How Do Commercial Finance Brokers Get Paid?

Commercial finance brokers are usually paid in one of two ways: a commission from the lender, often called a procuration fee, when your loan completes, or a fee charged to you the client, and sometimes a combination of both. In many commercial deals the broker is paid by the lender, which means their service can cost you nothing directly. A professional finance firm should always be transparent about how it is paid before you commit.

Below we break down each method, when a fee applies, what it typically costs, and why using a broker can still save you money overall.

1. Commission from the lender (procuration fee)

The most common way a commercial finance broker is paid is by the lender. When the broker introduces your deal and it completes, the lender pays them a percentage of the loan amount, known as a procuration fee or proc fee. Because this is paid by the lender, it often costs you nothing extra, and the rate you are offered is not increased to cover it.

Procuration fees vary by product. They are generally modest on high volume products such as buy to let mortgages and larger on specialist lending where the broker does considerably more work. The important point is that the fee comes out of the lender's own margin, not out of your rate.

2. A broker fee charged to you

For some cases, particularly complex, specialist or higher risk deals, a broker may charge you a fee for their work. This should always be disclosed and agreed upfront, and a good broker will explain exactly what the fee covers, such as sourcing lenders, packaging your application and managing the process through to completion.

Client fees are most common where the case takes real work: development finance, portfolio refinances, bridging on unusual security, or a business that has already been declined elsewhere and needs the case rebuilt. They are usually quoted either as a flat sum or as a percentage of the facility, and on most arrangements they are payable on completion rather than upfront.

3. A combination of both

On larger or more involved deals, a broker may take a smaller lender commission plus a client fee. Again, transparency is the key: you should know the full picture before you proceed, including whether the fee is payable if the deal does not complete.

What questions to ask a broker about fees

• How are you paid on this particular deal, by the lender, by me, or both?
• If there is a client fee, how much is it and when is it payable?
• Is any part of the fee payable if the deal does not complete?
• Do you receive different commission from different lenders on my case?
• Are you whole of market, or do you work from a restricted panel?
• Is the fee confirmed in writing before I commit to anything?

A broker who answers all six clearly is a broker worth using. Hesitation on any of them is worth noticing.

Does using a broker cost me anything?

Often, no. When the broker is paid by the lender, their expertise, market access and time can be free to you. Where a fee does apply, it is disclosed in advance so there are no surprises. Either way, a broker's access to whole of market lenders frequently secures better terms than going direct, which can outweigh any fee.

The saving is usually not only in the rate. It is also in avoiding a decline, which costs weeks and leaves a search on your credit file, and in getting the right product in the first place. Funding equipment with asset finance instead of an unsecured loan, for example, often saves considerably more than any fee involved.

Why is transparency important?

In the UK, finance brokers are expected to be clear about how they are paid. If a broker will not explain their payment structure, that is a warning sign. So is a broker who charges a large fee before doing any work, or who cannot tell you which lenders they have access to.

Trade body membership is a useful signal. Members of the NACFB and FIBA sign up to codes of practice covering disclosure and conduct. At Sadi's Commercial Finance we are registered with both, and we tell you upfront how we are paid on your deal, in writing, so you can make an informed decision.

Broker versus going direct to your bank

Your bank costs nothing in fees, which is the obvious argument for going direct. What it cannot do is show you anything other than its own products. If your case fits the bank's credit model, direct is often simplest. If it does not, and most commercial cases do not fit every model, then a single decline tells you nothing about what else was available.

A broker's value sits in knowing which lenders are actively lending on your type of case this month, how to present it, and when to tell you that borrowing is not the right answer at all.

Frequently asked questions

Is a commercial finance broker free?

Often yes, when the broker is paid a commission by the lender. Some complex or specialist cases carry a disclosed client fee, which should be agreed in writing before you commit.

What is a procuration fee?

It is the commission a lender pays a broker when a loan completes, usually a percentage of the loan amount. It comes out of the lender's margin, not your rate.

Will using a broker increase my interest rate?

No. Lender commission is paid by the lender and does not inflate the rate you are offered.

Should the broker tell me how they are paid?

Yes. A transparent, professional broker discloses their payment structure before you commit, and puts it in writing.

When is a broker fee payable?

Usually on completion of the facility. Be cautious of any arrangement asking for a substantial payment before work has been done, and always check whether anything is payable if the deal does not complete.

How much is a typical broker fee?

It depends entirely on the complexity of the case and the size of the facility, and is often quoted as a percentage of the loan or a flat sum. The right question is not what is typical but what is being charged on your deal and what it covers.

Do brokers get paid more by some lenders than others?

Commission rates do vary between lenders, which is exactly why disclosure matters. Ask directly, and expect a straight answer about how the recommendation was reached.

Are commercial finance brokers regulated?

It depends on the product. Regulated mortgage and consumer credit activity falls under the Financial Conduct Authority, while much commercial and buy to let lending is unregulated. Trade bodies such as the NACFB and FIBA apply their own codes of practice to members either way.

Ready to explore your options? Sadi's Commercial Finance arranges business loans, bridging loans and commercial property finance across the UK, and we are always upfront about how we are paid. Speak to a specialist.