Q: I'm trying to raise money for my company, and regular banks won't make a loan, so I'm looking at private firms. I've been introduced to loan agents who say they'll bring my application to various lenders in return for a 1% fee, with $500 payable up front. I've heard that you're not supposed to pay up-front money, but they insist that this is customary to cover the lender's cost of evaluating whether I'm creditworthy. Is this true, and if so, how much should I be willing to pay?

A: Beware of helping hands that do no more than you could do for yourself. The small-business world is rife with stories about "finders fees" that run into thousands of dollars for promises of loans that never materialize.

First, make sure you know what the fee and up-front payment actually cover. If this is a nonrefundable "finder's fee" kept by the agent, regardless of whether or not he secures the capital, then steer clear. Any lender will make his own credit assessment of your business, and the agent's personal introduction--which is what you'd be paying for--won't likely make any difference. If the fee does indeed get passed on to the lender to cover its underwriting assessment, as you imply, then the level seems reasonable. Most banks charge around a 1% documentation review fee. In this case, be sure your agreement with the agent is strictly documented in a standard retainer letter, advises Cliff R. Ennico, a small-business attorney in Fairfield, Conn. And it should stipulate that the up-front payment will be credited to the lender's documentation fee. If the agent refuses you a written agreement, drop him.

Depending on the type of lender, it may or may not be worth the $500 up front. If the agent uses commercial banks of the sort that have already rebuffed you because of the condition or type of your business, this approach probably won't prove any more fruitful. If he's soliciting wealthy individuals or firms demanding usurious interest rates, you probably won't want their services anyway. Find out what you're getting before making any decisions.

Like most experts, Ennico advises against this kind of brokerage arrangement except as a last resort. If you were turned down by banks because your company lacks hard assets as collateral, you should try your state and federal government lending programs. That's what they're there for. Most states have several programs aimed at various minorities, economic zones, and industries. The Small Business Administration's MicroLoan Program (for loans up to $25,000), which usually accepts inventory or receivables as collateral, is designed especially for businesses without a lot of hard assets. For a summary of various SBA loans, go to www.sba.gov/financing/synopses.html, and check your state's Web site for local programs.

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