The days when business owners or directors could drop into their local bank branch to discuss obtaining a new loan may be consigned to the history books.
However, there’s a good replacement option available today that many businesses may not be making the best use of. The local bank branch manager’s modern-day equivalent are business finance brokers who can review the market for sources of alternative finance. Brokers sit between businesses looking for finance and the banks and other lenders. Their help and expertise can make all the difference in finding the best type of loan available and ensuring its terms are competitive. But, how to choose a provider?
There are around a thousand business finance brokers in the UK. They range from one-person firms to national firms like the Maxxia Group, which has expert business finance brokers located in most regions.
We’ve put together this guide on how to choose a specialist to best fit your business finance needs.
First, here are three steps to working successfully with a finance broker.
1. Tell the business finance broker about your business
To find the right type of finance for you, the advisor first needs to understand your business. They will typically want to discuss:
Background to the business: This will include the legal form (e.g. limited company, unincorporated business or partnership), management team, main business activities, business premises, assets owned such as machinery and equipment, and the existing financial arrangements, including any overdrafts or loans in place. All this information helps the financial broker to match the business to relevant lenders.
How the business would repay the loan, including whether it could offer a legal charge over assets it owns such as property (meaning that if the business runs out of cash, the lender can still be paid). In general, the stronger the security that can be provided, the cheaper the loan, but for asset finance, the equipment being financed is often the only security required.
Any so-called ‘adverse information’ such as any county court judgements or insolvencies connected to the directors or owners. These factors may affect the availability and cost of finance, although often the financing broker is still able to help.
2. Review the types of finance available
There’s a wide range of finance options available and an experienced asset and commercial finance broker should be able to identify the most appropriate one for your needs. Options finance brokers may suggest could include:
An overdraft or business loan from a traditional bank may still be the natural starting point for businesses, particularly from the bank that manages your business current account. A business loan can also be available from new finance providers that have entered the market to provide commercial finance products.
There’s a wide range of mortgage lenders, and rates vary depending on the firm’s credit rating, the loan to value ratio, and the type of property.
Often the cheapest and most suitable way to finance new business equipment and machinery. There are different finance structures, such as finance lease or hire purchase which can be reviewed to determine what best suits the organisation.
Using an asset finance broker that has access to a wide range of finance companies, some of which only work through brokers, can be important to ensure you find a competitive asset finance deal.
A form of asset finance where a firm refinances an existing asset in which it has equity or owns outright.
For firms with company cars, delivery vans, or other vehicles, in addition to normal asset finance solutions, contract hire – which can provide fully serviced and managed vehicles – is another option to consider.
Factoring and invoice discounting
These options allow firms to raise money based on their unpaid invoices to customers. The lender will pay a proportion of the value of the invoices upfront, and then the remaining balance less fees once the customer has paid. The products tend to be more suitable for larger firms and there are many factors to consider, so expert advice from an experienced specialist is important.
Not all business finance brokers are equipped to deal with all sources of business finance. That’s fine if it’s clear what type of finance is needed, and the broker is a specialist in that product. Otherwise, consider approaching a firm of business finance brokers who can advise on the full range of business funding options from a wide selection of lenders.
3. Check you’re happy with the quotation provided
As you will have been discussing the business funding options that are likely to be suitable from the finance market, the quotation provided for you shouldn’t come as a surprise, but here are the key factors your advisor will want to confirm you are happy with:
- The overall cost including any extra charges, in addition to the regular monthly or quarterly payments. These charges might be described by the lender as set-up, administration, documentation, or annual fees. For asset finance, the broker will want to confirm you are happy with what happens at the end of the contract, i.e. whether there’s an option to purchase the equipment.
- Terms of the agreement, which for asset finance might include conditions regarding the return of hired equipment, or ‘balloon’ payments (a higher lump-sum payment at the end of the agreement).
- Security requirements, such as a charge over business or the owners’ or directors’ personal guarantees.
How to choose a broker that’s right for your business
Finally, some advice on how to choose someone to help your business secure business finance. Each company is different and it’s important to work with someone that is a good fit with you and your business. These are some of the factors that could help your choice, along with questions to ask before you get started.
Sector: Do the business finance brokers have experience working with your sector and/or type of equipment?
Lenders: How many banks and other finance companies do the financial brokers work with, and do they cover all types of finance you might be interested in?
References: Has this finance broking firm worked with similar businesses and can they provide a reference?
Charges: Does the brokerage firm charge any fees in addition to earning a commission or margin?
Location: Is it important for you to be dealing with a firm with people based locally?
Rate: What approximate rate of interest is it possible to achieve for you?
Financial Conduct Authority: For certain types of finance solutions the firm must be regulated by the Financial Conduct Authority
As a well-established asset and commercial finance broker, the Maxxia group has experience working with all sectors, and has a large panel of lenders, across each type of finance. This allows us to search the market place for the most suitable funding solution and find you a great rate.
We have commercial and asset finance brokers across the UK, simply fill in your details below and we’ll put you in touch with one of our specialist advisors.