Financial and Lending Articles from Commercial Capital Training Group

Big Banks Still Snubbing Small Business

Recently, the 2010 Small Business Bank Study was released, and there wasn’t any change in the big banks attitude towards small businesses in 2010 from 2009. Just like Commercial Capital Training Group has been saying all along, big businesses aren’t putting their trust in loaning out capital to small businesses. Only about one third of business owners surveyed in the report claimed they obtained capital from bank loans. That means 2 thirds, the vast majority, are getting loans from other sources. There is definitely a commercial loan funding gap, and it hasn’t gone anywhere in the past two years. And because small and medium sized businesses still need capital, that generates a genuine opportunity for independent commercial loan brokers.

Who better suited for the job than graduates of the Commercial Capital Training Group’s intensive 5-day course? Our graduates are equipped with the skills and knowledge to broker the loans that small businesses need, and they have real sources they’re working with that are willing to loan out the capital. The big banks didn’t change their attitude in 2010, so this trend probably won’t shift anytime soon. Right now there’s a wealth of opportunity for independent loan brokers, specifically our graduates, to provide the small businesses that keep getting snubbed by banks with the capital they need.

Take a look at our comprehensive loan broker training program for more details, or contact us if you have any questions.

How to Prospect Bankers as a Referral Source

There are three main ways a relationship between a broker and a banker can work.

1. You can get business opportunities from a banker as a result of that banker’s inability to get the loan request approved in-house. This may be due to the request not meeting the lending criteria, or it may simply be an area of the market that the bank does not wish to pursue.

2. You can send the banker a referral. Many times, as a broker, one may encounter loan requests that are too small for a national lender and would be best handled on a local level where the bank can capture a deposit relationship along with the loan request.

3. You can help a banker keep an existing client. It is possible that the banker is unable to approve an existing client’s loan request, but wishes to keep the current deposit relationship with his client. It is often that bankers will call on a broker to facilitate a loan request that the bank is unable to provide. Examples of which include asset based lending products such as factoring or purchase order finance, and often, an SBA loan that the bank may not have expertise in underwriting.

Where do you find a good banker referral source?

Start with your own bank. Invite your local branch manager out to lunch (everyone loves a free lunch!) Explain to the Branch Manager how you two can work together to develop business one of the three ways mentioned. Ask your Branch Manager to introduce you to the area business banker (bank sales people who are devoted to developing business relationships only). Also, most banks divide the lending groups into classifications based on the sales volume or loan relationship. In addition to a business banker, most banks will have a middle market lender (a banker that handles larger businesses), and your branch manager should be able to introduce you to his or her middle market lender as well.

Local community banks and small regional banks are also a great source to develop a “banker referral source.” Many smaller banks were not caught up in the riskier lending practices of the larger institutions and are still active lenders in your individual markets. Additionally, smaller banks are often a bit more flexible on underwriting criteria for loan requests within the bank’s local market.

Once you and the banker identify each other’s resources, the process will build, and each of you can recognize referral opportunities quickly. More often than not, the best source of business is someone you already do business with. So why not start with your own banker?

Evaluating the Risks and Rewards of Venture Capitalism

The turbulent economy has created a mass of skilled, creative, displaced workers who are looking for new opportunities. The highly-educated, highly-motivated individuals that compose this talent pool are full of innovative ideas and need funding to see their dreams come to fruition. Venture Capitalists look for several factors before investing in upcoming companies. These questions will help in determining the risk involved with venture capitalism.

1. Is the idea unique? Has it been done before, and is it different within its industry? Consider the reasons why consumers would want to buy or use the end product. Does it have a clear, distinct market? The project needs to somehow make life easier, work better than similar, previous prototypes, or otherwise entice its audience. If it contributes to the community it serves, it is generally a wise investment.

2. How strong is the management team? Venture capital groups look for people with a strong business background, experience in the business they are starting and a defined business plan to steer the company. This management team needs to be proprietary with experience in the given industry. Of course, the ideas at the base of the company are what drive a venture capitalist to invest. But there is also the need to know that the money invested will be returned, with profit. Venture Capital firms are like winning horse track gamblers, they “bet on the jockey, not the horse.”

3. Can it be converted to an IPO within 3-5 years or trade sale? This is truly the only way for venture capitalist to make profit off their investments. Before venture capitalists decide to invest in a company, one of the first questions they ask themselves is “can we exit profitably with a IPO or trade sale with this company in the near future?” The ability to become a public company and attract stock holders is crucial. Within that time-frame, the company needs to prove its appeal to the public market and offer projections on company growth in following years. A company that can easily sell shares with a new concept or technology will attract more investors.

