7 Things to Ask Before Using a Commercial Finance Broker – Part 2

Last week I started a two-part blog, highlighting the 7 questions you need to ask before employing the services of a commercial finance broker.

Last week, I made the point that because raising business finance has become increasingly complex, there are good reasons to employ the services of a good commercial finance broker rather than trying to ‘do-it-yourself’.

However, before employing a broker to work on your behalf, there are some questions you need to ask, and answers you need to get clear on.

In last week’s blog the three questions I highlighted as being important to ask your prospective broker were:

• Do they actually specialise in business and commercial finance?
• Are they regulated by the Financial Conduct Authority (FCA)?
• Are they members of the National Association of Commercial Finance Brokers (NACFB)?

In this second part of the series, I want to cover the other four questions you need to ask your broker before appointing them. So here goes:

Do they have Professional Indemnity (PI) insurance?

If you use a broker who has PI insurance, you have the assurance of knowing you have recourse if something goes badly wrong.

Fortunately, things seldom do, but if you use a commercial finance broker with PI cover it just gives you that extra protection.

Also, in order to get PI cover, the insurance company will have examined the brokers credentials before agreeing to put a PI policy in place, which gives you additional “peace of mind”.

If your broker doesn’t have an up to date PI policy in place, don’t use them.

Are they whole of market?

A good commercial finance broker should be “whole of market”. In other words, they’re not tied to one particular lender or to a select panel of lenders.

Instead, they can go out to the entire lending market, research what options exist and then provide you with feedback, so that you can make an informed decision knowing that your broker has gone out to the whole marketplace and not just to his “favourite” lender.

Can they provide you with case histories of recently completed deals?

A good broker will have done many deals just like yours. If you want to get a sense of ‘what they can do’, ask them to provide details of deals they have done in the past 6 – 12 months.

If you want more information, ask to speak to a couple of their clients – past and/or present.

That way you know that they really can do what they say they can do!

Are they transparent about their costs?

The FCA requires finance brokers to provide their terms of business right at the very outset of the transaction.

The terms of business must include details of the fees the broker is charging to arrange the finance.

Be wary of using any broker who is “cagey” about telling you what they charge.

Also, ask your broker about the other fees you are likely to incur, such as: bank arrangement fees, legal costs and valuation fees.

It means, you know exactly what the costs of arranging your finance will be right at the very outset.

To summarise

Raising finance for your business is probably one of the biggest decisions you’ll make. It’s therefore important that you use an expert.

You wouldn’t use a dentist, a solicitor, or an architect without checking them out first. Raising finance for your business is no different.

There are many great brokers to choose from. But there are also some dodgy ones!

So, when choosing a commercial finance broker, do your research and use the questions from both this week’s and last week’s blog to help you make an informed decision.

The National Association of Commercial Finance Brokers also have a list of their members, so by all means get a recommendation from them. Visit their website at: www.nacfb.org

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 keith.park@fundingtrack.com