Business finance advisers: what they do and how they are paid

A business finance advisor helps a business decide what kind of funding it needs and gets the application in front of lenders likely to say yes. They do not lend money. The work usually falls into five parts:

1. Diagnose the need. A seasonal cash gap, a new van and a building extension call for different products.
2. Check the evidence. Filed accounts, management figures, bank statements and the credit file, with problems flagged early.
3. Match to lenders. Each lender publishes its own criteria on trading history, turnover, sector and security.
4. Package the case. A clear summary and clean figures save the lender's credit team work.
5. Explain the offer. Total repayable, term, security, personal guarantees and early settlement terms.

Comparing offers is a skill in itself. Our guide to comparing business loan lenders sets out how to line offers up on total cost and terms, whether or not you use an adviser.

The labels overlap. What matters is what the person does for you, who pays them and whether they need FCA authorisation for it.

Many firms combine roles: a brokerage arm paid by lenders and a consultancy arm paid by clients. That is legitimate if it is disclosed. Ask which role the firm is playing on your case.

There are three common models, and each creates a different pull on the advice.

• Lender-paid commission. The lender pays the broker when the facility completes, and you pay the broker nothing. The amount varies by lender, product and size. The question to ask is whether some lenders on the panel pay more than others.
• Client-paid fees. A fixed project fee, day rate, monthly retainer or a success fee on funds raised. This removes the commission pull, but you pay whether or not funding arrives.
• Both. A fee to you for preparing the case plus commission from the lender. Acceptable when both are set out in writing at the start.

The FCA's Consumer Credit sourcebook (CONC) sets rules for credit brokers. Several apply to every financial promotion a broker makes; others apply when the credit itself is regulated.

• Broker, not lender. CONC 3.7.7R requires a credit broker's promotions to state prominently that it is a credit broker and not a lender.
• The extent of its powers. CONC 3.7.3R requires a broker to say whether it works exclusively with one or more lenders or as an independent broker.
• Commission. CONC 4.5.3R requires a broker to disclose, prominently and in good time before the credit agreement, the existence and nature of any commission or fee it receives where that could affect its impartiality or materially affect your decision. CONC 4.5.3AR adds that it must explain how the commission may affect what you pay.
• Fees to you. CONC 4.4.3R says a broker must not take a fee from you until it has sent you a notice setting out its name on the FCA Register, that it is a broker, the amount of the charge and when it will be taken, and you have confirmed you understand it.

For regulated credit, the Consumer Credit Act also protects you if nothing comes of the introduction. Under section 155, if an introduction does not lead to an agreement within six months, any fee above £5 stops being payable or can be recovered.

Yes, because several of the protections above depend on it. Under article 60C of the Regulated Activities Order, credit above £25,000 taken wholly or mainly for business purposes is an exempt agreement, so most consumer credit rules on the loan itself fall away. Introducing a sole trader or small partnership to such a loan is still credit broking under article 36A, so the CONC broker rules on fees and commission can still apply. Lending to a limited company is generally outside consumer credit regulation altogether, including those broker rules.

So a limited company borrowing £100,000 may get less protection under the fee and commission rules than a sole trader borrowing £15,000. Ask for the adviser's terms of business, fees and commission in writing whatever the size of the loan. Our guide to business loan requirements covers what lenders will ask you for.

The FCA describes loan fee fraud as a scam in which people pay an upfront fee for a loan they never receive. It says fraudsters often ask for £25 to £450, describe it as a deposit, administration fee or insurance, and push for payment by bank transfer, gift vouchers or cryptocurrency. The average reported loss is £255.

• A fee demanded before any lender has seen your case, with no written notice or terms.
• Promises of approval. Every facility is subject to status and lender criteria.
• A vague answer to “how are you paid?” The vagueness is the answer.
• Pressure to sign or pay today for a deadline the lender has not set.
• Requests for your online banking login. Read-only open banking through a named provider is normal; handing over passwords is not.
• Contact details that do not match the FCA Register.

1. Are you authorised by the FCA, and for which activities?
2. Do you work with one lender, a panel, or independently?
3. How are you paid on my case, and by whom?
4. Does commission differ between the lenders you might approach?
5. Will I pay anything if no facility completes?
6. Will your search or the lenders' searches be soft or hard?
7. Who will I deal with, and how do I complain?

Our page on soft and hard credit checks explains why the sixth question matters if several lenders will see your file.

Go direct when you already know which lender suits you, for example a renewal with your own bank or a product you have used before. Use a broker when your case is unusual, when you are not sure which product fits, or when you want it presented once to several lenders.

You can see what each lender publishes in our lender directory, or check your funding options with Capzy using a soft search that does not affect your credit score. A lender's full application may involve a hard search, and all finance is subject to status and lender criteria. Capzy does not give legal, tax or financial advice. More guides on choosing lenders are in our lenders category.