Costs
Business loan brokers vs direct lenders: how fees differ
Business loan brokers vs direct lenders differ in who gets paid and how. Compare fee types, licensing and recourse before you sign a broker agreement.
What to take away
- A broker can be paid by the borrower, by the lender, or by both, and the broker agreement states which.
- Direct lenders price with an origination fee; on SBA 7(a) loans a guaranty fee is usually passed through.
- Business loan brokering is mostly unlicensed at the state level, so the contract carries the weight.
- Brokers win on thin files and unusual collateral. Direct lenders win on cost and recourse.
- Neither route removes the personal guarantee.
What is being compared
A business loan broker does not lend. It packages your file, sends it to a panel, and takes a placement fee. A direct lender underwrites the request and funds it from its own balance sheet.
The two look alike at the top of the funnel and diverge at the bottom. Lenders for term loans sit on the direct side of that line, and each reads a file differently.
The criteria that matter
Six rows separate the routes. Who pays, how the fee is set, whether the broker can raise your rate, time to funding, who supervises the seller, and what you can do after a decline. Price is one row here, not the entire comparison.
Broker vs direct lender
Business loan broker
- Who pays
- Borrower, lender, or both
- Fee basis
- Points on amount funded
- Rate effect
- Yield spread can be added
- Time to funds
- Days to a few weeks
- Supervision
- Rarely licensed
- After a decline
- Contract claim against broker
Direct lender
- Who pays
- Borrower only
- Fee basis
- Origination fee on loan
- Rate effect
- Lender sets own rate
- Time to funds
- Days online, weeks at bank
- Supervision
- Chartered or licensed and examined
- After a decline
- Regulator and complaint route
Business loan broker
- Who pays
- Borrower, lender, or both
- Fee basis
- Points on the amount funded
- Rate effect
- A yield spread can be added
- Time to funds
- Days to a few weeks
- Supervision
- Rarely licensed for business loans
- After a decline
- Contract claim against the broker
Direct lender
- Who pays
- Borrower only
- Fee basis
- Origination fee on the loan
- Rate effect
- The lender sets its own rate
- Time to funds
- Days online, weeks at a bank
- Supervision
- Chartered or licensed and examined
- After a decline
- Regulator and complaint route
Broker fees and the broker agreement
Broker compensation usually comes out of closing proceeds. On commercial deals the placement fee commonly runs 1% to 6% of the amount funded; small, hard-to-place files can reach 10%.
Those ranges are illustrative, not quotes. A broker may also collect a yield spread from the lender, recovered through a higher rate over the life of the loan.
Compare that total with a direct quote: turn an application and repayment offer into one annual figure. The broker agreement decides the rest.
Read for three clauses. Is the fee owed if you later approach the same lender alone? Does it survive a turndown? Does the broker fee stack on the lender's origination fee? A CFPB summary of broker compensation explains where those fees sit against a bank's.
Direct lender pricing and accountability
A direct lender charges an origination fee, usually 1% to 3% of the loan, plus third-party costs like appraisal and filing. On a 7(a) loan the SBA charges the lender a guaranty fee, and most lenders pass it to the borrower.
The 7(a) program page lists eligible uses and terms. Because the lender keeps the loan, it carries the credit risk and answers to a regulator.
Business-purpose credit falls outside the Truth in Lending Act, so no APR disclosure is required on most of these loans.
Where each one wins
A broker fits a start-up with no tax returns, collateral a bank will not pledge, a franchise purchase, or a borrower needing several quotes fast. A direct lender fits two years of clean returns, an existing bank relationship, and patience.
SBA volume lies with few institutions, so SBA loans lenders differ on turnaround and which files they will touch. A credit union fits a plain request where relationship pricing is the goal.
Example: a $150,000 request, two borrowers
Example: a $150,000 request
- Borrower A has two years of returns, a 700 score and equipment to pledge. A bank quotes 11% with a 2% origination fee and funds in 12 days.
- Borrower B is nine months old with one signed contract. Four banks decline. A broker places the file at 19% plus a 5% fee, funded in nine days.
- Borrower B pays about $7,500 to the broker and more interest each month. Borrower A pays $3,000 and keeps the lower rate.
Figures are illustrative, not quotes.
Two borrowers, two costs
- 11%Borrower A bank rate
- 2%Borrower A origination fee
- 19%Borrower B broker rate
- 5%Borrower B broker fee
A broker does not lower the cost of money. It changes who will consider you and what that consideration costs.
What none of them solve
Both routes leave the personal guarantee in place, so default can reach personal assets. Neither fixes thin revenue or negative working capital. A weak file placed by a broker is still priced for that weakness.
Both add a cost layer that a strong borrower with a bank relationship can sometimes avoid. The same limit applies to line of credit costs: the fee structure changes the price, not the underlying risk.
