SBA Broker vs SBA Direct

July 24, 2023

by a searcher from Columbia University in Edgewater, NJ 07020, USA

It seems that working with a broker is a good idea. They have relationships with the different lenders, and can help keep the process organized streamlined for the lenders underwriting process. It also my understanding that they are paid by the lender, so it doesn't influence the economics of your loan.

With that said, I saw a post asking for lenders and specifically requested no brokers. What am I missing?

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

We are a Commercial Loan Brokerage Shop, so of course I am biased. However, I will be the first to admit there are some bad firms out there. If you want a partner to help be sure your deal gets structured the right way, who can get it out to the lenders most likely to be a fit, help you manage the paperwork, and manage the process for you from approval to closing, then brokers are a great resource. We have a 5-step process we use called the CLX Way and have a tremendous amount of success in getting our clients deals done. We have over 500 funding partners including over 50 SBA funding partners, and everyone at our firm came out of the commercial banking world. However, when deciding what type of broker to use, I would suggest you consider the following: 1) Are they requesting up front fees? I highly discourage anyone from paying a packaging fee or up front fee for services. If a broker is confident they can get a deal done, they should not require an up front fee. We work purely on a Success Fee basis, meaning we do not charge anything up front and only get paid at time of closing. 2) If the broker requires you to be exclusive or they earn a fee even if you do not close the deal with them, this is a huge warning sign. First, they should be confident up front they can get you better terms and get the deal done. Secondly, they should not have a right to earn a fee on a relationship you had prior to working with them. 3) Be sure the agreement you sign prevents the broker from double-dipping on you. In some cases, and specifically in SBA lending, most brokers are paid a referral fee directly from the lender. If they want to charge you a fee as well, they would be getting double paid for the work. Be sure the agreement makes it so they only get paid once. 4) Dig into what type or lending relationships they have and what type of experience they have. You want a broker with a large rolodex and plenty of industry experience. Many brokers do not have a lending background and some do not have a financing background. They will not be able to help you answer complex questions. They may make some introductions for you, but you will still end up doing most of the work and they might not have the knowledge on how to get you to the right lender or mitigate risks that exist. You want a broker that knows how to underwrite, package, and what it takes to get a deal approved and closed. Otherwise you are not really getting what you are paying for. I hope this information is of help. We are always willing to have a conversation with anyone to go through our process. I can be pinged here or directly at redacted

Reply by an intermediary
from Oklahoma State University in Memphis, TN, USA

SBA loan brokers can be highly valuable in many circumstances. They know which lenders like to make which kind of loan and can really help the packaging and application process. That being said, they are not free. They can charge the borrower packaging fee and they are paid by the lender. As a result, the rates are typically at or near the SBA cap interest rate.
It's a tough world because nearly every bank says they make SBA loans, but lots of banks don't have all that much experience with them. Going with a well-respected broker will likely increase your likelihood to close timely. The same can be said about specialized, experienced lenders.

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