How can I tell a direct funder from a broker?

Ask first

Are you the funder, or are you submitting my file to funders? If you are submitting it, to whom?

Most people answer honestly. Some answer with "we are a direct lender" while operating as an intermediary, because the phrase is unregulated marketing language in much of this market. So ask, and then check.

The three checks that settle it

Softer signals, before documents exist

• Price authority. A direct funder can quote its own price. An intermediary usually has to "check with underwriting" for anything beyond the offer in front of them.
• How many offers arrive. Three offers from three different companies came from an intermediary, whatever anyone is called.
• Whose paper the term sheet is on. Look at the letterhead, the footer and the entity name in the small print rather than the logo.
• Who calls you afterwards. If four unrelated companies ring within a day of your application, your file was distributed.
• Whether they can answer process questions. Ask who underwrites the file, where the money comes from, and who services the payments. Someone whose answers are all "the back office" is not the back office.

Why it matters, concretely

What the spread looks like in dollars

Illustrative only — a funder approves 80,000 at a buy rate of 1.28, so it expects 102,400 back. The intermediary presents the deal at 1.38, so you owe 110,400. The 8,000 difference is the spread, and on the cash you received it is ten points. It is also a quarter of the entire cost of the deal.

That is not an argument that the spread is wrong. Someone found the funder that would approve you, packaged the file and argued the terms, and that work has a price. It is an argument for knowing whether you are paying it, because ten points quoted as "the rate" and ten points quoted as a commission produce very different conversations, and only one of them is negotiable.

Ask two questions in writing: are you paid by me or by the funder, and what is your compensation on this transaction in dollars? Where a state commercial financing disclosure regime applies, broker compensation may be one of the required line items — Connecticut's list includes it — so in some states the answer is already on a form you are entitled to see.

Read the broker's own agreement

Before the funding contract there is usually a shorter one with the intermediary, and it is the document nobody reads.

• An exclusivity period. A commitment that you will not accept funding from anyone else for a stated number of days or months.
• A success fee that survives. Language making a fee payable if you fund with any party the broker introduced, sometimes for a year afterwards, sometimes whether or not the introduction produced the deal.
• The credit authorisation. Its scope decides how many funders can pull your file. See how many funding applications is too many.
• Who may sign what. Nobody should have authority to accept an offer on your behalf. If the document contemplates it, strike it.

What to do when a deal is already in motion

If you are mid-process and unsure who you are dealing with, you do not have to accuse anyone of anything. Ask for the funding agreement in full as a PDF before signing, read the entity name in the signature block, and search that name at your Secretary of State. Then ask the intermediary to confirm in writing which funder the file was submitted to and which ones received a copy of your statements.

The answers take a day. A company that finds those questions unreasonable has told you something useful for the price of a day.

The point is not to avoid brokers

A good intermediary knows which funders will approve your file, packages it once so it arrives complete, and argues for better terms. That is worth paying for. What a direct funder gives you is one fewer set of economics between you and the price, and a shorter line to whoever can actually change something.

Choose either. Just know which one you have, and read what a funding broker actually does before you sign an agreement with one.