How to Become a Commercial Loan Broker

The banking industry serves many functions and one of the most important is the business of lending. It's not only people seeking to buy a home that need a loan; it's also commercial clients -- the corporations and companies that want to expand or develop new projects. Sometimes the local bank is unable, or unwilling, to make the necessary loan or sometimes another financial institution can offer better terms. Businesses are helped in achieving their goals by using a commercial loan broker who finds the right lender for a commercial client. People who are interested in a banking career can learn more about how to become a commercial loan broker.

Part 1

Part 1 of 3:

Learning How to Broker Commercial Loans

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1
Gain a solid education in finance and business. While there are not technically any educational requirements for becoming a commercial loan broker, you will need a solid understanding of finance and accounting to be successful. As a broker, you will be required to understand the workings and specific financing needs of your clients. This means that you will have to know how a business is run and how bookkeeping and accounting records are kept.
- In addition, you will need to have an understanding of how to assess the business's finance health so that you can describe this information to lenders.
- This information can be learned on your own, but taking at least a couple of college-level courses in finance and accounting will best prepare you for the duties of being a loan broker.^{[1]XResearch source}
2
Gain work experience. Work in a financial institution to gain experience and knowledge of the banking industry. There are also commercial loan brokerages that hire brokers and companies or lenders that hire in-house loan brokers. Train with an established commercial loan broker to learn the basics of the industry.
- Try searching job aggregator sites like Indeed or Monster for loan broker jobs.
- When interviewing for positions, remember that the financial industry is still very conservative. You should wear a suit and arrive neatly groomed.^{[2]XResearch source}
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3
Decide what type of loan broker you want to become. A commercial loan broker is someone acts as a go-between when businesses are seeking funding. However, there are other types of loan broker that require similar experience but serve different markets. Consider your other options before deciding to focus on commercial loan brokering. For example, there are also:
- Mortgage Brokers. Mortgage broker deal specifically with potential homebuyers looking to find the best mortgage loan. The mortgage brokering market is more tightly regulated than commercial brokering, but can provide ample opportunities for deals.^{[3]XResearch source}
- Loan Note Brokers. These brokers connect businesses that are holding outstanding invoices they are looking to sell with investors who buy the notes. This type of brokering requires exceptional analytical and financial skills but can be very lucrative.
4
Learn how to process a loan. Perfect your process so that you can quickly and easily give a completed file on the client to the lender. Figure out how together the necessary information for a loan, including appraisals, and credit reports. Often, a broker creates spreadsheets to analyze the debt coverage ratio for the client. Practice to become adept at reviewing tax returns and knowing what to look for.
- Be sure to note any lender requirements like formatting or required information so that your applications are complete and correct.^{[4]XResearch source}

Part 2

Part 2 of 3:

Working as a Commercial Loan Broker

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1
Figure out how you will offer your services. Decide whether to work as an independent contractor or at a brokerage firm. Working for a firm will lend you credibility if you don't yet have any of your own, but will also take a portion of your commission. You can also decide what services to offer to your clients.
- Commercial loan brokers primarily act as middlemen between lenders and businesses seeking loans.
- A commercial loan broker might also be capable of producing many lenders, sometimes known as wholesalers, to the borrower.
- In addition, a loan broker can use his or her knowledge and expertise to counsel a business on what to do about potential lending problems.
- Doing so can allow you to act as a "consultant," rather than a "broker." This label could help your services seem more valuable with some clients.^{[5]XResearch source}
2
Investigate on whether you need a license to operate as a commercial loan broker within your state. Each state has a licensing board that can provide this information. You can also check with member organizations in the banking industry or with your local branch of the Small Business Administration. Currently, most states do not require commercial loan brokers to be licensed. However, about 20 states do require some form of license.
- It's better to check thoroughly about license requirements than to assume your state does not require a license. There may be financial or criminal penalties involved if you operate without a license where one is required.^{[6]XResearch source}
3
Fulfill licensing requirements. Certain requirements must be fulfilled for licensing where it is required. Be prepared to have your fingerprints processed and a criminal background check done. These costs usually fall on the applicant.
- Occasionally, an examination must be passed.
- You might want to pursue a commercial loan broker license in multiple states.^{[7]XResearch source}
4
Structure your commissions. You get paid for your work as a commercial loan broker when a lender accepts your loan proposal. Your commission is calculated as a percentage of the value of the brokered loan. Fees range up to 10 percent of the loan, but are typically between 0.5 and 4 percent. Fee percentages go down as the value of the loan goes up.
- Many brokers also charge an application fee, which is typically either $1,000 or $2,000.
- Make sure to include your fee structure clearly in your broker agreement.
- Fees may be paid by the borrower or lenders depending upon your written agreement.^{[8]XResearch source}

Part 3

Part 3 of 3:

Advancing Your Career

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1
Build a network of lenders within the banking industry. Lenders might be banks, credit unions, private lenders or others. Begin building up your lender network before seeking business clients so that you'll already have a list of lenders to choose from when you need it. Contact these institutions and develop relationships with loan officers there. Let them know that you will work to find them suitable borrowers.^{[9]XResearch source}
- Work to identify the types of borrowers that each lender is looking for so that you can easily link them later.^{[10]XResearch source}
2
Market your services. Get the word out to companies and corporations that you have financing available for commercial loans. Often it's just a matter of contacting the right person at the right time. Stop by businesses and leave your business card and marketing materials. Join civic groups, the Chamber of Commerce or any place where you can make contact with the CEOs and CFOs of businesses in your region. At minimum, you can generate leads by making cold calls.
- At first, you will likely have to put up money and time for marketing yourself without receiving much business. As your network and experience grow however, you will start seeing the results of your efforts.^{[11]XResearch source}
As you begin contacting and being contacted by businesses in need of loans, figure out a system to qualify those leads. This will help you separate actual prospects from businesses who are just wasting your time. Quickly evaluate their available collateral and creditworthiness to determine which businesses can actually qualify for a loan. If they pass, you can begin searching for an appropriate lender to meet their needs.^{[12]XResearch source}
Your clients on both end of the transaction expect you to be an expert on lending regulations and developments. Keep up with changes by reading industry publications, trade journals, financial news, and online blogs. This will help you stay on top of any development you need to know and may help you identify new business opportunities. Educating yourself can help you identify and better serve a particular market niche, which can make your services more valuable.^{[13]XResearch source}

Community Q&A

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Question
How does a commercial broker find clients?
Community Answer
Referrals, referrals, referrals. Social media plays a huge role as well, LinkedIn and Facebook are excellent sources. Go to your local bank and connect with their loan officer and ask about their declines.
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Question
How do I begin the process of becoming a commercial broker if I live in a state where a license is not required?
Barbara Leuin
Community Answer
As with any new business, there is a ramp up time and expenses. You need to simultaneously find a few lenders who you can represent to borrowers, and begin marketing yourself to the targeted borrowers that are the best match for those lenders. Effective marketing is the key to success in any industry. You can begin by networking locally, building your online presence with social media and your own website, and even using direct mail and cold-calling to generate leads. Always have 3-5 marketing strategies going, and measure their effectiveness as you go along.
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Question
What can I do if my credit is good but still cannot get an appropriate interest rate?
Community Answer
This is a very important question and very fundamental concept for a business owner to understand. Most people believe that the interest rate is the basic measure of the value of a loan. This is untrue. The availability of capital is the key. For example, if I am a business person in need of a loan to seize the opportunity to capture a new large project, I must act quickly. If my bank turns me away, I could always look for another bank or shop for a good rate. But if this goes on for even a short time I may loose the opportunity to a competitor. Going to a loan broker could save the day.
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