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.

Where the name comes from

"Procuration" simply means procuring or obtaining something on another party's behalf. The lender is paying for a service: a case that has been found, checked and presented in a form their underwriters can work with. Shortened to "proc fee" in everyday use, it is the same thing.

When it is actually paid

A procuration fee is almost always paid on completion, not on application and not on offer. If your deal does not complete, the lender pays nothing. This matters more than it first appears: it means the broker carries the cost of any case that falls over, and it is the reason a good broker will tell you early when they think a case will not fly rather than processing it anyway.

What it is calculated on

The fee is a percentage of the facility, not of the property value or the purchase price. On a drawn down facility it is usually calculated on the amount actually advanced. On staged products such as development finance, arrangements vary, and the fee may be calculated on the full facility or on drawn amounts.

How much is a procuration fee?

There is no single figure, and any broker quoting one as standard is oversimplifying. What drives it is volume and complexity, in opposite directions.

High volume, standardised products pay less. Buy to let is the clearest example. The lender's process is repeatable, the underwriting is largely criteria driven, and they receive a lot of these cases. Proc fees here sit at the lower end.

Specialist and complex products pay more. Bridging, development finance, and commercial term lending involve genuine underwriting judgement, more documentation, and far fewer cases. The broker does substantially more work per deal, and the fee reflects that.

Small facilities sometimes attract a flat fee rather than a percentage, because a percentage of a modest facility would not cover the work involved for anyone.

The useful question is never what the typical proc fee is. It is what is being paid on your case, by whom, and whether it differs between the lenders you have been shown.

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.

Other fees you may encounter

Three other arrangements come up, and they are not the same thing as a procuration fee.

Referral or introducer fees

Your accountant, solicitor or IFA may introduce you to a broker and receive a share of the resulting income. There is nothing improper about this, but you are entitled to know it is happening, because it explains why you were pointed in a particular direction. Ask whoever made the introduction whether they are paid for it.

Packaging fees

Some lenders work through packagers who prepare and submit cases on behalf of smaller brokers. Where a packager sits in the chain, there is another party being paid from the same deal. It does not necessarily cost you more, but it does add a link between you and the lender's decision maker.

Commitment and application fees

These are charged by the lender, not the broker, and are a different thing entirely. They are more common on development and larger commercial facilities, and are often non refundable once underwriting begins. Check whether any part is returnable if the lender declines.

Does commission influence which lender a broker recommends?

It can, and pretending otherwise would be dishonest. Proc fees differ between lenders, so there is a structural incentive that exists whether or not any particular broker acts on it.

What matters is whether it is disclosed and whether the recommendation survives scrutiny. Two questions test this quickly. Ask which other lenders were considered and why they were ruled out, because a broker who has genuinely searched the market can answer in specifics, about criteria and appetite, rather than in generalities. Then ask whether the commission differs between the options presented. A straight answer to that, including yes and here is why I still recommend this one, is a better sign than a defensive one.

The incentive is not a reason to avoid brokers. It is a reason to ask.

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.

How a commercial finance broker actually works

Understanding what the fee buys makes it easier to judge whether it is worth paying. A commercial case usually moves through five stages.

Fact find. What the money is for, what security exists, how the business trades, and what the exit or repayment looks like. Weak cases usually fail here, and finding that out at this stage costs nothing.

Lender appetite. Before any formal application, a broker establishes which lenders are actively writing this type of business right now. Appetite shifts quarter to quarter and is not published anywhere. This is the part that is genuinely difficult to replicate yourself.

Packaging. Assembling accounts, forecasts, valuations and the case narrative into the form a given lender's credit team expects. The same facts presented differently produce different outcomes, which is uncomfortable but true.

Submission and underwriting. Managing questions from the underwriter, and pushing back where a condition is unreasonable or unworkable.

Completion. Coordinating solicitors and valuers, since legal work is the most common cause of delay on time sensitive facilities.

The commission is paid for all five, and only if the fifth one happens.

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.

What does proc fee mean?

It is shorthand for procuration fee. The two terms mean exactly the same thing and are used interchangeably across the industry.

Is a procuration fee the same as a referral fee?

No. A procuration fee is paid by the lender to the broker on completion. A referral or introducer fee is paid to a third party, such as an accountant, for passing you on. Both should be disclosed, but they come from different places and reward different things.

Who pays the procuration fee?

The lender does, from its own margin, after the facility completes. It is not added to your loan and it does not increase your rate.

Do brokers get paid if the loan does not complete?

Not on lender commission, no. Procuration fees are paid on completion only. Where a client fee applies, whether anything is payable on a failed case depends on the agreement, which is exactly why you should check that point before signing it.

How does a commercial finance broker work?

They establish what you need and what security exists, identify which lenders are actively lending on that type of case, package the application to suit the chosen lender's criteria, manage underwriting questions, and coordinate through to completion.

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.