Entrepreneurs must meet these criteria to some extent in order to gather investments. These days venture capitalists typically receive about 200 business plans or requests per month, and usually fund only five to ten investments a year. So a business plan from a start up company better stand out from the rest of the crowd demanding attention.

As a comprehensive premiere training company, our graduates have an opportunity to participate. If a broker finds a lucrative deal, they can take an equity share early and increase profits beyond the commission earned from facilitating the loan.

Venture capital is a tough but highly profitable industry, both for entrepreneurs who benefit from investments and the investors themselves. Brokers who present companies that meet all the criteria to the right venture capital group may also find windfalls from the success of the loan and the fledgling company.

Keys to Becoming a Successful Independent Loan Broker

Many hardships have occurred due to the down economy, but lucrative opportunities have risen from the rubble of the slump. If you’ve been displaced by job loss, or just feel your current position does not offer the flexibility and upward mobility you desire, consider entering into the commercial finance industry as your next step. The opportunities are endless, but be mindful of these ideas before making the leap.

1. Understand your lenders. Get to know each of your lenders and what they have to offer. What types of loans and transactions are they willing to engage in? By understanding what each lender can offer your customers, you can tailor your presentation and match needs with resources. Understanding a lender’s underwriting guidelines can not only help you close more deals, but it can dramatically increase the effect of your marketing campaign by helping you target your message to the appropriate audience. You’ll be more successful in fulfilling loans and increase the amount of transactions you partake in and ultimately close, increasing your personal income.

2. Act as a consultant..not a broker. The word “broker” tends to have a negative connotation in the financial industry. A recent survey that asked people what they thought of when hearing the word “broker” yielded results like “a person gaining financially at my expense”, or “sleazy salesmen”. These thoughts may be due to brokers, no matter what industry, approaching clients in the wrong manner. As a commercial finance broker, you are essentially a solution for a widespread problem for businesses: access to capital. So in essence, you are a gateway to capital for businesses. When talking to new clients in need of financing, it is best to act as a consultant to their problem rather then just giving them applications to complete and a 15 min conversation. You should speak with a client for at least an hour. Find out how their business works, what problems do they currently have, and outline a plan of how you can help them. By doing this, you will not only win the trust of your client or borrower, but also lay the ground work for repeat business for future financing needs that they may have.

3. Know how to market. There are a plethora of marketing tactics to use to “get the word out” about your commercial finance business. You need to find the right tools to spread your message. Think about what customers you are targeting – where do they spend most of their time? Use tactics that pinpoint your audience. Maintain sharp, easily read marketing collateral and websites that get right down to the message of your business. Regardless of what kind of marketing you use, always, always focus on the “benefits” of your products, not the features. How will your service or product help your target audience? What are the benefits that your target audience will receive by buying what you’re selling? This will help you create an effective marketing campaign.

4. Operating with the right agreements. Numerous legal documents are necessary for successfully operating a commercial finance business. This fact is often overlooked by most brokers today. One must have the proper fee agreement in place with a client that protects the broker and ensure he or she is properly paid for successfully closing a transaction. Poorly worded fee agreements only give rise to problems down the road when working on a transaction that can ultimately cost a broker their commission. It is also good to have Non Disclosure / Non Compete agreements for your business as certain situations might require these, such as a client needing capital for the development of a proprietary product or service. By having sound agreements in place to handle any given situation with a client, your finance business will always be protected from common issues that arise in this industry.

5. Stay on top of industry news. Finally, when considering being a commercial finance broker, be aware of new finance and lending updates. In the commercial finance industry, things change all the time so you have to be up to speed on what those changes are and how it affects your potential customers. For instance the world of SBA lending has changed dramatically in the last 2 years and is changing month by month these days. If you’re involved in brokering SBA loans you have to know what each of these changes are and how it affects your clients. You are responsible for learning new techniques and methods. Stay abreast of opportunities and be proactive in pursuing them. What you know is up to you. By staying informed, you will prove to your customers and lenders you are competent and able to meet their needs. Also by identifying changes in the economy you can go after niche markets that might need a particular financial product due to that change. Rely on sources like leading finance magazines, industry newspapers, and well-known blogs and RSS feeds to get real-time knowledge on lending.

