Small business real estate, and small businesses are often represented for sale by a commercial real estate broker, or a business broker, who will earn a handsome commission from representing the seller in the transaction.
How does the commercial real estate broker earn his commission?
She or he will use all their resources to find the best buyer for the transaction. Usually for the seller, this translates into getting the highest price in the shortest time possible. Naturally, the commercial real estate broker must be a professional who has the ability to call upon many types of resources to make the transaction a win for everyone involved.
One of the most critical resources is often finding favorable financing for the buyer. Small businesses and small business properties do not always receive the most favorable treatment from traditional institutional lenders. In the past, community banks almost exclusively served the credit needs of small business owners. Today’s environment has fewer community banks. There are many more large banks that prefer working with middle market businesses and public companies, over working with small businesses. The government-guaranteed SBA loan program, therefore, offers opportune financing to place in the toolbox of commercial real estate brokers and business brokers. Here’s why:
Because participating SBA lenders receive a partial government guaranty as insurance against future loan defaults, SBA loans typically have lower down payments, longer repayment terms, and easier qualifying criteria than conventional bank loans. More approved loan applications translates into more closed transactions for the commercial real estate broker. The down payment requirement for SBA financing is typically about half the amount of the down payment required for conventional bank loans and can be as low as 10%.
Small business buyers feel they can afford to acquire a small business or small business real estate based upon their own analysis. They really appreciate the broker who can help make it happen. If they are happy with a purchase made possible by SBA financing, when their own bank could not even help them, they become a customer and referral source with that broker for a long time.
Most brokers do not even think about earning a referral fee for the financing in a transaction. They just want to satisfy their client, get the property sold, and earn a sales commission. But what if I told you it is not unusual for a commercial real estate broker to earn 1%* of the loan amount on loans up to $5 million for referring a client to an SBA lender? That can be a serious additional incentive to remember the SBA loan program for the client facing a roadblock at their bank!
Maybe I should have entitled this article, “How to Increase the Broker Commission by 10-25%!” I could have, but I wanted to emphasize the benefit to the broker’s client. That’s the real pay dirt! *Fidelity Bank Preferred Referral Partners receive referral fees of 1%, guaranteed in writing on closed SBA loan programs (SBA 7(a), SBA 504 and USDA B&I).