Alternative Financing Solutions Provide Brokers with Options: Broaden Revenue Streams and Deepen Relationships
Kris Roglieri, Founder and President of Commercial Capital Training Group, published an article about providing brokers alternative financing options in The Niche Report on Tuesday. This helpful post from Kris Roglieri explains how brokers and small business owners can navigate the complicated waters of commercial financing through business savvy and diversification. The full article is below:
Building business relationships is not just about sweat equity. Working hard at building solid business relationships is a prerequisite for success, to be sure, but it doesn’t guarantee that you’re landing your deal. You must recognize the variety of financing options a business may benefit from as the market fluctuates and the needs of businesses change.
There are elements to commercial real estate that are out of your control. If you’re only selling one financial product – commercial mortgages, for example – you are putting your income and livelihood in danger by ceding control of your revenue stream to market forces which, as we have learned all too well, can move against you at any time.
As a professional in the financial industry looking to grow your business, it is critically important to be able to offer and advise your clients on multiple financing options. This will allow you to combat market forces moving against you. More borrowers are turning to brokers or consultants to help them with their capital needs, because the commercial real estate and business finance landscape is vast with numerous types of loans, more often offered by specialty lenders. There are myriad financing opportunities out there for commercial brokers. Broadening your focus will show you how to capitalize on all the available lending products. Being diversified with a greater range of solutions and higher level of expertise will allow you to become a trusted advisor, moving your relationship from transactional to relational.
The businesses you are working with almost always have additional financing needs. A skilled broker can cross-sell products such as factoring or short-term working capital loans, unsecured lines of credit, mezzanine loans or some form of asset-based lending. Even more products exist as profit centers for brokers to pursue. It is important to recognize them as you educate yourself on other areas of finance.
Diversity is now the key for brokers who are dedicated to growing in the industry. There are borrowers who need alternative finance options, and sometimes it takes more than conventional methods. Your clients will appreciate you above all for having the ability to help them resolve a multitude of financial needs with a full portfolio of products that their banks may fall short on.
Purchase order financing is a product many businesses need. Basically, this is financing to produce or make whatever the business sells, and eligibility is based on the business having purchase orders from creditworthy companies.
Another small business need is factoring, which allows a business to turn its accounts receivables into cash without waiting 30, 60 or 90 days, providing small businesses with the capital to grow, but without taking on more debt. Factoring provides residual income and can significantly increase revenue for a commercial loan broker. Ordinarily, brokers get 10 percent of the continuing profits the factoring lender makes.
To put this in perspective, let’s use the following example. If the client you refer over to a factoring lender factors around $500,000 of accounts receivables per month, the lender charges a 3 percent discount fee, which would yield $15,000 per month of income on this account. As the broker, you would receive 10 percent of that $15,000, or $1,500 per month for the life of the account. Clients typically work with a factoring lender for three years, meaning 36 months of residual income for the broker. Simply closing a few factoring transactions each quarter can result in years of constant income with no added effort.
Here’s another example: Right now, there is a tremendous opportunity for commercial mortgage brokers to take advantage of the trillions of dollars of commercial mortgages and CMBS loans that are maturing between 2012 and 2017. These loans were issued pre-2009 when properties were highly leveraged and underwritten on inflated revenues and inflated values. As a result of the ensuing economic and real estate downturn, many who took these loans cannot repay them. In fact, according to Trepp, LLC, a commercial mortgage market monitor, only 28 percent of the pre-crash loans maturing this year will be paid off in full. As more and more banks are forced to take discounted payoffs, there is tremendous opportunity in the bridge lending and equity lending arenas to provide solutions for refinancing these properties and discounted payoffs.
Professionals looking to expand on the market they serve need a comprehensive understanding of the many tools and lending products available. This is important, because there’s a lot to learn about structuring deals and products. However, equally important is having access to the right business channels, brokers and lenders that work together to create a mutually beneficial relationship. The broker has greater access to the products the borrower needs, and this creates a great resource for lenders to help sell their products.
There is a great need for this type of knowledge, and that need continues to grow. Our training company, Commercial Capital Training Group (CCTG), provides business owners and entrepreneurs with access not only to business opportunities through an expanded portfolio of products and services, but also to education on the intricacies of proper broker etiquette and underwriting skills for submitting transactions to lenders. We have more than 40 lenders from across the country participating with our graduates.
Kris Roglieri is a New York-based financier, President and Founder of multiple commercial finance companies including Prime Commercial Lending (offering financing products for businesses and commercial real estate), Durham Commercial Capital (a non-recourse factor) and Commercial Capital Training Group (a specialized commercial finance training company) based in Albany, N.Y. and Atlanta. Roglieri’s companies provide all types of commercial lending directly for national and international clients. Reach him at (518) 320-7600 or [email protected].
You can download a PDF of the article here: Alternative Financing Solutions Provide Brokers with Options _ The Niche Report