How to boost your income by six figures doing non-mortgage business loansPhilip Dusheycommercial loans, financing, leasing, business acquisition, debt restructuring Many mortgage brokers enjoyed great success in recent years as interest rates steadily lowered. With each drop of one or two points, homeowners discovered the value of managing their mortgages much like they would their investment portfolio. Riding the wave of a growing market, many people got into the mortgage business to service the abundance of homeowners wanting to refinance. Like shooting fish in a barrel, it was easy to find customers eager to take advantage of the low interest rates. In the third quarter of 2003, mortgage originations reached a historical high of $1.19 trillion, with refinancing accounting for 68 percent of that total. Then, in the fourth quarter of 2003, the mortgage industry experienced a significant drop, with originations down 48 percent, leaving the industry over-saturated and brokers facing stiffer competition for fewer transactions. As the Federal Reserve raises short-term interest rates in response to a stronger economy, the Mortgage Bankers Association forecasts a 47 percent drop in mortgage originations for 2004 in comparison to 2003. Opportunity In the midst of sharply decreasing mortgage applications, largely untapped opportunity exists: non-mortgage commercial business loans. Many brokers, such as Jay Horenstein of Portland, Ore., are finding this to be a lucrative option with many advantages. Horenstein felt the pressure of a 35-40 percent drop in mortgage loan applications and looked into becoming a commercial loan broker to increase his product line. He decided to specialize in loan products for medical professionals: signature loans, practice acquisition and debt restructuring. In his first six months, he earned $70,000 in commissions. He currently has transactions in progress worth $100,000 in income. Why Non-Mortgage Commercial Business Loans? Why should mortgage brokers take hold of the commercial loan opportunity? Several advantages come to mind: *Unlike the mortgage industry, commercial loans are non-regulated and require no license. A quick training course can yield exponential results. *It is a logical fit for brokers who are experienced in creating attractive loan packages. *The amounts funded for commercial loans often are much higher than a typical mortgage, giving brokers greater income for the same amount of work. *Some loan products offer residual income. *The market is wide open, with little competition ... so far. *Banks are tightening standards for loan approvals, turning businesses toward commercial loan brokers. *Business owners comprise approximately 25-30 percent of a mortgage broker's database, creating a ready access to the market. Many loan products fall under the commercial loan umbrella, giving brokers the opportunity to offer unique financial solutions for their clients: working capital, new equipment leasing or financing, new business acquisitions and debt restructuring. Accounts Receivable Financing Many businesses aren't aware of this type of financing, especially young or start-up businesses. When a company transacts business, it sends an invoice. Customers usually take 60 to 90 days to pay, which creates a huge cash flow problem for the company sending the invoice. They need to pay suppliers, payroll, rent, etc., each week. You provide them with a line of credit, so they can borrow money against outstanding receivables and gain a steady cash flow. You can do start-ups or established businesses. Typical commission: Two percent of the initial line of credit and ongoing income each month for the life of the loan Typical transaction size: $100,000-$3 million Equipment Leasing This is by far the largest growing segment of financing in the country. This year, it is estimated that U.S. companies will finance more than $200 billion of equipment. Rather than drain cash reserves for new equipment, they can finance the equipment with no money down. Commercial loan brokers not only work with purchasers, but also help vendors by supplying a finance program to offer customers, which translates into more sales. Typical commission: Seven-10 percent of the amount financed Typical transaction size: $10,000-$500,000 or more Sale and Lease-Back Programs Companies are always looking for additional working capital. Many of them have a great deal of money sitting in their business that they do not even know exists. You will be able to take the existing equipment they own, finance it so they have working capital, and give them low monthly payments to pay back the loan. This type of loan is called sale and lease-back. It's simply refinancing the equipment they own. Companies love this because most banks don't do this type of financing, placing your company in a premium position. Typical commission: Three-five percent of the loan amount Typical transaction size: $100,000-$1 million Business Acquisition Financing With the current business economy, there are many opportunities for healthy companies to acquire other companies at bargain-basement prices. You can help your clients acquire companies by leveraging or refinancing the assets of the company they want to acquire. In simpler terms, they can buy the company with the company's own money, while expending very little cash of their own. This is a very active and lucrative market. Typical commission: Negotiable, usually three-five percent of the amount financed and a small amount of equity in the company Typical transaction size: Usually $500,000 or more Debt Restructuring Companies saddled with several loans and high monthly payments can refinance them into one convenient loan and arrange one low monthly payment, usually saving at least 30 percent per month. Typical commission: Two-six percent of the loan amount Typical transaction size: Usually $100,000 or more Commercial Bridge Loans Many times after a company is approved for a loan at its bank or financial institution, the loan will not close for four to six months. During that time, short-term or bridge loans, paid when the senior loan closes, satisfy their immediate capital needs. Typical commission: Three-five percent of the amount financed Typical transaction size: $300,000-$3 million Medical Practice Acquisition Financing and Working Capital Loans One of the most active areas of finance is the medical arena. You can provide financing to medical professionals (doctors, dentists, veterinarians, etc.) to acquire existing medical practices. Each year, thousands of medical professionals retire and sell their practices. You can provide the financing up to $1 million for medical professionals to acquire these practices, and in most cases, with no money down. You also can do loans for medical professionals to finance their existing equipment. Additionally, you will also be able to provide working capital, supply signature loans up to $250,000 that can be used to upgrade their facilities, expand their practice, update equipment, pay taxes or for any purpose they want. These high-demand loans are approved within 24 hours and close very quickly. They earn you high commissions. Typical commission: Three-six percent of the loan amount Typical transaction size: $100,000-$1 million Small Business Administration Loans Many people would like to start a small business but lack the qualifications traditional lenders require. Commercial loan brokers match start-ups with qualified lenders to purchase real estate, renovate, improve lease space, purchase equipment or just get the working capital needed to set their dreams in motion. Typical commission: Two-four percent of the loan amount Typical transaction size: $300,000-$2 million Sources for Business The types of businesses needing financing options like these are limitless: construction companies, manufacturers, retailers, software manufacturers, equipment suppliers, churches, schools, government agencies, franchises, employment agencies, just to name a few. Perhaps you have heard it said that the Chinese word for crisis is made up of two symbols: danger and opportunity. The first symbol, danger, perfectly describes the current situation the industry is in regarding plummeting mortgage initiations. But, mortgage brokers can turn the danger of the initiation crisis into opportunity with commercial business loans. The skills, practices and expertise of mortgage brokers easily transition to the field of commercial loans. Expanding your product line to include commercial loans places you in a premium position to supplement your income 75 percent or replace lost income from sharply declining mortgage applications. The time is perfect for exploring commercial loans for your business. Philip Dushey is president of Global Broker Systems and Global Financial Services. He can be reached at (212) 480-4900 or e-mail [email protected].