Checklist: how to find a good finance broker

When you are looking for business finance, it can seem complex, with myriad options available. Consequently, you may decide to seek help from a commercial finance broker.

A good broker will offer several benefits. They will analyse your funding requirements in detail. They can help navigate the various funding options to find the right deal for you. And they will negotiate with lenders on your behalf.

But before you appoint a broker, there are some crucial questions you need to ask…

1. IS YOUR BROKER A SPECIALIST IN BUSINESS AND COMMERCIAL FINANCE

Do you know their full area of expertise and does it fit your needs?

Many finance brokers claim to specialise in commercial funding. However, they might not be quite as specialist as they claim.

Check they have real and extensive expertise and experience in business and commercial finance and that it is their prime focus.

That way you can be sure they have extensive knowledge of the commercial finance market and the various funding options available.

2. CHECK A FINANCE BROKER IS REGULATED BEFORE YOU USE THEM

Is the broker you plan to use regulated by the Financial Conduct Authority (FCA)?

Often a commercial finance deal is unregulated, for example when the loan is in the name of a limited company. This means that many brokers operating in the commercial finance field decide not to be FCA regulated.

This can become a grey area and you need to be wary. For example, the structure of a deal might change so that it becomes a regulated deal. This would mean an unregulated broker could no longer handle it.

I suggest choosing a broker regulated by the FCA. This means you will be working with a finance broker who can deal any possible funding situation you might face.

To check whether a broker is regulated, request their Financial Conduct Authority number and double check it on the FCA register.

3. IS THE FINANCE BROKER A MEMBER OF THE NATIONAL ASSOCIATION OF COMMERCIAL FINANCE BROKERS (NACFB)?

This is an official, UK-wide trade organisation. More than 2000 commercial finance brokers and 140 lenders belong to this organisation.

It sets out an industry-recognised code of practice that brokers have signed up to. All members will adhere to this and it means you are dealing with an expert who will provide a good service.

I would suggest that you avoid using a broker who isn’t a member of the NACFB.

4. ESTABLISH WHETHER A FINANCE BROKER IS INSURED

Only use a broker who has Professional Indemnity (PI) insurance in place. This is an important point. Not only is it reassuring because the insurance company has checked the brokers credentials before putting insurance in place, but also you will have recourse if anything goes badly wrong.

5. DO THEY WORK ACROSS THE WHOLE FINANCE MARKET?

It’s best to work with a commercial finance broker who works across the whole of the market. This means they aren’t tied to a specific lender or a small panel of selected lenders.

Instead, they can access the whole lending market, explore the options and feed back to you. You can then make an informed choice, certain that your broker has reviewed the whole finance marketplace – not just their favourite lender.

6. CAN THEY GIVE YOU CASE STUDIES OF RECENTLY COMPLETED DEALS?

If they are a good broker, they will have completed multiple deals similar to yours. Ask for details and case studies about other funding deals they have completed in the last 6 to 12 months.

You could even ask for a reference by speaking to clients they have worked with in the past.

7. ASK ABOUT COSTS. ARE THEY TRANSPARENT FROM THE OUTSET?

The FCA insists that brokers provide terms of business from the outset of any transaction. These must set out the broker’s fees to arrange the finance. Beware of any brokers who are cagey about fees or won’t give you all the details about what they are charging.

Ask them about any other fees such as bank arrangement fees, legal costs and valuation charges. You then have a full understanding of the costs of arranging your finance – right from the outset.

WHY IS IT IMPORTANT TO ASK THESE QUESTIONS BEFORE YOU USE A BROKER?

Raising finance for your project is likely to be one of the biggest decisions you will ever make. It’s crucial that you use an expert.

Most people wouldn’t use a dentist, architect or solicitor without checking them out first. Treat hiring a finance broker in the same way.

There are many excellent finance brokers – but unfortunately there are also some suspect ones too. Do your research, ask these crucial questions and then make an informed decision.

The National Association of Commercial Finance Brokers has a full list of 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 call us on 020 3857 3030 or email us at keith.park@fundingtrack.com