Marina Thomas
Financing is one of the most critical factors in any business because, at every stage throughout its life, financial support is necessary to sustain and grow the business. Even if you have tremendous entrepreneurship and marketing skills, nothing can make the business work if you cannot arrange for pumping in finance at the right times. This is the reason that banks; financial institutions and even alternative lending sources come forward to support the business community with finance. Whenever there is any financial constraint faced by business owners, they can get the money they need. However, there are exceptions to the rule, and not all businesses can avail the structured financial support. Any business financing takes into account the extent of risk involved in financing and only when the risks are within acceptable levels, lenders come forward to help.
The real estate brokers who run their own business belong to the exceptional category, as no financial company is willing to provide loans. The high volatility of the real estate market increases the risks and discourages traditional lenders to extend financial support. Real estate broking is pure service, and the business does not have any declared assets that constitute its capital base. Lenders are unable to put a value on the business based on the capital invested and thus consider it unworthy of financial support. However, real estate brokers need financial support to overcome the effects of the volatile market and keep the business running.
Self-financing is the only solution
When the traditional sources of financing remain out of reach, the only way to sustain the business and making it grow is to depend on self-financing methods. Putting back the money you earn from business back into the business again is an accepted model of financing for the real estate industry. Real estate brokers earn from commissions only and recycling their earning in minimum time is the only way they can achieve the goals of maintaining cash liquidity that is so important for the business. The startup cost of business is low for brokers in real estate but the cost of running the business is high, and this is when they need funds.
The ground reality
Every real estate agent wishes that they can cash out the commissions they earn almost immediately as soon as they ink a deal so that they can use the money for the business. However, the ground reality is quite different. According to the norms of the industry, a real estate broker qualifies for the commission when they strike a deal with a buyer or seller but the cash reaches them only after satisfactory completion of the deal. There is a waiting time for anything between 60-90 days on an average that the real estate agents have to bear with. The gap between the commitment of getting money and receiving the cash creates cash flow problems. To plug the gap and ease cash flow it becomes necessary to arrange for the money. But in the absence of traditional sources of funding, brokers turn to companies like commission express that provides the money they need.
A scheme for funding brokers
To encourage brokers to use their own money for business, some financial companies have created a special scheme that allows brokers to cash out the commission as soon as they execute a deal. There is no need to wait for completion of the deal. The scheme is different from any other lending scheme because it does not offer the money as a loan but as an advance payment of the commission, which the broker is likely to earn.
The financier makes the payment in anticipation that the broker would receive the cash someday and a major part of the commission reaches the broker based on the documents submitted. The cycle of payment that would take much longer now comes down to just a few days, the time it takes to formalize the process. The broker gets about 30 days’ time to pay back the advance during which time he/she can strike new deals to maintain continuity in cash flow.
Overcoming the bane of uncertain income
More than the volatile market of the real estate, the uncertainty of income of brokers is a matter of concern for lenders that deter them from entertaining them. The new arrangement removes the bottleneck in funding by ensuring that they provide finance against assured income only. This approach mitigates the risk of lenders who neither have to depend on collaterals or any other kind of security for providing money. The brokers too can stake their claim for commission confidently as the deal with the client is in place. It is a win-win situation for both.
The arrangement of advance commission infuses new blood into real estate business that would otherwise find it extremely difficult to survive.
