Business loan broker fees by loan type

Broker compensation depends on the product. Across the market, NerdWallet puts broker fees at roughly 1% to 15% of the loan amount, and Fit Small Business says to expect 1% to 3% for most transactions. SBA and bank loans sit at the low end and are tightly disclosed. Merchant cash advances sit at the high end, usually paid by the funder and built into the factor rate. Factoring brokers often earn a share of the factor's fee for as long as the account runs.

Knowing how each product pays tells you where the cost lands and what to ask.

The overview

In several states, the disclosure tells you directly. Virginia's sales-based financing law requires a statement of whether the provider will pay compensation directly to a broker, and the amount. Utah's law requires providers to disclose funds paid to brokers. New York requires providers to explain how the broker will be paid.

SBA loans

SBA deals have the clearest rules. If you pay an agent, packager or broker, the lender must collect SBA Form 159, signed by you, the agent and the lender. The form defines an agent to include a loan packager, referral agent, broker, accountant, attorney or consultant. Compensation "must bear a necessary and reasonable relationship to the services actually performed," cannot be contingent on loan approval, and must be itemised when the total exceeds $2,500. The lender itself cannot charge you any broker, commission or referral fee.

Example. A $250,000 SBA 7(a) loan where you pay a packager 2% for building the package:

• Fee: $250,000 times 2% = $5,000
• Over $2,500, so it must be itemised on Form 159 (hours, tasks, rate)
• Usually paid at closing from loan proceeds or your own funds

Lenders may also pay referral fees to agents, which appear on the same form. See SBA Form 159 explained.

Bank and online term loans

On term loans, the lender typically pays the broker a referral fee or points on the funded amount. That cost tends to show up in the origination fee or the rate. NerdWallet reports bank origination fees of 0.5% to 1% and online lender fees of 1% to 10%.

Example. A $200,000, 3-year online term loan where the lender pays the broker 2 points:

• Broker compensation: $200,000 times 2% = $4,000, paid by the lender
• Your cost: whatever origination fee and rate the lender charges you
• What to ask: "If you waived the commission, what would the rate be?"

Lines of credit

Line of credit compensation is often paid on the approved limit or on draws. Ask whether the broker earns again each time you draw, because that can encourage draw fees that add up on a revolving line.

Equipment financing

Equipment lenders pay brokers points on the financed amount, built into the rate or the lease rate factor.

Example. A $150,000 equipment loan where the lender pays 3 points:

• Broker compensation: $150,000 times 3% = $4,500, paid by the lender
• If the broker also charges you a $1,500 documentation fee, total compensation is $6,000, or 4% of the deal

The second line is the one to watch. A fee from you on top of a lender commission is fair game to negotiate. Read negotiating fees and terms.

Invoice factoring

Factoring often pays brokers a residual. In deBanked's reporting, Amerifi's Ed DeAngelis said broker residuals can be 8% to 15% of what the factor collects. His example:

• A $100,000 invoice with a 2% factoring fee produces $2,000 for the factor
• At a 10% broker share, the broker earns $200 a month while the invoice is outstanding
• On a $500,000 invoice, the same arrangement pays $1,000 a month

That compensation comes out of the factor's fee, not a separate charge to you. It does mean your broker benefits as long as you keep factoring, so ask for a review of the rate each year.

Merchant cash advances

Merchant cash advance funders pay brokers upfront. deBanked reports that funders now pay the full commission at funding, and that residuals on advances have largely disappeared. That commission is measured in points of the advance and is priced into the factor rate. This is why NerdWallet places advances at the top of its fee range.

Example. A $100,000 advance at a 1.35 factor rate, where the funder pays the broker 10 points:

• Total repayment: $100,000 times 1.35 = $135,000
• Funder cost of the money plus its margin: $35,000 in total finance charge
• Broker compensation inside that: $100,000 times 10% = $10,000, paid by the funder

If a competing funder offers 1.30 on the same file, you save $5,000. Commission levels are one reason factor rates vary between offers. See the true cost of a merchant cash advance.

Fees you should not pay

Across every product, these specific practices are worth declining:

• An application or "due diligence" fee due before you have a written offer
• A fee for a loan that never funds
• A fee that is not in writing before you sign
• A broker fee you only discover on the closing statement

How to see the full picture

Ask every broker the same three questions:

1. Who pays you on this deal, and how much in dollars?
2. Will I pay you anything directly, and when?
3. Is your compensation built into my rate or factor rate?

Verified entries on the register show fees in writing, so you can compare brokers before you share a file. Search merchant cash advance brokers, SBA brokers or equipment brokers to start. Levr is free for brokers and businesses and earns on the lender side, so using the register adds nothing to your cost.