How to choose a business finance broker: the questions worth asking

To choose a business finance broker, ask five direct questions: how they are paid, which lenders they work with, what their regulation status is, who you will deal with, and how your data will be used. A good broker will answer all five clearly and in writing, without pressure.

A broker sits between your company and lenders. The British Business Bank describes brokers as connecting businesses with lenders, helping them tell their story, and notes that some lenders only accept applications through brokers. Brokers vary widely in how they work, so the questions below are designed to help you compare them fairly, including us.

Not always. If you already have a strong relationship with a lender and know the product you want, applying directly may be simpler. A broker tends to add most value when you are unsure which type of finance fits, want to compare several lenders, or have circumstances that need explaining.

Our page on why use a broker sets out the possible benefits. It is also worth considering the downsides honestly: a broker adds a party to the process, may only work with a limited number of lenders, and is usually paid in a way you should understand before you proceed.

Ask whether the broker charges you a fee, receives commission from the lender, or both. Then ask when you will be told how much they receive, and whether the amount varies between lenders.

Commission is a normal way for brokers to be paid, but it can create a potential conflict of interest if one lender pays more than another. Clear disclosure is what manages that risk. Questions worth asking include:

• Do you charge me any fee, and if so, when is it payable and is it refundable?
• Will you tell me about the commission before I commit to a lender?
• Can I ask how much commission you will receive?
• Does commission differ between lenders, and how do you make sure that does not decide which lender you recommend?
• Could commission affect the rate or cost I am offered?

Ask how many lenders the broker works with, what types of lender they are, and which types of finance they cover. Panel size matters, but so does fit: a smaller panel with lenders suited to your needs may be more useful than a long list that does not cover your product.

Useful follow-up questions include:

• Do you cover the type of finance I need, such as asset finance, invoice finance or unsecured loans?
• Do your lenders work with companies of my size, sector and trading history?
• How do you decide which lenders to approach for my application?
• Will you approach several lenders at once, or one at a time?
• Are there types of finance or lenders you cannot access?

Ask whether the broker is authorised by the Financial Conduct Authority (FCA), and if so, for what. Then ask whether the finance you need is regulated at all, because for many companies it is not.

Lending to limited companies, LLPs and partnerships of four or more partners is generally unregulated, and Consumer Credit Act protections generally do not apply. A broker arranging only this kind of finance may not need FCA authorisation. Some brokers are authorised because they also arrange regulated products. Authorisation for one activity does not mean every deal they arrange is regulated, so ask what applies to yours.

If a broker says it is authorised, you can check on the FCA's Financial Services Register, which is a public record of firms and individuals authorised by the FCA. Our guide to regulated vs unregulated business finance explains the difference in more depth.

Ask whether you will have a named contact, how you can reach them, and whether that person stays with you through the process or hands you on. Business finance can involve several rounds of questions from a lender, so continuity can save time.

• Will I have one named person, or a team?
• Can I reach them by phone, email and chat?
• Will they stay with me until the funds are paid, or only until the application is submitted?
• Who do I contact if something goes wrong or I want to complain?

Applying for finance involves sharing sensitive information, including accounts, bank statements and directors' personal details. Ask the broker exactly who will see it and when.

• Will my details be shared only with lenders I agree to, or more widely?
• Do you sell or pass leads to other brokers or introducers?
• Which credit searches will be run, and when? Is the first check a soft search?
• How long do you keep my data, and how can I ask for it to be deleted?
• Where can I read your privacy notice?

Beyond the five main questions, a few practical points can help you compare brokers.

• Clarity about documents: a broker should tell you early which documents lenders are likely to want. Our document checklist gives a typical list.
• Honesty about your chances: a broker should be open about what lenders are likely to look at, including credit history and trading record, and should not promise approval.
• Explanation of costs: you should be able to see the total cost of each offer, not just a headline rate or factor rate.
• Written terms: ask for the broker's terms of business before you proceed.
• No pressure: you should have time to read offers and take advice before signing.

Whichever broker you choose, a little preparation makes the conversation more useful and helps you judge how well the broker understands your business.

• Know roughly how much you need, what it is for and how quickly you need it.
• Have your latest filed accounts, recent business bank statements and up-to-date management accounts to hand.
• Prepare a simple cash flow forecast showing how the finance would be repaid.
• Be open about any credit issues, missed payments or existing borrowing.

The British Business Bank stresses that transparency with your broker is key. A broker who knows the full picture early can approach suitable lenders, rather than discovering a problem halfway through an application.

Most brokers are legitimate, but some practices are worth treating with caution. None of these on its own proves a problem, but each deserves a clear explanation.

• Requests for a large upfront fee before any lender has made an offer.
• Promises that approval is certain, or claims that a lender will never check your credit history.
• Reluctance to say how they are paid or how much commission they will receive.
• Pressure to sign quickly or to accept the first offer without comparing it.
• Vague answers about which lenders they work with or what happens to your data.
• Claims about regulation that do not match the FCA's Financial Services Register.

Welcome Finance is a commercial finance broker for UK limited companies, LLPs and partnerships of four or more partners. We have set out our own answers to each question above so you can compare us with any other broker or with going direct to a lender.

Lenders make their own decisions and approval is never assured. If you would like to see where you stand, you can check your eligibility in about 60 seconds without affecting your credit score.