How do business loan brokers get paid?

The four structures

Why there is no typical percentage here

Anyone quoting you a standard market rate for broker compensation is guessing. It varies by funder, by product, by deal size, by the broker's volume relationship and by what was negotiated on the day. Rather than benchmark against an invented figure, get the actual one:

How are you compensated on this specific deal, by whom, and how much? Is the price you have quoted me the funder's price, or does it include a spread you added?

Ask in writing. A direct answer is a good sign. A refusal is not automatically misconduct, but it is information, and you can weigh it against the offer.

What the structure does to the advice you are given

Commission on funded amount means the person advising you is paid more when you take more. Not when you take the right amount, and not when you choose the cheapest structure available. That does not make anyone dishonest; it means the incentive points one way and you should hold that in mind whenever the suggested amount is larger than the amount you asked for.

Where it shows up in cost

Both visible fees and invisible spreads are paid out of your deal, and both raise the real cost of the money you receive. The arithmetic of how a spread plus points changes an effective cost is worked through in who pays the broker's points.

What a spread costs, worked

Now add a 3% packaging fee taken out of the wire. You receive $77,600 and you repay $105,600. Your cost is $28,000, or 36.1 cents for every dollar that reached your account.

At the funder's own price with no fee, the cost would have been 24 cents per dollar. The intermediation added just over twelve cents per dollar of cash received, and none of it appears on any document as a broker charge. One line of it is disclosed as a fee. The larger line is simply your price.

That arithmetic is the reason the buy-rate question is worth asking directly, and it is why an answer of "the funder pays me, it costs you nothing" deserves a follow-up: does the funder's approval permit you to present a higher rate than the one it approved, and did you.

What is not normal

Payment before funding. Legitimate compensation in this market is paid out of the transaction when it closes. An upfront "processing fee", "commitment deposit" or "underwriting retainer" paid to an intermediary in exchange for a promise of funding is the standard shape of an advance-fee scam; the FTC publishes material on the pattern at ftc.gov.

Genuine third-party costs do exist on larger deals — an appraisal, a field exam, a search fee — and they are payable to the firm performing the work, documented, and normally arranged after a written term sheet rather than before anyone has looked at your file.

How to tell what kind of intermediary you are dealing with

Titles mean nothing in this market. Behaviour separates the categories quickly.

Three things worth watching for in any of them. A file submitted to a dozen funders at once leaves a trail of inquiries and shared-database entries that makes you look like a business shopping in distress. An offer that arrives larger than you asked for is an incentive at work. And a call proposing more capital while you already carry a position is a proposal that you breach your existing contract, whatever it is called.

Read the broker agreement

Before you sign one, look for exclusivity, a fee payable even if you fund elsewhere within a period, open-ended authorisation to submit your file to unnamed "partners", and what happens to your documents and your contact details afterwards. Those clauses cost more than the commission does.

Two of those deserve naming. An exclusivity clause with a tail period means a funder you found yourself, months later, can still generate a commission. And an open authorisation to submit your file to unnamed partners is how one application becomes fifteen inquiries, a run of shared-database entries and a phone that does not stop for a year.

Ask for both to be limited: a named list of funders, and your written approval before any further submission. A broker who works with a small panel agrees to that without hesitation, because it describes what they were going to do anyway.