For all the growth in commercial finance over the last few years – more lenders, more products, faster decisions and far more access to funding than there’s ever been – there’s something that hasn’t really changed. Almost anyone can call themselves a broker.
Stick with me for a minute – that’s not necessarily a bad thing in itself. There are some very good people in the industry, people who understand how businesses work and take the time to get under the skin of a situation before suggesting anything, but it does mean that the quality of advice can vary quite a bit, and that does, obviously matter.
If you’re a business owner looking for funding, you’re not just choosing a product, you’re relying on someone to guide you through a decision that can have a long-term impact on how your business operates. And in some cases, whether it gets through a difficult period at all. The problem is that not all advice is given for the same reasons.
A business hits different pressure points – their cashflow might tighten, a large order comes in at the wrong time, a customer takes longer to pay than they should – and the focus is on speed, because when you’re under pressure, speed feels like the solution. Short-term unsecured loans are often the fastest fix. They’re quick, relatively straightforward and, in many cases, can be arranged in a matter of days, which makes them very appealing when there’s a problem that needs solving quickly. And to be fair, sometimes they are exactly the right answer.
However, beware – because what sits underneath that recommendation isn’t always obvious at the time. There are brokers who place these types of facilities because they’re easier to arrange and the commission is paid upfront, which means they’re paid as soon as the deal completes. Whereas other forms of funding, things like asset finance or invoice finance, often take a bit more work to structure properly and the return is paid over time.
That doesn’t make one right and the other wrong, but it does create a bias, and if you’re not aware of it, it can shape the outcome without you ever realising.
The difficulty is that the wrong type of funding rarely looks wrong at the start. It does exactly what it’s supposed to do. The money arrives, the immediate pressure is relieved and the business carries on. But if the underlying issue hasn’t been addressed, whether that’s how cash moves through the business, how costs are structured or how growth is being funded, then all that’s really happened is the problem has been pushed further down the line.
When the problem resurfaces, it tends to come back with a bit more weight behind it.
That’s why there are so many different funding options available in the first place – not because the market likes complexity, but because businesses don’t all operate in the same way, and the funding needs to reflect that.
For some businesses, spreading the cost of equipment through asset finance makes far more sense than tying up working capital. For others, unlocking cash from unpaid invoices is a better way of managing growth than taking on additional debt, and in many cases the right solution is a combination of different facilities, structured around how the business actually works rather than what’s quickest to put in place.
It’s left to the brokers to not just find funding, but to understand the issues in the business and match the solution to the problem. A decent broker won’t just take an enquiry and turn it into a deal, they’ll ask probing questions and make sense of the answers. Numbers alone, rarely tell the full story.
What should you look out for?
- It’s better where possible to deal with an accredited broker or company. I am a member of NACFB and the The Guild of Business Finance Professionals – both of which are voluntary but have entry requirements. The Guild is also a nomination process – it’s not possible to simply join.
- If everything feels very easy, if the solution appears almost immediately and there isn’t much discussion around alternatives or downsides, then it’s usually worth pausing for a moment, because in most cases, funding decisions aren’t that simple.
- The better conversations tend to take a bit longer. They move around a bit, they explore what’s happening in the business rather than just what’s being asked for, and they usually involve looking at more than one option, even if the final answer ends up being the same.
- Independence matters, because if someone is working with a limited panel of lenders, the options are naturally going to be narrower.
- Experience matters, not just in terms of years, but in terms of having seen different types of situations play out over time. Accreditations, even though they’re voluntary in this space, tend to indicate a level of professionalism and commitment that isn’t always visible on the surface.
- But more than anything, it’s intent. Whether the person you’re dealing with is trying to place a deal or trying to solve a problem.
Most of the businesses we speak to haven’t made poor decisions, they’ve made quick ones, usually because they’ve had to, and that’s understandable – but the impact of those decisions tends to show up later, when the structure of the funding doesn’t quite fit the way the business is operating.
Access to finance isn’t really the issue anymore – there’s more of it available than there’s ever been, from more sources than most people realise. But it’s the understanding of which route to take, and why that matters.
In a market where anyone can call themselves a broker, that difference becomes more important than most people think, because it’s not the availability of funding that protects a business. It’s the judgement behind how it’s used.
