As published in Scotsman Guide's Commercial Edition, June 2008.
Sooner or later, most commercial mortgage brokers will develop contacts with savvy and shrewd businesspeople. The best are easy to spot. These deal-makers see opportunity where others see folly, and they know how to convert their vision into value.
These clients often find success by assuming control of a company and finding new ways for it to make money. To do so, they must understand the risks and the rewards. They typically try to accomplish their goals by using as little of their own money as possible, as well.
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For commercial mortgage brokers, working with these types of clients can be difficult and seductive. They typically seek complex financing and always want control. They also can be prickly when it comes to negotiating broker fees, which can sometimes reach six figures.
When it comes to large projects and paydays, patience can be as important as hard work. Brokers must understand their own worth and learn how deal-maker clients operate. At the same time, they should refrain from putting all their hopes into these projects, especially when they risk falling through.
Sticking to your guns
When opportunities to work with deal-maker clients arise, brokers should consider the following tips.
Realize that real estate acquisition isn't necessarily the goal: Many brokers believe that the method of business acquisition must include real estate. When working with deal-makers, however, brokers need to overcome that idea. These clients could have other intentions.
Be meticulous in selecting which deals to pursue: In business-takeovers, it's important that brokers know their clients' industries.
Make sure that deal-makers have their own liquidity: This will be necessary to pay for the inevitable expenses of engaging lenders and obtaining third-party reports.
Understand deal-makers' disclosure intentions: Some clients can be reluctant to provide full disclosure. In these cases, brokers should walk away.
Know the rules and regulations for states in which you conduct business: Some states view brokers much differently than they view consultants. It's crucial to understand what brokers can and cannot do.
Real estate and control
In business acquisitions, control often involves purchasing stock to secure direction of a company's day-to-day operations. In some cases, the current ownership may agree to an upfront cash payment with additional royalty payments over time, combined with a structure of notes payable, possibly secured by real estate or other suitable assets.
A good deal-maker will always look for a strong balance sheet, which will provide greater flexibility. The shrewdest deal-makers seek well-heeled, debt-free targets. They are drawn to companies with free-and-clear real estate, a consistent base of accounts receivable, a seasoned workforce, a good market reputation, a consistent client base, a low debt-to-equity ratio and an abundance of equipment (scrap or otherwise).
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