Commercial Finance is an industry which many business owners find a bit of an unknown. As a business looking for finance options it can feel impossible to know where to start. That’s why we’ve picked the brain of Andrew Wattsford at Wattsford Finance. He takes us through why using a commercial finance broker may be the best step to take for the development of your company.
Tell me what a Commercial Finance Broker is
A commercial finance broker works to help business owners and entrepreneurs raise the finances that they need for their business. This works in exactly the same way a talking to residential mortgage broker about your home. Many brokers claim they are specialists in commercial finance when in actuality, their speciality might be that they are a residential mortgage broker, who also provides commercial finance services on the side. In this manner, they provide their skills to another service, commercial finance.
Why do I need a broker?
Surely I can just visit my bank and arrange my own commercial finance? Whilst that is possible, not all banks have the dedicated Bank Business Managers to work on your finance case. Visiting your bank used to be the only option available to you. You can now use any of the hundreds of alternative lenders to secure your commercial finance.
There are so many Alternative Lenders to choose from, with Challenger Banks, Merchant Banks, Peer-to-Peer Lenders, Private Funding Groups, Investment Trusts, high net worth Personal Investors and Specialist Lenders covering all aspects of commercial finance. This includes bridging finance, property development finance, business loans, invoice discounting, treasury finance, asset finance to name but a few. Each lender will be able to help with the specific area so be sure to test their knowledge on this.
This all sounds very complex!
Unlike a standard residential mortgage, commercial finance is much more bespoke and requires a degree of skill and experience to find the right deal.
That’s why a good commercial finance broker can help you to secure the best deal for you and your business. We are going to give you a quick rundown of all the jargon that you will need to know. Don’t worry, we will keep it simple and it will be the only jargon that we throw at you!
What does FCA mean?
FCA refers to whether a business is Regulated by the Financial Conduct Authority (FCA)
In commercial finance, many deals for clients are in the name of a limited company. As a result, many commercial finance brokers decide to remain unregulated by the FCA. There are many grey areas to structuring a deal, one moment the deal is unregulated and the next it’s regulated which means an unregulated broker can no longer deal with it.
Whilst the FCA protects the consumer when they borrow money, many commercial lenders are unregulated and can mean that people are able to become commercial lenders with minimal checks. This could result in you and your business being charged incorrect amounts of interest. That is where Secured Lending Audit comes in. We investigate whether you have been inappropriately charged interest, in which case we help you to get a refund.
What is an NACFB?
NACGB refers to Members of the National Association of Commercial Finance Brokers. The NACFB is a nationally recognized organisation that has approximately 1600 members throughout the UK. The recommendation is that you should only work with NACFB members when looking to raise finance for your business. This guarantees that they will adhere to certain principles and can be a reliable company to do business with.
Explain Professional Indemnity (PI) Insurance to me
If you use a broker who has PI insurance, you know you have recourse if something goes badly wrong. Fortunately, things seldom do, but if you use a commercial finance broker with PI cover it just gives you that extra protection. Also, to get PI cover, the insurance company will have examined the broker’s credentials before agreeing to put a PI policy in place, which gives additional “peace of mind”.
Do they have market knowledge?
A competent commercial finance broker should be able to offer a choice of lenders from across the “whole of market”. In other words, they’re not tied to one lender or to a selected panel of lenders but is knowledgeable about the rest of the field.
Instead, they should investigate the whole of the market, research various options and report back to you with several options so that you can make an informed decision in the knowledge that your broker has not just approached a couple of favourite lenders. It is crucial that they have market knowledge so that they can find you the best deal.
Anything else I should make sure of?
Does your broker have relevant experience and knowledge?
A good broker will have knowledge and experience relevant to the role. Many brokers will also be able to support this further with a mix of both academic and professional qualifications. If they can point to years of experience and qualifications, then they could be perfect for you!
Ask about the fee
In the same way that you would expect to pay for any professional service, a broker should charge you a fee. You must look for a broker that charges a fee and has a wide choice of lenders to approach on your behalf as this removes any potential conflict between fee earning and commissions from lenders.
The FCA requires that all brokers provide their clients with their terms of business at the start of every transaction which will include any fees and how they will be charged. This avoids the nasty surprise of hidden costs that could see you come unstuck
Wattsford Commercial Finance are independent specialists in commercial and business finance. If you have any queries about how to get started in looking for commercial finance, contact Andrew – [email protected]
At Secured Lending Audit, we investigate commercial finance to make sure that you are not being charged more interest than you should have. In fact, you might even be entitled to a refund if you have been mis-sold commercial finance. To claim your free audit and take your first step to finding if you have been inappropriately charged by commercial finance brokers, fill out our contact form: https://securedaudit.com/contact/