Using a debt broker vs going direct to your bank

What your own bank can and cannot give you

A bank that already holds your deposits and your line has real advantages. It knows your account history, it can see cash moving through the business, and a relationship banker can often move a straightforward request through credit without much friction. For many owners that is exactly the right lender.

What the relationship cannot change is the bank's box: the set of loans its credit policy lets it make. Every bank has one. It sets how much the bank will lend against earnings, which industries it likes and which it avoids, what collateral it wants, how long it will amortize, whether it lends on SBA terms, whether it does asset-based lending at all, and how large a single loan it will hold. A banker who likes you can argue for an exception, but cannot turn a community bank into a private credit fund or an SBA lender into an asset-based one.

So when your bank says no, or says yes with terms you did not expect, the answer tells you about that bank's box, not about your business. Many companies turned down by their own bank go on to close with a different kind of lender, because the loan was never a bank loan in the first place. See who lends to lower-middle-market companies.

Three ways to raise the same loan

"Broker" covers two very different services. Some brokers forward whatever you send them to a list of lenders and collect a fee if one bites. An advisor prepares the file the way a lender's credit committee will read it, chooses the lenders whose box the deal fits, and manages the competition through closing. The difference shows up in what lenders receive and in how they respond.

A file sent half-finished to many lenders is worse than a file sent to none. Lenders remember the deal they already declined.

What competition changes, beyond the rate

Owners tend to judge a loan by its interest rate. Lenders compete on much more than that, and the terms that matter most to an owner are often the ones a single lender has the least reason to give up.

• Amount. Senior cash-flow lenders to lower-middle-market companies commonly lend 2x to 3.5x EBITDA, and unitranche lenders stretch further. Where your bank sits in that range, and whether another lender would sit higher, is only visible if you ask more than one.
• Amortization. A longer schedule lowers the payment and eases coverage. Banks, SBA lenders and private credit funds amortize very differently; see loan term vs amortization period.
• Covenants. Which ratios are tested, how often, and with how much cushion. Headroom is negotiable when a lender knows another is waiting; see covenant headroom.
• Personal guarantees. Outside SBA, a guarantee can sometimes be capped or made to burn off. That concession rarely appears without competition; see limited vs unlimited guarantees.
• Prepayment and fees. Call protection, origination fees and unused-line fees change the real cost; see interest rate vs all-in cost.

Competition also reveals structures you would not have known to ask for. A business that asked its bank for a term loan may learn that an asset-based line plus a small term loan fits better, or that an SBA 7(a) loan will finance goodwill a conventional lender would not. Those answers come from lenders whose box is different from your bank's, which is the point of asking them.

Lenders an owner would not find alone

Most owners know a handful of banks. The lenders that fit an unusual deal are often ones they have never heard of: a fund that specializes in their industry, an SBA lender that finances acquisitions the size of theirs, an asset-based lender comfortable with their receivables. Transparent's lender book holds 1,800+ lenders, broken down by what they write:

The value is not the count. It is knowing which of those lenders is actually active in a deal of your size, industry and structure right now, and sending the file only to them. See the lender book.

When going direct is the right call

An advisor adds little when the answer is obvious and your bank is the natural lender. Going direct usually makes sense when:

• The request is a renewal or increase of a facility your bank already provides, on terms you are satisfied with.
• The loan is small relative to the business and coverage is comfortable. Conventional bank lenders commonly look for debt service coverage of at least 1.25x, and a request well inside that clears without argument.
• It is a plain equipment loan or an owner-occupied real estate loan that your bank does every week.
• The bank has already signaled a clean yes, and certainty with a lender you know matters more to you than the last increment of price.
• You have your own finance team that can build a lender-grade model and package and knows the market.

Even then, it is worth knowing what your bank is offering against the market. An owner who can say another lender would do the deal on longer amortization often gets it from the bank that already holds the relationship.

When a prepared package and several term sheets pay for themselves

The case for a process grows with the size and complexity of the deal. Typical examples:

• Acquisitions. A buyer needs a lender that understands goodwill, seller notes and the equity injection, and often more than one layer of capital. See the steps from LOI to closing.
• Refinancing out of cash advances. Your bank may see only the advances. A lender that reads the underlying earnings may see a business that can carry term debt, though not an SBA lender while an advance is active: SBA will not refinance one; see refinancing merchant cash advances.
• Leverage above the bank's box, where the answer may be a unitranche, a senior loan with mezzanine behind it, or an SBA loan.
• A bank that is pulling back: a line cut, a non-renewal or a move to special assets. See when your bank won't renew your line.
• Unusual collateral or earnings: heavy receivables, a down year with a clear explanation, customer concentration, add-backs that need defending.

In each case the package matters as much as the lender list. Once a borrower's documents are in, Transparent builds the financing model, lender presentation, blind teaser and underwriting memo in a day; built by hand, the same package takes at least a week. Lenders who receive a file that already answers their questions spend their time deciding, not asking. See what goes in the package.

What the advisor costs, and what to ask before hiring one

Transparent charges nothing before a loan closes: no application fee and no retainer. On SBA loans the lender pays Transparent, not the borrower, and SBA requires any fee paid to a loan packager or referral agent to be disclosed on SBA Form 159. On other loans any fee is due only if and when the loan closes, so compare it against the difference in terms the process produced, not against zero.

Whoever you hire, ask:

• Do you charge anything before closing? Fees collected up front reward the broker whether or not you get a loan.
• What will lenders receive from you? If the answer is "your tax returns and a summary", the lender is doing the work you are paying for.
• Which kinds of lenders will see the file, and will you check with me before it goes out?
• Will you include my current bank? A process that excludes the lender that knows you best is leaving an option out.
• Will you help compare term sheets on all-in cost, covenants and guarantees, not just rate?

An advisor who cannot answer those plainly is forwarding files. See what Transparent does and how we underwrite.