2024-06-04_CSC-Blog-Post-—-Brokered-Financing-vs-Direct-Lending

Brokered Financing Versus Direct Lending

Two main routes exist if you’re a business owner who seeks financing, including working capital, equipment or other types of business loans. You can work with a broker or you can go directly to a funder. Let’s look a little closer at these two options.

Brokered Financing

This option involves using a financial intermediary or broker to connect you with potential funding sources.

  • The broker is an advocate for youand the Funder(s), helping you find the best financing options based on your needs and circumstance.
  • Licensed Brokers offer access to Funders, which non-Licensed Brokers DO NOT have access to.
  • Brokers assist with the application process, serve as an intermediary between you and the funder(s) – explaining circumstances, negotiating terms, addressing follow-up questions. This allows you to run your business and not have to repeat yourself to each Funder. They’ll field the questions.

Direct Lending Partner

With direct lending, you approach a specific lending institution or partner directly to secure financing.

  • This approach skips the middleman and involves dealing directly with the funder throughout the financing process.
  • Direct lending can sometimes lead to faster decisions and approvals, as fewer parties are involved in the transaction.
  • Direct lending can be beneficial if you have a relationship with a funder or prefer working directly with a specific financial institution.

What Option is Best For You?

You may want to start your investigation by weighing each option’s pros and cons:

  • Brokered financing pros:
    • Variety of options – finding the most suitable Funder for your industry, revenue, credit score, and product you’re targeting (i.e., Term Loan, Line of Credit, Equipment Financing)
    • You gain time by not having to research and explain your circumstance to each funder
    • Expertise with the funders and field your questions
  • Direct lending pros:
    • Direct communication
    • Potentially lower costs
    • Simplicity
  • Brokered financing cons:
    • Potential limited access to funders (if non-license)
    • Potential slower processing if inexperienced
  • Direct lending cons:
    • Limited options
    • Time-consuming

While understanding these pros and cons is important, your choice between brokered financing and direct lending will likely come down to your specific situation, preferences, and the complexity of your financing needs. It can be helpful to consider factors such as:

  • Loan requirements: Consider the type of loan needed and your specific requirements.
  • Cost analysis: Compare fees, interest rates, and terms between brokered and direct funders to determine your most cost-effective option.
  • Reputation and trust: Evaluate the reputation and trustworthiness of brokered and direct funders through reviews and ratings.

The Bottom Line

In many situations, especially if your credit score isn’t the best or you don’t have a long track record of success, you may find relying on brokered financing is the way to go. A broker will work closely with you to determine the financing option that’s best for your situation and will result in “yes” from the funder.

Clear Skies Capital has helped many business owners determine which type of financing is best for their needs and which funder is the best fit so they get the financing they need in a timely fashion. Contact us today at 800-230-9822 to discuss your company’s needs.