With more than three million foreclosures anticipated this year, the federal government becoming more restrictive and the entire mortgage industry in turmoil, it is essential for mortgage brokers to “think outside of the box.” Some have discovered they can not only survive, but they can easily regain their high average annual incomes and the prestige of being in the finance industry.
Significant opportunities for commercial loans
A huge, largely untapped opportunity exists for non-mortgage commercial business loans. One example is a Connecticut mortgage broker who felt the pressure of a 60-plus 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 and has transactions in progress worth $100,000 in income.
Mortgage brokers discover six figure incomes in non-mortgage business loan opportunities
◄ Amounts funded for commercial loans often are much higher than a typical mortgage, giving brokers greater income for the same amount of work. The potential of commissions of up to 12 percent on very large transactions are possible.
◄ Some loan products offer residual income.
◄ It is a logical fit for brokers who are experienced in creating attractive loan packages.
◄ Unlike the residential mortgage industry, commercial loans are not regulated and require no license.
◄ The market is wide open.
◄ Banks are tightening standards for loan approvals, turning away businesses and turning them toward commercial loan brokers.
◄ Business owners make up approximately 25 to 30 percent of a mortgage broker’s database, creating immediate access to a huge market.
Many loan products (i.e., working capital, new equipment leasing or financing, new business acquisitions and debt restructuring) fall under the commercial loan umbrella.
1. 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 $350 billion of equipment. Rather than drain cash reserves for new equipment, they can finance the equipment with no money down.
◄ Typical commission: Seven to 10 percent of the amount financed.
◄ Typical transaction size: $10,000 to $500,000-plus.
II. Accounts receivable financing
When a company transacts business, it sends an invoice. People usually take 60 to 90 days to pay, which creates a huge cash flow problem for the company sending the invoice because suppliers, payroll, rent, etc., need to be paid each week. As a result, you provide them with a line of credit so they can borrow money against outstanding receivables.
◄ 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 to $3 million.
III. Business acquisition financing
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.
◄ Typical commission: Negotiable, usually three to five percent of the amount financed and a small amount of equity in the company.
◄ Typical transaction size: Usually $500,000-plus.
IV. Sale and lease-back programs
Companies are always looking for additional working capital. Many of them have a lot of money sitting in their business that they do not even know existed. You will be able to take the existing equipment they own and finance it so they have working capital.
◄ Typical commission: Three to five percent of the loan amount.
◄ Typical transaction size: $100,000 to $1 million.
V. 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 each month.
◄ Typical commission: Two to six percent of the loan amount.
◄ Typical transaction size: Usually $100,000-plus.
VI. 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 to five percent of the amount financed.
◄ Typical transaction size: $300,000 to $3 million.
VII. Medical practice acquisition financing and working capital loans
You can generate loans for medical professionals to help finance their existing equipment. Additionally, you will be able to provide working capital … signature loans up to $250,000 that can be used to upgrade their facilities, expand their practice, update equipment, pay taxes or for any other purpose they choose. These high-demand loans are approved within 24 hours, close very quickly and will earn you high commissions.
◄ Typical commission: Three to six percent of the loan amount.
◄ Typical transaction size: $100,000 to $1 million.
Sources for business
The types of businesses that need financing options like these are limitless: Construction companies, retailers, software manufacturers, equipment suppliers, churches, schools, government agencies, franchises and employment agencies, just to name a few.
The skills, practices and expertise of mortgage brokers easily transfer to the field of commercial loans. Expanding your product line to include commercial loans places you in a premium position to supplement your income or to replace lost income from sharply declining mortgage applications. The time is now for exploring commercial loans for your business!
Philip Dushey is president of Global Finance. He can be reached by phone at (212) 480-4900