business finance broker

business finance broker

The Role and Impact of Business Finance Brokers in the Financial Industry

1. Introduction to Business Finance Brokers

The increasing diversity and complexity of financial products and services has led to an increasing reliance by companies on external advice in the acquisition of financial products. Of all the financial products, those that require external advice most often are commercial loans and in-house foreign exchange contracts. In line with the contribution of financial advisors to the acquisition of certain financial products and with financial product diversification, these consultants can collectively be termed business finance brokers. The more narrowly defined business finance brokers can be segregated into two groups: loan brokers and foreign exchange brokers. The need for business finance brokers is determined by characteristics of the credit seeker. Brokers are especially necessary for companies that lack market power.

The growth of business finance brokers is a recent trend in the field of financial intermediaries and probably reflects the establishment of a number of financial broker associations, notably the Association of Business Finance Brokers. The entry of brokers into the field of business finance is evidenced not only by the establishment of associations but by the rapid growth of business finance broking businesses themselves. The precise role of business finance brokers can be ascertained from the nature of their remuneration. Business finance brokers align the individual seeking finance and the suppliers of such finance. Brokers rarely provide finance directly. Brokers must direct the credit seeker to the source best suited to the seeker’s need. The role of business finance brokers is essentially to source financial requirements for credit seekers.

2. Services Offered by Business Finance Brokers

Clients’ personal credit and home ownership are protected as they are normally not exposed when seeking business finance assistance. Business finance brokers can help business owners to acquire additional funding under secured and unsecured long-term loans, lines of credit, working capital loans, and real estate-backed loans, where funding is needed for the purchase of a new business, the expansion of a business, the purchase of a partnership, factoring accounts receivable, or other business ventures. Additional lending options might include commercial and small business real estate acquisition loans, school and church loans, and loans for a business or organization run by members of minority groups.

Business finance brokers provide numerous services to their clients. They can locate the most appropriate source of finance at the best available market interest rates and terms, which allows them to cater their services to the needs of each client. The guidance offered to clients by business finance brokers extends beyond advice related to the most suitable form of finance. They also make business owners aware of the various levels of fees and charges, what each finance product can and cannot do for the business, and they provide step-by-step assistance with the application process and compliance issues. With their extensive knowledge of the finance environment, finance brokers recognize the danger signs when things are not going well. They are in a good position to alert their clients to the fact that there could be a problem before it is too late. The preventative assistance provided by finance brokers can actually save their clients’ financial problems before they turn into a crisis.

3. Regulations and Ethics in Business Finance Brokerage

Business finance brokerage is not a homogeneous entity and there are a number of ways in which such business can fit together. Although the different types of broker are providing advice and support, the way they treat their customers can be quite different. Some business finance brokers are regulated, or have chosen to be regulated, by the FEC. Various regulators share responsibility for overseeing the activities of brokers. Unlike the situation that arises in connection with many other broker activities, there is ‘light touch’ regulation from the point of view of the FEC. This may or may not be a good thing. The point to stress is that business finance brokers are unregulated in circumstances where they are advising consumers and there are risks of ill-advised borrowing.

As a business finance broker, you will be subject to rules and regulations that govern the industry in which you operate. The different regulatory and self-regulatory bodies exist to maintain public confidence in the businesses operating under their rules. Without such organizations, the market would be subject to abuse from any unscrupulous operators. It is essential to stay up-to-date with all the relevant rules and requirements of your particular sector. Your clients and the finance bodies you deal with need to know they can rely on you for accurate and professional guidance. The specific rules and regulations vary depending on the type of finance you are involved in arranging.

4. The Advantages and Challenges of Using Business Finance Brokers

The major challenge of using business finance brokers is clearly that the costs need to be justifiable in relation to the expense of delivering this service and to the value of their assistance in gaining access to business finance. In the evaluation process, businesses must consider the costs of lending against the probable benefits achieved and draw on the skills and knowledge of business finance brokers. Costs may be specified as part of the commission payout offered by the finance brokers. Since there are no binding rules restricting the level of these payouts, this commission always raises questions about whether it will be agreed in the interests of the business or the broker.

One advantage is that a business finance broker has the experience and knowledge to assist businesses in finding business finance at the best cost and with the best terms and conditions that will meet the specific requirements of their business and give businesses the highest chance of being able to meet any repayments. An experienced business finance broker will have access to the best interest rates given the credit history and trading position of a business and be able to highlight any differences in lenders’ terms and conditions. A business finance broker becomes an integral partner of a business finance department in eliminating any delays connected with obtaining finance. This cooperation allows the finance departments to focus on identifying other areas in which additional income can be generated as the finance solution for the business has been found.