Both cost you money; they just arrive differently. A broker fee is a dollar amount you pay, usually at closing. A lender-paid commission is paid by the lender and recovered through your rate, factor rate or origination fee. The cheaper option depends on how long you keep the loan: a direct fee that buys a lower rate tends to win if you keep the loan to term, and lender-paid tends to win if you pay off early.
How each one works
| Broker fee you pay | Lender-paid commission | |
|---|---|---|
| Who writes the cheque | You, usually from proceeds at closing | The lender or funder |
| How you pay for it | Upfront, once | Over time, through the rate or factor rate |
| How visible it is | A line on your closing statement | Often only in the lender's disclosure |
| Effect on rate | None directly | Can push the rate or factor rate up |
| Common on | SBA packaging, complex bank deals | Term loans, equipment, lines, advances, factoring |
NerdWallet notes that ideally the lender pays the broker, and that if you pay, you should get the fee as a dollar amount and confirm whether it is built into the rate or billed at closing. Many brokers are paid only by the lender. Some are paid by both.
A worked example: $200,000 over 3 years
Your broker brings two structures from the same lender for a $200,000, 36-month term loan.
- Option A: you pay the broker a 1% fee ($2,000) at closing, and the lender charges 10%.
- Option B: you pay the broker nothing, the lender pays the commission, and the rate is 11%.
If you keep the loan for all 36 months:
| Option A | Option B | |
|---|---|---|
| Monthly payment | $6,453.44 | $6,547.74 |
| Total interest | $32,323.75 | $35,718.76 |
| Broker fee | $2,000.00 | $0.00 |
| Total cost | $34,323.75 | $35,718.76 |
Option A saves $1,395.01. The payment is $94.30 a month lower, and over 36 months that more than covers the $2,000 fee.
If you pay the loan off after 12 months:
| Option A | Option B | |
|---|---|---|
| Interest paid in year one | $17,292.76 | $19,058.81 |
| Broker fee | $2,000.00 | $0.00 |
| Total cost | $19,292.76 | $19,058.81 |
Now Option B wins by $233.95. The fee was paid upfront, and there were not enough months of lower interest to earn it back.
The break-even point here is month 14: that is when the interest saved at 10% first passes the $2,000 fee ($2,006.62 saved by then). If you are confident you will keep the loan longer, the fee structure is cheaper. If you expect to refinance or pay early, the lender-paid structure is cheaper.
On merchant cash advances
Advances are almost always funder-paid. deBanked reports that funders pay brokers the full commission upfront at funding. That commission sits inside the factor rate. Because the total repayment on an advance is usually fixed, paying early does not reduce it unless the contract offers a discount. So a funder-paid commission on an advance is paid in full whether you take nine months or four.
Example. A $100,000 advance at 1.30 repays $130,000. If the funder's commission to the broker is a larger share of that $30,000, the factor rate may be higher than a competing offer. Comparing two advances at 1.30 and 1.27 on the same file is a $3,000 difference, and commission levels are one reason for it.
On SBA loans
SBA rules make both structures visible. SBA Form 159 lists every agent compensated by the applicant and any referral fee the lender pays. Compensation from you must be reasonable for the work done and cannot be contingent on approval. The lender itself cannot charge you a broker, commission or referral fee. If you are asked to sign a Form 159, read both sections: what you pay, and what the lender pays.
How state disclosures help
In several states, the provider must tell you what it pays your broker:
- Virginia requires a statement of whether the provider will pay compensation directly to a broker, and the amount, on sales-based financing.
- New York requires providers to accurately disclose how and by whom a broker will be compensated.
- Utah requires disclosure of funds paid to brokers.
If you are in one of these states, the lender's disclosure is the fastest way to see the commission. Anywhere else, ask your broker. Verified entries on the register show fees in writing.
How to run the numbers yourself
You do not need special software. Any spreadsheet's payment function will do it.
- Calculate the monthly payment for each option at its rate and term.
- Multiply the payment by the number of months you expect to keep the loan, then add any balance you would pay off at that point.
- Subtract the amount borrowed. That is the interest you would pay.
- Add any broker fee and lender fees for that option.
- Compare the totals.
Do it twice: once for the full term and once for the date you think you might pay off or refinance. If the winner changes between the two, the decision comes down to how confident you are about keeping the loan. Your broker can run this for you in minutes, and a broker who offers to do it unprompted is showing you exactly how they think.
Questions that settle it
- What is the rate with your commission paid by the lender?
- What is the rate if I pay you a fee instead, and how much is the fee?
- Is there a prepayment penalty either way?
- How long do I realistically expect to keep this loan?
Run both totals for the term you expect. Pick the lower one.
A note on fairness
Neither structure is better in principle. Brokers spend real time packaging, matching and negotiating, and they deserve to be paid for it. What matters is that you can see the total, compare it with another offer, and choose. A broker who lays both options side by side, like the tables above, is a broker doing the job well.
Search the register for term loan brokers and compare how each one is paid before you share a file.
Questions owners ask
Is a lender-paid commission free to me?
Not exactly. Lenders recover the commission through the rate, factor rate or fees, so it is part of your cost even though you do not write the cheque.
When is paying the broker directly cheaper?
When you keep the loan to term and the direct fee buys a meaningfully lower rate. If you pay off early, a lower upfront fee usually wins.
Can a broker be paid by both me and the lender?
Yes, as long as both are disclosed. On SBA loans, all compensation appears on SBA Form 159, and in several states the provider must disclose what it pays the broker.