Why Use a Commercial Finance Broker – part 1?
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, arrange the finance you require and charge 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 is now much more complex. There was a time when your only option was to speak to your own bank, but now there are numerous options.
Challenger banks, peer-to-peer lenders, specialist lenders covering 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 something slightly different.
Commercial finance is a complicated subject. Unlike standard residential mortgages which have neatly defined rates and criteria, commercial finance is much more bespoke and requires a good degree of skill and experience to find the right deal.
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 the various options that best suit your requirements.
However, before you embark on choosing a commercial finance broker, there are some important questions that you need to ask:
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 life insurance brokers. They do commercial finance as a side line 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.
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” – a deal structure can change and suddenly it becomes a regulated deal which an unregulated broker cannot then deal with.
If you want a broker who can cover all the likely scenarios when it comes to your deal, 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.
Are they members of the National Association of Commercial Finance Brokers (NACFB)?
The NACFB is a nationally recognized organisation that has approximately 1600 members throughout 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 Code of Practice
- You should get 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.
Part 2 next week!