Credit Brokers: An Easy Path to Funding

Credit broking is an often misunderstood industry, despite the fact it provides a highly useful financial service. Speaking with credit lenders directly can be useful, but a credit broker may be able to provide access to a funding option that small business owners might not even know about otherwise.

In this article, we’ve gathered some frequently asked questions about credit brokers so you can better understand the industry. We’ll look at how credit brokers are regulated, who their services can help the most, and what it might cost to use a broker.

1. What is a Credit Broker?

Credit brokers are financial experts who help people find the best credit options for them, whether it’s a bank loan or a private lending company. They compare the credit market, and once they’ve identified the best option, they’ll also introduce their client to the lender to help get things started.

Sometimes, a broker may introduce the person or business looking for credit options to another broker. This is because some credit brokers may have established a relationship with a particular lender and will have exclusive access to that lender’s financing options.

The primary reason to use a credit broker is to save time, as looking for funding can be complicated without a good foundational understanding of finance. Credit brokers may also have access to funding options that private individuals don’t or can negotiate a better deal with a particular lender on their client’s behalf.

2. What is the Difference Between a Lender and a Broker?

The key difference between lenders and credit brokers is that credit brokers do not actually provide applicants with finance. They simply act as intermediaries between lenders and those looking for funding. To reduce the level of confusion over who is a lender and who is a broker, all credit brokers have a legal obligation to state that they are credit brokers when an individual or business initially engages in their services, and as such they cannot provide funding directly.

3. How Are Credit Brokers Regulated?

UK Credit brokers are regulated by the Financial Conduct Authority, much like other financial service providers in the UK. Anyone looking to offer credit broker services needs to be authorised by the FCA — otherwise, they could face steep legal penalties.

Getting authorisation is fairly straightforward as long as the business fulfils the requirements. All they need to do is complete the FCA application form and pay a fee. However, if you are dealing with this industry, there are some important points to keep in mind about authorised credit brokers:

• There are different kinds of credit broker services, and different kinds of authorisation:
  • Consumer credit broking authorisation only applies when the funding is classed as a credit agreement, which is only valid for individuals and partnerships consisting of two or three persons.
  • A broker that works with companies (specifically limited companies registered to Companies House) instead requires different credit broking authorisation, though this is also acquired through the FCA.

• As mentioned, some brokers may introduce their clients to another credit broker instead of a lender. A broker that only makes introductions to brokers (rather than lenders) will still need credit broking authorisation from the FCA. This is true even if they never directly introduce clients to lenders since they intend to introduce customers to credit eventually.
• Having credit broking authorisation means the business has an obligation to comply with all of the FCA broking-related regulations, such as the rules around fees and personal details.

4. Do Credit Brokers Charge Fees?

Using a human credit broker who discusses their clients’ needs and personally introduces those clients to a lender will typically mean having to pay a small fee for the use of their services. Alternatively, comparison websites that display multiple lenders and leave users to pick their preferred option do not charge users directly. Instead, any lenders who receive business through the site will be expected to pay for the clients that have been directed to them.

One of the legal requirements for an authorised credit broker is to inform clients of the fees they will be charged. Additionally, UK credit brokers must refund any fees they have taken if either of these specific situations arise:

• If the client changes their mind and wants to cancel within 14 days of signing the credit agreement. They cannot be financially penalised for this.
• Credit broker clients must also be refunded (minus £5 of any broker fee) if they do not have a loan within six months, or if they pay for the service and then change their mind before selecting a lender or credit option.

 5. How Can Credit Brokers Use Personal Details?

The FCA regulates how brokers use their clients’ personal information. As part of the initial registration process with a credit broker, clients may be asked to tick a box saying they agree to their details being passed on to third parties.

Typically, this can lead to unsolicited texts, calls, and emails from other credit brokers offering additional loans. While inconvenient, credit brokers can do this as long as they have asked permission in advance.

6. What is the Target Audience for a Credit Broker?

Credit brokers can help a wide variety of people access funding they may not have been able to obtain otherwise. However, there are certain groups that will benefit the most from using a broker:

• Small business owners who don’t have a strong understanding of how loans and finance work may benefit more from using a credit broker. The broker will be able to explain why certain terms are more or less favourable for the business, helping educate the business owner as well as providing access to funding.
• One of the primary conveniences credit brokers offer is that they save business owners time. A credit broker is a good option if an SME needs funding quickly but doesn’t have the time to vet a wide range of lenders.
• Credit brokers can even help clients with bad credit. In fact, some credit brokers specialise in assisting clients in getting low rates despite their poor credit rating.

If you fit into any of these categories, a credit broker could help you find an appropriate lender for your needs. Keep in mind, however, that most credit brokers will only be able to service sole traders and small partnerships — you’ll need a slightly more specialised broker to find finance options for a limited company.

Accessing Credit Through 365 finance

While some of our clients come to us through credit brokers, it’s also simple and straightforward to contact the 365 finance team directly through our website.

On the 365 finance website, you can apply for funding through our innovative Rev&U service. Our simple application process only takes minutes, and once you’re approved, you can receive funding within 24 hours. Additionally, we approve 90% of applications, meaning funding is easily accessible for a wide range of SMEs.

Repayment is also easy with Rev&U. As any funding provided is revenue-based, repayments are also based on your income; specifically, it’s a small percentage of each card payment you process. So, you don’t need to worry about failing to make payments during low-revenue periods, and when you’re making lots of sales, you’ll repay the funding even faster.

At 365 finance, we can provide both long and short-term financial solutions, with revenue-based funding available from £10,000 to £400,000 in capital. Apply for Rev&U today without affecting your credit score, or speak to our team to find out how we can help your business.