Forget the Algorithms. Get Me a Loan Broker!

Alternative lenders, nonbank firms that provide short-term commercial credit at expensive rates, have been around for years. Today, companies such as OnDeck and CAN Capital boast that their cutting-edge data-gathering techniques and software analytics allow them to make loans to small businesses that banks consider too risky.

Yet these alternative lenders rely heavily on a low-tech method to find borrowers: loan brokers, who funnel cash-strapped small business owners to companies that offer short-term cash advances and other types of high-cost financing. There’s a catch. Loan brokers’ generous commissions can double the cost of already expensive loans, according to industry insiders and paperwork describing commission structures viewed by Bloomberg Businessweek.