Commercial Real Estate Development Deals – Avoid the Pitfalls

Many fortunes have been made and lost in the world of real estate. The real estate bust of 2008 caused many to lose everything. Is it now time to begin re-investing in commercial real estate development? Certainly the real estate world is due for a pendulum shift, and if you start to examine your opportunities now, you’ll be ready to profit when the upswing occurs and also be able to save time in weeding out deals that don’t have a chance for successful funding.

Before you decide to take these requests on as a broker specializing in commercial finance, take these notes into consideration.

1. Pay close attention to the resumes and experience of the principals in the development group. Working with experienced developers is essential in ensuring your deal will have the best chance for approval with lenders. What is the track record of group executives and what is their reputation for fielding successful projects. Can they prove past projects are completed on time and on budget?

2. Measure the liquidity of the principals. Very often, a commercial finance broker will see requests to fund developments but the sponsors or principles of the project have no money. The likelihood of funding a deal where the principle that has $20,000 cash or a net worth of $100,000 that wants $7,000,000 in financing is next to zero. The principles need to have the appropriate net worth or liquidity behind them compared to the loan amount they are requesting. Also they need to have enough equity in their project for any lender to consider financing them. We call it having some, “skin in the game.”

3. Consider how the project interacts with its community. If a project doesn’t fit with its geography, or make sense demographically, it’s probably not a wise investment for a lender. Retail stores especially need to be able to draw tenants with large customer followings. Ask developers for valid projections of revenues based on the market it serves.

4. Examine the ability for projects to see early returns. In a multi-tenant situation, ensure that presales of units (such as condos, etc.) are moving quickly and momentum is building around the project. Besides ensuring returns for a potential lender, high levels of presales tend to create a “buzz” around the property to a lender. Presales insure the lender that positive cash flow can be reached quickly to meet the lenders debt service requirements for a loan. Borrowers who are developing a retail center should present you with signed leases from retailers. Having locked-in tenants on a retail center is a good sign of a project’s success.

5. Understand the exit strategy. This is one of the biggest questions that brokers fail to ask their client in development projects. Lenders and investors want to know how they will be repaid. The borrower needs to provide a sound plan detailing its tactics to drive business and sales and ensure the lender/investor’s re-payment of the loan. Firm targets and projections should be included in the exit strategy that makes a broker’s job easier in determining lender risk. The best way to think about this is if you where actually lending the money out of your personal savings. How are you going to be paid back? Using this mind set can help you identify how a commercial underwriter looks at projects.

The commercial real estate market is still a little rocky, but there are lenders that are still willing to lend on viable projects with good sponsors. It’s important to fully consider all aspects of a project before investing. Using these guidelines is a good first step in ensuring you are looking at the right projects and not wasting your time or your client’s time.

How to Build a Residual Income in the Finance Industry

Residual income is a source of passive income that generates without continuous active work. So many brokers that are experienced in one or two forms of commercial financing fail to incorporate financial instruments in their business model that they can earn residual income off of. Meaning completing one deal and getting paid month after month long after the deal has been closed. Residual income is a very obtainable reality for loan brokers, and Account Receivable financing or factoring is a very effective way to make it happen.

Here’s how it works.

Nearly every business today receives their income as they receive payment from their customer base. The majority of times a business either gets paid on a 30, 60, 90 or more day cycle from their customers on work or a service performed by the business. However, the costs of business (such as payroll, employee benefits, office costs and vendor invoices) often exceed the rate at which customer payments are received. A vast amount of businesses can’t wait to receive payment in 60 days or more. Business owners need to have ways to quickly gather income to pay off debts and expenses, and often they turn to lenders to help with this situation. And that’s where our graduates come in.

If you decide to explore earning a residual income through AR financing or factoring, keep these general guidelines in mind of how the process works.

Remember, the credit emphasis is generally not on your client, but rather your client’s customer’s credit. First, when you identify a client that would be a good candidate for AR financing/factoring you will have to obtain their accounts receivable aging report, which is a document that states what payments are due and from whom, and when the invoices are typically paid. Every business should have this readily to provide. This helps the lender assess the quality of the invoices and helps establish general terms/rates to the client. Generally speaking, the more current the invoice, the more it is worth. If an invoice is over 90 days due, lenders hesitate to finance it. When the lender buys any given invoice they will usually advance up to 80% of invoice value to your client. So if it is a $100,000 invoice the lender can advance $80,000 immediately to your client with out your client having to wait 30, 60, or 90 days. Now the lender assumes the invoice and has to wait to get paid from your client’s customer. Let’s say this invoice generally gets paid in 60 days. After the lender gets paid after the 60 day time period, the lender then sends the remaining 20% (or in the case $20,000) back to your client minus the lender’s discount fees. Typically the average time a client stays with an AR financing/factoring lender is approximately 30 months. That is good news for you, the broker, as you will continue to get paid monthly for 30 months on the volume that your client does with that lender.

