Breaking it Down: What are Broker Fees?

What are Broker Fees?

Often, when you make purchases online, you’ll notice a fee tacked on to your total when you check out your shopping cart. These are transaction fees. Whether it be concert tickets, a hotel or an Airbnb, there are included fees that cover the site’s facilitation of your sale. They’re connecting you with a seller (Ticketmaster, for example, sells tickets for an artist or a venue), and naturally, they’re going to charge you for that connection.

In this same way, broker fees are service charges by brokers for executing transactions. Brokers are intermediaries between a sale and a purchase, so their fees cover their facilitation services – they help buyers make informed purchases. It’s usually a buyer that pays them, not a seller.

What services do brokers provide? Usually, they’re responsible for consultations, negotiations and carrying through the actual sale. That’s what they’re being paid for – facilitating a sale, and providing this service to buyers and sellers.

In the equipment industry, equipment leasing brokers are connectors. They match businesses that can’t afford to buy equipment outright with lenders, and also with equipment dealers. Lenders finance the transaction, and the equipment dealers complete a sale. When it comes to getting business loans, commercial loan brokers connect you with commercial loans. They’ll take your business information and apply to different small business loans in order to find you the best rate and deal.

Often, if you end up using a loan broker’s services, the fees will either be paid to them directly or included in the cost of the loan. Depending on the broker, they’ll only charge you if you get the loan, but some will charge you even if you don’t. In most cases, unless you possess a significant amount of knowledge about the financial industry surrounding loans, a broker can save you a lot of time and stress – they do a lot of the heavy work for you.  

What are Brokers Good For?

Commercial loan brokers save time. If you’re wanting to go directly to a lender, they’re not going to tell you all of your options – they’ll only tell you their option. Doing this individually for each lender takes a lot of time, so a broker does all that work for you.

Loan brokers usually get you a better loan rate than you could get on your own because they go to multiple lenders. Not to mention, they have experience in the industry – they know a lot about what they’re doing and they have established relationships with different lenders. They can interpret the terms and financial jargon, and help to clear things up for you if you’re not used to the complicated language.

But How Much Do They Cost?

Loan brokers are relatively unregulated. “Small business owners are increasingly likely to encounter brokers who are out for themselves,” said Brayden McCarthy for Forbes. “In fact, unscrupulous players have emerged like wolves in sheep’s clothing, and are deliberately building tricks and traps into the loan process to pad their pockets and ensnare borrowers in a cycle of high-cost debt.”

This leaves a lot of room for the business owner to get taken advantage of by predatory broker practices. It will take time and effort to research and choose a broker, and you’ll have to make sure you ask them all your fee-related questions upfront. The cheapest loan brokers will be those working with community banks and credit unions, and those helping to secure SBA loans. Their commission usually ranges from 1%-3%, but this is often only for small banks, and those types of loans are the hardest to secure, especially SBA loans.

Other loan broker fees range in price. Often, lenders will pay brokers compensation for referral, but that doesn’t mean that the broker will pass that on to you by making you pay less. Brokers can charge up to 25%-30% in commission on the loan you receive, which can be pretty steep, especially if you’re borrowing a larger amount.

What Does FaaSfunds Offer?

You should always be cautious about where you’re putting your money when it comes to loan brokers. If you’re iffy on the whole concept, FaaSfunds offers an alternative to brokers. We facilitate a loan just like a broker, but we use a much more efficient approach. Using an automated process, we instantly let you know the lender who will give you the best rates and terms, much faster than a broker can.

We don’t run your credit multiple times, either. FaaSfunds doesn’t apply you to the loans (also known as a “shotgun approach”), we only compare your financial information with data points from lenders, letting you know what you’re most likely to get approved for and which places will give you the lowest interest rates. By leveraging technology instead of human brokers, we’re able to offer funding with lower fees, as low as 2.9%.

We want to help businesses make informed funding decisions, sans the broker. We also offer consultation and advice, and when you sign up, we’ll give you access to a knowledgable advisor. We’ll answer any and all questions you have – we just want to help you make the best decisions possible for your business.