It’s no secret that owning a business can be overwhelming. The first year is arguably the most difficult. It also is the time when most businesses fail. This isn’t any different for fledgling commercial mortgage brokers. Learning the business, building a brand and effectively closing deals is easier said than done. Brokering loans can be a rewarding and lucrative business, but where do you start?
There is a survival kit that the new broker should carry around, which will help weather the perilous first few months in business. Although not all mistakes can be avoided, many can. And a few simple steps can launch a successful career.
Begin by considering where you are going. As a new mortgage broker, you should take the time to consider your ultimate business goal. Only with an end goal in mind can you then write down specific, actionable, short-term goals that are going to move you toward the endgame.
Once you have a plan, you need to take specific steps to follow through on your goals. Determine the action needed, set deadlines and hold yourself accountable to complete these smaller tasks. Sharing your goals with a trusted friend, a fellow business owner or a spouse can be a great accountability tool. But be deliberate in your day-to-day actions. If it doesn’t benefit the goal, forget it.
Your goals also should be realistic. Sometimes, new brokers make the mistake of taking on too much too quickly. There is value in knowing the basics of several different niche commercial finance markets and the available loan products. As a new broker, however, it is better to master only a few. Find one or two niche products to focus on, whether that be traditional commercial mortgages, asset-based lending, equipment loans, working capital or something else. Find your niche and stick to it. Your expertise in one or two niche markets is what is going to get your client in the door. Once you start working with the client, it is not difficult to find other products that might help them.
Much of your first year in business is spent cultivating relationships with lenders. It is important to work with reputable lenders, vet them and study the parameters of the programs they offer. A high-quality, broker-friendly lender will take care of you, but you also are being evaluated by the lender. It is your responsibility to present complete loan packages and be respectful of their time. It can be easy to forget that lenders want to close deals just as much as you do. If a lender denies a loan, find out why and keep notes that will help you better place a deal with them in the future.
It can be difficult for new brokers to turn away deals, especially when they’re not seeing much deal flow, but it is vital to quickly recognize a bad deal and get comfortable saying no.
A mortgage broker, in layman’s terms, is a money salesman. You offer a service to assist business owners and commercial real estate investors in finding the right finance product available to them. Fortunately, nearly every business owner or real estate investor is going to need financing at some point. That being said, no matter how broadly qualifying some of your loan products may be, you won’t be able to place every deal that lands on your desk.
It can be difficult for new brokers to turn away deals, especially when they’re not seeing much deal flow, but it is vital to quickly recognize a bad deal and get comfortable saying no. Don’t waste your time or the client’s time. In this business, there is no adage truer than “time is money.”
On the other hand, it is important for a new commercial mortgage broker to explore every avenue that attracts business. In the world of commission-based income, deal flow is crucial. E-mail, social media, pay-per-click, direct mail, radio and television marketing are all great ways to market your business, but nothing beats good old-fashioned word-of-mouth and face-to-face networking.
One mistake that new brokers sometimes make is to focus all their networking on potential clients, when networking with potential referral sources can be a better use of time. A quality referral network can lead to steady deal flow and a healthy income for a broker’s business. When it can be done ethically and legally, compensating your referral sources for closed deals is a great way to maintain that pipeline of leads.
As deal flow increases, loans will close and commission checks will start rolling in. You will quickly realize the potential profits this business can create. You will find that some products work better than others or that you are better at selling one product versus another. With that said, keep your client’s interests at the forefront of all decisions you make.
Commercial mortgage brokers are fortunate to have little regulation. You have tremendous flexibility in what you can offer to your clients. To maintain that flexibility, responsible and ethical business practices are critical. If a client, for example, qualifies for a product that is more favorable to them but pays you less than another product that you could sell them, choose the product that benefits the client. Sure, you can sell the product and get paid once, but why risk the loss to your reputation and the lost opportunities to work with that client or their referrals again?
Setting your price
Conversely, mortgage brokers don’t work for free and it is best to not get in the habit of negotiating your commission. You should be upfront with your clients regarding your fees. It is a good idea to get your client to sign a fee agreement. When a client starts to negotiate a broker’s fee, you need to be prepared to explain the value you bring.
As in life, business owners will make mistakes. As a broker, these mistakes can often kill deals and result in the loss of large commissions. Mistakes are inevitable, but how they are handled and remedied can be the difference between success and failure. Rather than dwell on what could have been, learn from these errors rather than repeat them.
Being a commercial mortgage broker is a fantastic opportunity with signi- ficant earnings potential. You also can maintain a balanced personal and professional life. There will certainly be challenges, but a new broker can position the business to not only survive the first year, but lay the foundation for a thriving, long-term venture. This is a business that can flourish in a booming, depressed or questionable economy. Setting goals, doing the hard work, cultivating relationships and behaving honestly can lead to a successful and enjoyable career. It is all worth it.