As a loan broker, you can make residual income through facilitating accounts receivable financing/factoring. The broker typically receives a 10-15 percent commissions on the ongoing monthly fees the lender makes. This payment is received monthly and is based on the previous month’s invoice activity. Because the deal is only facilitated once, each additional monthly payment you receive is residual income. A reasonable range for monthly commission can be anywhere from $100 to $1,500 a month depending on volume a client is doing with the lender. That might not seem like much, but when you factor the minimal energy it takes to proctor the arrangement, and the possibility of brokering several accounts receivable deals at once, the residual income possibilities are virtually endless.

Accounts receivable financing/factoring is becoming more appealing to businesses, especially because of tough economic and business circumstances. Consider expanding your loan brokering practice to include accounts receivable financing/factoring as part of your repertoire.

The Value of Brokers in Today’s Finance Market

Wikipedia defines a credit crunch as “a reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks.” This situation is independent of a rise in interest rates and is often accompanied by a flight to quality by lenders and investors.

What does the credit crunch mean to those in the commercial finance business these days? Prior to the recent credit crunch, business owners typically sought financing on their own. Loans were easy to come by and inexpensive. During a time of such easy credit, business owners were constantly bombarded by offers to increase credit lines and refinance debt.

Now banks are calling business owners and telling them to find a new bank! Banks are reducing exposure in certain industries, reducing loan-to-value ratios and increasing debt service requirements. Additionally, with the secondary market virtually gone, banks are now forced to keep loans on their balance sheets longer before selling them off to the secondary market. Since they have to season loans longer, banks all across the country are refusing new business as they try to reduce or sell their portfolios. Today a business owner is better off spending more time on improving profitability and less time searching for a new bank or loan.

The Value of a Broker

Here’s where our graduates come in. Hiring a broker in business finance can save a business owner both time and money.

Brokers have the knowledge, contacts, and experience to source financing more effectively than a business owner. The saying “time is money” is never more true for a business owner than during a credit crunch. Brokers know where to take a deal. Even within certain lending segments one lender may be interested in a particular deal when another is not; this is where a broker’s experience can be valuable to a business owner.

Banks need brokers more than ever, too. When losses are up and profits are down, banks need to find ways to source business more effectively and less expensively. Banks are turning to brokers to source loans. Rather than send loan officers out on the street to find quality deals, banks are turning to brokers and the many clients a broker represents. Brokers are attractive to banks because they only pay the broker’s commission when a deal closes. Marketing dollars, which fund the broker’s commission, are only spent on successful deals. This is a much more efficient and less expensive way to spend marketing dollars as opposed to publication and television marketing campaigns in which the target audience is less focused. Brokers enable a bank to target specific business types and industries.

Banks are also utilizing finance brokers when the tightening credit criteria makes it difficult to service their current customers. Rather than refuse to offer a service or a loan, they can refer their customers to a finance broker and maintain the customer’s depository account.

About The Commercial Capital Training Group

The Commercial Capital Training Group is a premier commercial finance training company that provides a week long intensive program to current or aspiring entrepreneurs who want to start and operate their own commercial finance company.

SBA 504 Loan Interest Rate Drops Below 5% for Small Business Borrowers

According to a story on PRNewsWire.com, the Small Business Association is lending at one of the lowest interest rates in years.

“The Small Business Administration’s (SBA) 504 loan program is providing long-term, fixed rate financing for the purchase of commercial real estate at one of the lowest interest rates since the program’s inception. The SBA’s lending partners, Certified Development Companies (CDCs) are busy working with small business borrowers who are taking advantage of this current low interest rate to purchase or build new facilities.”

With rates this low, small businesses have a prime opportunity to purchase equipment and real estate at a much more affordable rate. And this means that qualified lenders are about to gain from even higher demand for their services. Especially as businesses continue to slowly climb out of the recession, many may take this as their opportunity to purchase much needed resources.

Graduates of Commercial Capital Training Group are at an additional advantage. Through our program, Graduates are personally introduced to SBA 504 lenders who are eager to do business with them. With such close connection to the source of a loan, our graduates are able to efficiently and directly deliver the funds a small business needs.

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