What is a loan broker?
A loan broker is the professional who acts as the liaison between businesses that want to borrow money and lenders that approve loans. Whether their clients intend to open a new business or secure financing for a loan, brokers work to find the best financing rates and terms. They negotiate with lenders to get loan approval or find alternatives. In addition, they may oversee lease agreements or similar contracts.
A broker analyzes each customer’s financial position and searches for lenders that meet their financial needs based on interest rates and payment terms. The broker typically collects a fee for each approval, usually as a percentage of the amount financed. However, some brokers waive their prices in case of loan rejection.
What does a loan broker do?
The loan broker evaluates the customers’ financial situation and determines the best options considering the resources. Generally, their responsibilities include:
- Customer Evaluation: Loan brokers examine financial statements and related business documents to determine the company’s options.
- Evaluation of applications: Brokers review the application with the client to ensure it is complete and contains all supporting documents.
- Finding Lenders: A loan broker evaluates lenders based on the company’s needs, value, and ability to repay the loan.
- Offering Alternatives: Brokers offer alternatives designed for business needs. This may include advice on entering into a lease agreement instead of asking for a loan.
- Keeping Customers Informed: Loan brokers keep customers informed throughout the application and approval process. They disclose their fees and ensure that customers understand and agree to the broker’s policies.
What are the benefits of becoming a loan broker?
Loan brokers work in the changing, challenging financial landscape to help businesses and investors find the financing they need to grow and thrive. Apart from helping the company grow, the benefits of becoming a loan broker include:
Loan brokers enjoy the potential to earn a six-figure salary. In addition, depending on the size of the loans they work with, brokers may secure large commissions. The average salary for the broker in the United States is $77,133 per year, with the potential to earn an additional $42,000 on average in commissions.
A loan broker has many options for the employment. They may work for the brokerage firm and help with an assigned list of clients, or they may open their own business and set their rates. Independent loan brokers set their hours and determine which clients they want to work with.
A loan broker can help strengthen a community’s economy by providing a service businesses need to grow. They guide small and large companies to get the financing they need to hire employees and build a workforce. Their services can also help the businesses stay in the community, retain their current workforce, or try new opportunities.
How to become a loan broker
Becoming a loan broker does not require higher education, although a degree can increase opportunities for advancement in finance. Whether you choose to pursue the degree now or choose to gain experience before opening your brokerage, it’s a good idea to research your options. Here are six steps to becoming a loan broker:
1. Obtaining appropriate qualifications
Whether you become the independent broker or work for a company, loan brokers usually have experience in the banking, sales, lending, or the customer service. Brokerage firms may offer training programs that the last two to 10 weeks and prepare brokers to work with the clients.
It’s a good idea to research the training programs to understand their training levels, costs, and benefits. Check the course syllabus to ensure you learn the right skills, such as mathematical analysis and networking. Ask if the company offers certification or employment opportunities at the end of the program.
2. Research permit requirements
Although most loan brokers do not require a license, requirements may vary from state to the state. Check with your state’s licensing board or the small business agency for advice on licensing or certification. If you enter the training program, find out if you need your license or if you can work with clients with company credentials.
3. Set up a brokerage
If you decide to start the independent brokerage, you should organize your business with a few preliminary steps. Independent brokers will follow these guidelines:
- Register as the sole proprietorship, limited liability corporation (LLC), or corporation.
- Enter the name of the brokerage.
- Obtain the Federal Employee Tax Identification Number (EIN) from the IRS.
- Open business accounts such as the bank, utility, or credit cards.
- Development of rates and fees.
4. Define your brand
Whether you work for a company or independently, building your identity and reputation is essential to attracting clients. Here are a few ways you can differentiate yourself from the competition:
- Know your mission. Be clear about why you became a loan broker and what you hope to accomplish.
- List the benefits of the product or service. Create a detailed listing of your products and services with prices, fees, and gifts.
- Collect reviews. Ask past or current clients for reviews or testimonials explaining why the business should hire you to broker their next loan.
- Design the logo. Consider designing and using the custom logo that you can attach to all customer correspondence, whether email, text, or postal mail.
Create a marketing plan. Create the plan to promote your services and develop marketing strategies for family and friends, social media networks, and professional websites.
5. Build relationships
Successful loan brokers work with commercial clients, but they also work closely with lenders. Building relationships with people who approve loans can help the brokers find the right programs for their clients. When brokers, lenders, and the borrowers work together, they form an alliance that contributes to economic growth and mutual prosperity.
6. Pay attention to grades
Sometimes, a loan broker with a degree may have more opportunities for advancement. Some buyers may have more confidence in a broker with an associate’s or bachelor’s degree. Higher education teaches brokers how to analyze financial statements and negotiate deals. Consider the grades in: