The first question to ask is of course, what is a commercial finance broker?
Put simply, they are brokers who specialise in helping business owners and entrepreneurs to raise finance for their business.
Having spent time finding out what you as the client needs, they will then negotiate with lenders on your behalf, arranging the finance you require and usually charging an arrangement fee for their services.
The question that many business owners ask is: “Why don’t I just go to my own bank and arrange the finance myself?”
That is certainly an option, however the reality is often different.
Firstly, it is finding someone who you can speak to at your own bank. Unless you are a business with a turnover greater than say £2.0 million, very often your only option is telephone banking which can be unsatisfactory at best.
The other reason is that the business finance market has become increasingly complex. There was a time when your main and often only option was to speak to your own bank, but now there are numerous funding options to choose from.
There are challenger banks, peer-to-peer lenders and specialist lenders all covering different niche areas such as bridging finance, property development finance, unsecured business loans, invoice discounting and asset finance.
And of course, within each niche sector there are numerous lenders all offering a slightly different funding option.
That’s when a good commercial finance broker can help.
They can sit down with you, analyse your funding requirements in detail, and then provide you with a variety of options that will best suit your requirements.
However, before you embark on choosing a commercial finance broker, there are some important questions that you need to ask.
In this week’s blog, and again in next week’s, I’m going to go through the 7 questions you need to ask before you choose a commercial finance broker to act for you. So here goes:
Question 1 – Do they actually specialise in business and commercial finance?
Many brokers who claim they are specialists in commercial finance aren’t. Their expertise is as residential mortgage brokers or buy-to-let brokers or even insurance brokers. They do commercial finance as an additional service to their main business activity.
The result is, they are great at their area of expertise, but because they don’t specialise in commercial finance, they don’t have a full knowledge of the marketplace and what funding options are available.
So, make sure you find out what their area of expertise is before you employ them.
Question 2 – Are they regulated by the Financial Conduct Authority (FCA)?
Within commercial finance, there are many times when a deal is unregulated, such as when the loan is in the name of a limited company. As a result, many commercial finance brokers decide to remain unregulated by the FCA.
However, it can be a “grey area” – the structure of a deal changes and suddenly it becomes a regulated deal which an unregulated broker can no longer deal with.
If you want a broker who can cover all the likely scenarios when it comes to your funding requirements, I would suggest going with a regulated broker – if you’re not sure if they’re regulated, ask for their FCA number and check on the FCA register.
Question 3 – Are they members of the National Association of Commercial Finance Brokers (NACFB)?
The NACFB is a nationally recognised trade organisation which has a membership of approximately 1600 commercial finance brokers and 140 lenders across the UK.
Commercial finance brokers who are members of the NACFB all adhere to an industry recognised Code of Practice, so if you use a broker who is a member of the NACFB you’ll know:
- You’re dealing with an expert
- The broker will have signed up to the NACFB Code of Practice
- You should therefore be provided with a good service
My suggestion – if you’re looking for a commercial finance broker and they’re not members of the NACFB don’t use them.
Next week in part 2, I’ll deal with the other 4 questions you need to ask before employing the services of a commercial finance broker.
In the meantime, if you have a requirement for business finance and you would like to talk to an expert, please don’t hesitate to give us a call on 020 8949 2122 or email us at email@example.com
Until next week!