business finance brokers

business finance brokers

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

1. Introduction to Business Finance Brokers

Understand the role matchmakers. Unlike larger, “blue-chip” companies, SMEs are not primes; they are usually subcontractors where financial institutions simply do not and will not provide the proposed amount at the required intervals of demand. As such, SMEs are underfunded while the funding chain weakens and bank available credit remains hidden and/or tightened. Underfinancing is indeed a less dramatic phenomenon than underinvestment but, over the years, companies will need an adequate amount of finance to finance growth. The viability of a sustainable financing structure therefore depends on not disrupting the next level of funding. When this level is approached, a firm therefore must address the issue of financing early enough to solve the problem. SMEs need long-term financing for long-term investments, and traditionally European mainstream banks have been reluctant to provide long-term money, prefer the intermediation function, but it remains a fact that the business finance market is full of SMEs in search of funds.

The goal of this study is to examine, analyze, and understand the role business finance brokers play in a financial industry worth billions of pounds. In particular, the role played by finance brokers in matching small and medium enterprises (SMEs) with sources of business finance. Receiving “sound business advice” similarly, the Federation of Small Businesses (FSB) survey, which broadly deals with the issue of the “quality of business advice” received by SMEs, established that 94% of SME owner-managers recognize the value of “sound business advice” and look to a number of external sources who they expect are qualified to provide this. The principal source of business advice identified, which is normally expected to trigger interest to look for this assistance, is a firm’s accountant, who accounts in the major surveys for over 50% of external business advice received, while the business banks come a close second. In such cases, wherever they therefore need raising, doing it through raising business finance can provide the most effective way.

2. Services Offered by Business Finance Brokers

Once there has been a meeting of minds between client and finance broker, the process of obtaining business finance starts. A good broker will know the right type of broker to approach first in order to get this process off to the best and quickest foot. Not all lenders always provide the best opportunity for a client to obtain the right finance that they need. This is true for lease finance, where the range of lease providers is so large – and not all the providers actively market their finance products to the business customer. The results in terms of cost and service that the client realizes will depend upon a number of factors. These factors should be understood by the finance broker, who should be able to tailor the finance package to match both the needs of the client and the ability of a lender to deliver these needs.

Business finance brokers perform an important role in securing finance for a wide variety of businesses in the United Kingdom. They provide a link between these businesses and the finance companies that can offer them the right finance for their particular needs. A good business finance broker will utilize his or her consultative skills to first identify the finance needs that a customer has before embarking on finding the needed finance for that customer. This knowledge is important for the client since the broker is then able to present the business finance proposal to the different possible finance lenders with confidence. This says to the finance company that a broker really understands the client, and can make their funding proposal stand out.

3. Benefits of Using a Business Finance Broker

So, why should a customer use a Business Finance Broker to arrange finance? Firstly, a quality Finance Broker will have access to a wide range of products available from across the market, which means that they are able to identify the best product for a customer’s specific circumstances. If the customer, however unique, has a perfect credit history and is able to get the most suitable product directly from a high-street bank, then it would be equally possible to use an internet search engine to identify the product that satisfies those exact needs. However, the additional vast majority of customers come up against all sides of competing demands for their business and credit, and Business Finance Brokers can often get them a better deal than they could get themselves, and even more importantly, can very often obtain products from suppliers that are not open to the general public on any terms. Secondly, Brokers often also have the facilities to source a variety of quotations very rapidly and can collate these for easy comparison. Time is often a critical issue for a Business, and the whole process can be handled by a Broker while the Business continues to concentrate on its core activities. Having first reviewed the details to ensure their customer’s needs can be addressed, the Broker can use his expertise to prepare an application for finance that presents the Business effectively and advantageously.

To source a suitable product, customers have traditionally approached their bank or chosen product provider from the relevant industry and simply asked for the most appropriate product for their circumstances. However, the range of choice available may be very limited if the customer’s circumstances or credit history are not perfect, and where a sharp quotation is needed, the response from the chosen provider may not always be the most competitive available. It should be remembered that the product providers are in the business of selling their own products and may not draw attention to alternative, cheaper products available elsewhere. When considering the immense range of choice that is now available, the fact that some of the most attractive deals are only available through ‘intermediaries’, the complexity of arranging finance, and the wide variety of customer’s circumstances, it is essential that customers take expert advice before committing themselves to a product. This is where Business Finance Brokers can be of real help.

4. Regulations and Ethics in Business Finance Brokerage

Currently, if problems occur, clients have to approach the courts for resolution or rely on common law or private law and protection under the Consumer Protection Act, which will not necessarily resolve all disparities. Sections 40 and 41 of the CPA protect either consumers who earn a gross annual income that would exceed the threshold determined by the Minister, or an asset value threshold. From chart 3 of Statistics South Africa, the poorest 40% of South African households earn a paltry income less than R66 000 per year. As depicted from the table and cohort years, many owners and members of SMMEs may fall into different classes and would most likely not benefit from these protection sections and the CPA, which only provides additional protection to the poorest 40%. For the SMEs that are not protected, perhaps it is time to regulate business finance brokers.

Upon the abolition of the FAIS Act in 2018, business finance brokers were no longer regulated. The debate on whether they should be a form of broker or agents, or be required to be regulated, is not absolute. Because of their services, BFBs were allowed to wrestle and raise funds in ways existing legislation allowed without providing protection for both investors and clients. Because of previous legislation, BFBs acted ‘illegally’ but were not heavily scrutinized and punished, although no government took away their ability to broker for clients or private funders. It is thus the suggestion of this paper that the BFB should be regulated but the type of regulation will court debate, and this debate should be started urgently. If the suggestion is of a SI state or federal statutes or any deviation thereof.