Lenders, Brokers, and Syndicators: What's the Difference?

In the dynamic landscape of alternative business lending, it’s vital for growing entrepreneurs to understand and navigate through the various available capital funding options. For over a decade, brokers, lenders, and syndicators, each serving a unique role, have been the driving force behind business funding. In fact, securing business funding will likely require interactions with at least two of the three, yet hardly any entrepreneurs know which is which, or understand the value that each offer. As brokers and lenders battle each other for clients, with little to gain from revealing their conspicuous truths, understanding their respective capabilities has been challenging. We are here to shed light on lenders, brokers, syndicators, and their relevance to your business financing needs.

Lenders

Direct lenders, including online lenders and business funding alternatives, provide capital to businesses in exchange for repayment with interest or a share of the business’s profits. Using proprietary algorithms that quickly analyze credit and financial factors, lenders determine an applicant’s eligibility, reach a credit decision, and release funds within a few days – making them an attractive option for businesses that need capital fast. The best lenders offer comprehensive financing with rates and terms comparable to traditional bank loans, help build personal and business credit, and offer additional resources to support your business development. However, they have stricter credit and revenue requirements than other options. Securing funds from these lenders suggests that you may be a worthy investment, so prepare for a lot of phone calls after acquiring capital from one.

On the other hand, some funders specialize in servicing business owners with bad credit history, legal issues, and/or substantial volatility. Due to the inherent risk level associated with these businesses, their rates and terms can be limiting. Furthermore, the risks associated with these businesses can scare good lenders away, so they’re often a last resort. If you take this type of funding, you can earn credibility with good payment history, but you will need to improve the negative business performance or credit factors that led to these limitations before qualifying for better financing. Differentiating between the good and bad can be difficult, especially with several “middle-of-the-pack” lenders. Ask as many questions as possible when choosing a funding partner.

Interesting Fact: In the US, online lenders have been growing in popularity due to their speed and convenience. The online lending market is expected to reach $290 billion by 2025.

Brokers

Brokers are pivotal to the lending process, as they connect financeable businesses with suitable lenders or investors. They are enigmatic, as they can help or hurt your business depending on their network, experience, and ethics. An experienced broker working in your interest can leverage their network to your advantage in multiple ways. Their record for effectively matching the ideal client and lender earns them priority, resulting in quicker approvals and additional considerations beyond stern underwriting guidelines. They make lenders compete for your business, save you money, and protect your credit. The best brokers understand your unique business needs and goals, share insights regarding a lender’s culture and capabilities, detail the pros and cons of each, and advise you on transitioning to better financing as you improve your lendability. A talented broker with fiduciary responsibility to your business will likely present the best funding solution possible.

A less ethical or less experienced broker can work against you in just as many ways. Most commonly, they will blindly shop your credit to less-than-ideal lenders, solely focused on obtaining the highest commission possible. Less experienced brokers lack the connections to make a substantial difference in underwriting and offer little value outside of being glorified application pushers, while less ethical brokers commonly use their experience to earn big by using misleading strategies to over leverage clients and charge exorbitant fees. Broker fees vary according to the complexity of the transaction, so business owners should prioritize discussing and understanding them from the beginning. A broker who can’t disclose their price may not be worth working with. Having a good broker on your side is an immense advantage, but you won’t know what kind of broker they are until you work with them, so don’t be scared to ask for references!

Interesting Fact: In the US, approximately 75% of small business loan applications are facilitated by brokers. Their expertise can significantly improve the chances of securing favorable terms.

Syndicators

Syndicators, the lesser-known participants in business funding, have a key role in alternative lending. Syndication refers to the process of bringing a group of investors together to facilitate a financial transaction. Syndicators partner with other lenders to mitigate risks associated with financing businesses by investing their own capital, allowing them to better negotiate agreeable terms on behalf of the borrower. As syndicators typically have a deeper understanding of various industries and financing vehicles, their participation implies their belief in your business.

Interesting Fact: Syndicated loans account for about 20% of all business loans in the US. They are especially common in industries requiring large amounts of capital, such as real estate and manufacturing.

Conclusion

Historically, most successful businesses in America leverage finance during their company’s lifespan. As alternative business funding becomes increasingly popular, business owners should familiarize themselves with lenders, brokers, syndicators, and their respective functions and advantages. Lenders provide working capital, brokers help businesses traverse the funding world, and syndicators facilitate complex financing through group investments.

Ready to explore your funding options? Get offers today! Fill out an application with Approvd and discover the best funding solutions for your business. For more insightful articles and resources, visit our Approvd Resources page.

About the Author

With over 20 years of experience in the business loan marketplace at Approvd, our expert has helped countless small business owners navigate the complexities of securing the right funding. Passionate about empowering entrepreneurs, our expert combines industry knowledge with a deep understanding of the challenges faced by small businesses today.

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