How to Be a Loan Note Broker
According to the Small Business Administration, there were 29.6 million businesses operating in America as of 2008 (see Reference 1). Many of these businesses experience a need for the monetization of their receivables via the sale of invoices due them or other outstanding notes they own. Conversely, investors seek to profit from the purchase of loan notes being offered at attractive prices. Just like a house, this asset of a loan note requires a broker to connect sellers with interested buyers. A loan note broker arranges and guides loan note sales in return for a commission on the transaction.
Other People Are Reading
Instructions
-
-
1
Form a corporate entity to use a vehicle for your loan brokering operations. Secure any licenses if required to engage in loan note brokering in your locality. Create a company website. Open an escrow account at a bank that will be used to settle transactions between your buyers and sellers.
-
2
Devise and implement due diligence procedures aimed at quantifying both the legitimacy and the value of the loan notes you seek to broker. Create templates of legal contracts required to consummate loan note sales including broker retention forms, non-disclosure agreements and loan sale closing documents.
-
-
3
Build out infrastructure necessary to support various methodologies available to effectuate the bidding process. Include the components of open outcry auctions, sealed bids, online auctions and direct negotiations. Implement a loan sales process including the due diligence phase, price negotiation, escrow and transaction closing. Formulate your fee structure, which will be charged as commission for your brokering services.
-
4
Locate businesses that seek to accelerate their cash flow by selling their receivables. Identify individuals who may own mortgage notes arising from seller-financed real estate transactions. Market your services to all potential clients who may have a need to turn debts owed them into cash.
-
5
Develop a list of investors interested in purchasing loan notes. Classify each investor in terms of their niche, which can include mortgage note purchasers, accounts receivables factoring firms, or general unsecured debt buyers. Connect interested investors with loan note sellers meeting their criteria and seek to close the transactions.
-
1
Tips & Warnings
Higher fees can often be achieved by electing to take an ownership stake in the brokered note in lieu of a flat commission. Network with other loan note brokers to keep your finger on the pulse of fluctuating loan note valuations.
Retain qualified counsel to assist with legal forms should you not have significant expertise and experience within the loan sale arena. According to the U.S, Securities and Exchange Commission, fraud is commonplace among loan note sellers (see Reference 2).
