solutions only available through the brokerage.
- Brokers will typically guide you through the process from start to finish, and will be able to answer any questions you may have. This can save you both time and hassle compared to going direct.
- Some brokers have certain areas of expertise in specific types of business lending, such as aviation or marine finance.
How do I know I can trust a broker?
By law, brokers in the UK must be regulated by the Financial Conduct Authority (FCA).
Brokers must demonstrate their ability to meet strict criteria covering their professional competence, business viability and their integrity to become regulated.
All brokers in the UK must display their FRN Number, or make it available on request. (FRN stands for Financial Services Authority Registration Number.) You can check this number on the FCAs website to ensure its genuine. Financial Conduct Authority (FCA).
If a broker cannot or is unwilling to provide these details, it’s best to find a broker that will.
In conclusion, brokers offer a variety of benefits compared to going direct, however they may not be for everyone. You should weigh up the pros and cons of using a finance broker for your individual circumstance before deciding to proceed with a business finance application.
