Broker or direct lender, and exactly how the money reaches whom

A direct lender uses its own money and sets its own price. A broker uses somebody else's money and gets paid to bring you to it. Both models are legitimate. The difference that matters is not which one is better, it is whether you can see what the intermediary is earning, because on a working capital deal it is usually buried in the price you sign.

We are a broker. That makes this page awkward to write and worth reading for exactly that reason. Everything below applies to us, and the section near the end says plainly what we are paid and how to check it.

Who is who in this market

Direct funder

Uses its own balance sheet or its own investor capital, underwrites in house, and sets the price. Sometimes called the funder or the lender of record. One price, one answer.

Bank or credit union

A direct lender with regulatory oversight, cheaper money, slower process, and a much narrower credit box. If you fit a bank, you should be at a bank.

Broker or [[/learn/glossary/iso/|ISO]]

Takes your file, packages it, and submits it to multiple funders. Paid by the funder out of the transaction, or by you, or both. Does not decide anything.

Marketplace

A technology layer that routes your application to a panel of funders. Functionally a broker with less human involvement and, usually, less advocacy when a file needs arguing.

Lead generator

Not a lender or a broker. Collects your application and sells it, sometimes to several buyers at once. This is why one application produces nine phone calls.

[[/learn/glossary/white-label/|White label]] arrangement

A broker presenting a funder's product under its own brand. You may believe you are speaking to the lender when you are not. Ask directly who is funding.

Note what does not change in either path. The funder underwrites, the funder prices, the funder decides, and the funder's money lands in your account. A broker's entire value is which funders see the file, how it is presented, and whether anyone argues for it. That is real value on a difficult file and close to zero value on an easy one.

How a broker gets paid, in dollars

There are three models. Most brokers use one. Some use two. A few use all three at once on the same deal, which is the situation this page exists to help you spot.

• Markup on the rate. The funder quotes a buy rate, which is what it needs back. The broker presents a higher sell rate, and keeps the difference. On $100,000, a 1.28 buy rate sold at 1.36 means the funder is owed $128,000, you owe $136,000, and the broker earns $8,000. This money is added directly to your payback and it does not appear on any line of the term sheet.
• Points from the funder. The funder pays the broker a percentage of the amount funded, commonly in the range of 3 to 12 points on advances. At 5 points on $100,000 that is $5,000, paid out of the funder's margin rather than added to your balance. It still influences behavior, because desks that pay more points get more submissions.
• A fee billed to you. A packaging, advisory or origination fee charged directly to the merchant, deducted from the wire. At 2 percent that is $2,000 you never see. On working capital deals this is the model to scrutinize hardest, because it is often charged on top of a markup that is already in the price.
• All three on one deal is $15,000 of compensation on a $100,000 advance. It happens, it is not illegal, and you would have no way of knowing unless you asked.

That chart is the honest picture of a marked up deal. You repay $136,000. The funder needed $128,000. The $8,000 gap is not fraud and it is not a fee anyone hid from you in a legal sense. It is simply invisible unless you know the buy rate, and there is only one way to know the buy rate, which is to ask.

Which one is actually better for you

This depends almost entirely on how easy your file is, which is the opposite of what both sides usually claim.

The clean version: if you can walk into a bank or a credit union and get approved, do that. Nothing in the broker market competes with bank pricing and no honest broker will tell you otherwise. If you have been declined by a bank, if you need money in 48 hours, if you have an open position or a complicated story, that is where shopping the file across a dozen desks has genuine value, and it is very hard to do alone in a week.

A broker is worth paying for the doors you could not open alone. Nothing else.

Six questions that keep any broker honest

Send these in one email so the answers are written down. The answers matter less than whether they arrive at all.

1. What is the funder's buy rate on this offer, and what am I signing?
2. What are you being paid on this deal, in dollars, and by whom?
3. How many funders saw my file, and which ones declined?
4. Are you charging me any fee directly, at any point?
5. Who is the actual funder, and am I signing a contract with them or with you?
6. If a cheaper product fits my file, will you show it to me even though it pays you less?

A broker who answers all six in plain numbers is one you can work with, regardless of what the numbers are. An $8,000 commission you were told about is a business arrangement. The same $8,000 discovered afterward is the reason this industry has the reputation it has.

What the disclosure laws now require

This is changing quickly and in your favor. A growing list of states, including California, New York, Utah, Virginia, Georgia, Florida, Kansas, Missouri and Connecticut, now require a commercial financing disclosure on many small business transactions. The specifics vary, but they generally require the financer to state the amount financed, the total dollar cost, the payment amounts and, in most of them, an annualized rate. Several also require broker compensation to be disclosed.

Two practical consequences. First, if you are in a covered state, you should receive a disclosure with an annualized rate before you sign, and if you do not, ask why. Second, some funders decline to write in covered states rather than comply, which is one of the reasons an identical file gets different answers depending on where the business sits. If you want to check the arithmetic on whatever disclosure you receive, use factor rate to APR.

What we do, and what we are paid

Exp Capital Solutions is a broker. We are not a lender, we do not use our own money, we do not underwrite, and we do not approve or price anything. Every dollar you receive comes from a third party funding partner, and your contract is with them.

We are paid by the funding partner out of the transaction, generally as points on the amount funded, and on some products as the spread between the partner's buy rate and the rate on the paperwork you sign. We do not charge a fee to look at a file, and we do not charge you anything upfront. If you ask what we are earning on a specific offer, we will give you the dollar figure before you sign, not after. That is the whole disclosure, and you should ask every broker you speak to for the same one.

What that buys you: one file, submitted to the partners whose box actually fits it rather than to everyone, and every resulting offer rewritten onto one page with net proceeds, total payback, converted APR and the clauses most likely to bite. We will tell you when a cheaper product fits, including lines of credit and SBA loans that pay us a fraction of what an advance does, and we will tell you when the answer is to wait sixty days and fix your bank statements instead. Both of those cost us money. We would rather be the broker you call again in two years.