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.
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
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
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
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
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
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
Typical transaction size: Usually $500,000 or more
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
Typical transaction size: $300,000-$3 million
Medical Practice Acquisition Financing and Working
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
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]