A direct lender makes the loan with its own money, sets the terms, and collects your payments. A business loan broker doesn't lend. It takes one application to multiple lenders and helps you choose among their offers. Brokers are usually paid a commission by the lender when the loan funds, and some also charge the borrower a fee.
What does a direct lender actually do?
A direct lender is any institution that funds the loan from its own balance sheet or credit facility: a bank, a credit union, an online lender, an equipment finance company, a factoring company. It runs the underwriting, decides yes or no, sets the rate and term, sends the money, and services the loan until it's paid off.
The limitation is the product shelf. A bank offers the bank's products under the bank's credit policy. If your business has eight months of history and the bank wants two years, the answer is no, even if a different lender down the street would approve you the same afternoon. Each direct lender sees your business through one credit box.
What does a business loan broker do?
A broker works on the other side of that problem. Instead of one credit box, the broker knows many of them and sends your file to the lenders whose criteria you actually meet.
In practice, a broker:
- Collects one application and your supporting documents (usually 3 to 6 months of bank statements, ID, and basic business information)
- Figures out which product fits: a line of credit, a term loan, equipment financing, factoring, or something else
- Submits the file to lenders that fit your profile
- Brings back the offers and walks you through the real cost of each
- Coordinates paperwork through closing
What a broker cannot do is approve your loan or set your rate. The lender does both. A broker who says otherwise is overselling.
Sagamore Financial Group works this way. As a lending brokerage, it doesn't make loans itself; it matches businesses with lenders from a network covering term loans, lines of credit, SBA programs, equipment financing, factoring, and commercial real estate.
Broker vs. direct lender: how do they compare?
| Direct lender | Loan broker | |
|---|---|---|
| Who funds the loan | The lender | A lender the broker matches you with |
| Who approves and sets the rate | The lender | The lender, never the broker |
| Number of offers you see | One per application | Potentially several from one application |
| Product range | That lender's products only | Whatever the broker's lender network offers |
| Credit checks | Each lender you apply to may run a hard pull | Often a soft pull first, hard pull only on the offer you accept |
| Who you deal with | Lender's staff | Broker through closing, then the lender for payments |
| Best fit | You already know the lender and product you want | You want to compare, or you don't fit a bank's box |
The credit-check row matters more than it looks. FICO's rate-shopping rule treats multiple mortgage, auto, or student loan inquiries within a short window as one. Business loans and credit cards don't get that treatment, so applying to four lenders on your own can mean four separate hard inquiries.
How are business loan brokers paid?
There are four common models. Some brokers use one, some combine two.
Lender-paid commission
The lender pays the broker when your loan funds, usually quoted in "points," where one point equals 1% of the funded amount. For conventional business loans, referral fees commonly fall in the 1% to 5% range. On revenue-based products such as merchant cash advances, commissions run much higher; industry sources put them around 10 points.
You don't write a check for this, but it isn't free. It comes out of the lender's margin, which is built into the price of the loan.
Borrower-paid broker fee
Some brokers charge you directly, usually a percentage of the loan collected at closing. This fee is often deducted from your proceeds.
Rate markup
Some brokers are paid by building their compensation into the rate or factor rate the lender quotes you. It won't appear as a separate line item.
Upfront fees
An application fee, "processing" fee, or retainer charged before you have an offer in hand. Reputable brokers rarely work this way, and fees demanded before a loan is approved are a classic loan-scam pattern.
| Model | Who pays | Where it shows up | What to ask |
|---|---|---|---|
| Lender-paid commission | Lender | Priced into the loan | "Are you paid by the lender on this deal?" |
| Borrower-paid fee | You | Closing statement or deducted from proceeds | "What's the fee in dollars, and is it taken from my funds?" |
| Rate markup | You, through the rate | Inside the rate or factor rate | "Is your compensation included in this rate?" |
| Upfront fee | You | Before any offer exists | Walk away unless the terms are clear and in writing |
What does a broker fee cost in real dollars?
Say a landscaping company borrows $200,000 through a broker who charges a 2% fee deducted from proceeds.
- Fee: $200,000 × 2% = $4,000
- Cash that lands in the account: $196,000
- Principal you repay: $200,000, plus interest
That $4,000 belongs in your cost comparison the same way a lender's origination fee does. If a second offer comes through a lender-paid arrangement with no deducted fee, compare the two on total repayment and net cash received, not on rate alone. The costs-and-comparisons side of this, including factor rates and APR, deserves its own read before you sign anything.
The cost picture is also more transparent than it used to be. As of 2026, about ten states require standardized cost disclosures on many commercial financing offers. New York's law covers offers of $2.5 million or less; California's covers $500,000 or less.
Does using a broker cost more than going direct?
Not automatically. Direct lenders spend money to acquire customers too, through advertising, sales teams, and their own referral programs. A lender-paid commission is one version of that expense.
Where brokers can cost more is on short-term, high-cost products, where compensation is large and a borrower might not realize it's baked in. Where brokers can cost less is when competition between lenders produces a better offer than the one you would have taken from the first lender who said yes. The only way to know is to compare total dollars repaid.
When does going direct make more sense?
- You have a long banking relationship, strong financials, and two or more years in business, and your bank offers the product you need
- You know exactly which product and lender you want
- You have time to apply to several lenders and manage each process yourself
When does a broker make more sense?
- You don't fit a bank's criteria. Sagamore's minimums for most products are 4+ months in business, $5,000+ in monthly deposits, and a 500+ credit score, lower than many banks require.
- You need speed. Sagamore's average turnaround is 24 hours.
- You're not sure which product fits. A seasonal cash gap, a slow-paying customer, and a truck purchase each call for a different structure.
- You want an SBA loan but not the paperwork. SBA loans take 30 to 90 days and a heavy document package. Help assembling it saves time.
What should you ask a broker before you apply?
- How are you paid on my loan, by whom, and how much?
- Do you charge anything before I receive an offer?
- Is the first credit check a soft pull?
- Will I see every offer that comes back, or only the one you recommend?
- Can I see the total repayment amount and payment schedule for each offer before I sign?
A broker who answers all five plainly is worth working with. Red flags: guaranteed approval, pressure to sign the same day, fees before an offer exists, or vague answers about compensation.
If you want to see what a brokered process looks like, you can start an application. The first review is a soft credit pull, and you'll see each offer's full cost before you decide anything.
