This article gives you an in-depth look at how to become a loan broker , how to start a loan broker business, how to make money in the world of commercial capital, and how to be a commercial loan broker that is recognized and trusted in the industry:
Whether they are looking to expand their operations or smooth over cash flow hiccups, at some time or another almost every business needs to borrow money. As a commercial loan broker, you help to arrange the loans and financing for these companies. As explained in Fundera’s article on commercial loan brokers, the broker locates lenders who will approve these businesses for their needed capital injection. For this service, the broker will typically receive compensation in the form of a small percentage of the amount financed.
Compared to many other professions, becoming a loan broker offers significant earnings potential and respect. Successful brokers earn over six figures a year, while being their own boss and having the ability to create a balanced professional and personal life.
Best of all, to become a loan broker doesn’t require an overwhelming startup investment. You don’t need a degree in finance or 20+ years of industry experience to start. All you need to take advantage of the loan broker business opportunity is passion for what you do, a strong work ethic, the right training, connections to lenders, and a strong mentoring network.
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Although most states don’t require a broker to be licensed to start a loan broker business, there are some that do. For those that do, the requirement is often limited only to real estate loans. The best way to determine whether or not you need a license in your state is to investigate and do your research. Each state has a licensing board that can provide this information. You can also check with member organizations in the banking industry or with your local branch of the Small Business Administration.
An essential first step in starting your loan broker business is to get the proper training. The knowledge and skills you learn during this time will be the foundation for the way you conduct your business and how it operates. You want to be sure that you do your research when selecting a commercial loan broker training program. The time and money you spend on your training will either be the best or worst investment you can make for your future professional career so be sure you do your research when selecting the best loan broker program.
You can learn more about the Institute’s commercial loan broker training options by visiting our commercial loan broker training page.
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Setting up your company and how it will run and operate is an important part of starting your loan broker business. We will examine the various steps involved one by one, from creating your legal entity, to getting you tax ID, to financial accounts, and more.
If you have any questions as you are walking through these steps, don’t hesitate to reach out to our team of coaches. We are always here to help you understand the critical steps and the best sequence.
A limited liability company (LLC) is a type of legal structure that provides the limited liability features of a corporation and the tax and operational flexibility of a partnership. The “owners’ of an LLC are referred to as “members”. Depending on the state, the members can consist of one individual, two or more individuals, corporations, or other LLCs.
LLCs are not taxed as separate business entities. Instead, all profits and losses are “passed through” the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns.
While each state has slightly different variations of requirements for forming an LLC, they all adhere to these same general principles:
1) Choose a business name. In naming your brokerage, there are 3 rules your LLC needs to follow:
– It must be different from any existing LLCs registered in your state.
– It must indicate it’s an LLC with its name (such as “LLC” or Limited Company).
– It must not include words restricted by your state (such as “bank” and “insurance”).
Your business name is automatically registered with your state when you register your LLC, so you do not have to go through a separate process.
2. File the Articles of Organization: The articles of organization is a simple document that legitimizes your LLC and includes information like your business name, address, and the names of its members. For most states, you file with the Secretary of State. However, other states may require that you file with different agencies of your state, such as State Corporation Commission, Department of Commerce and Consumer Affairs, Department of Consumer and Regulatory Affairs, or the Division of Corporations & Commercial Code.
3. Create an Operating Agreement: Most states do not require operating agreements. However, an operating agreement is highly recommended for multi-member LLCs because it structures your LLC’s finances and organization, and provides rules and regulations for smooth operation. The operating agreement usually includes percentage of interests, allocation of profits and losses, member’s rights and responsibilities and other provisions.
4. Obtain Licenses and Permits: Once your business is registered, you may need to obtain business licenses and permits. Regulations vary by industry, state and locality. Refer to the Business License and Permit guide to find a listing of federal, state and local permits, licenses and registrations you’ll need to run your business.
5. Announce Your Business: Some states, including Arizona and New York, require the extra step of publishing a statement in your local newspaper about your LLC formation. Check with your state’s business filing office for requirements in your area.
Forming an LLC for your loan broker business that complies with your individual state’s requirements can be confusing. Thoroughly doing your research and visiting sites like NOLO’s 50 State Guide to Forming an LLC can be useful.
To start a loan broker business on the right foot with the Internal Revenue Service, you will want to register for an Employer Identification Number (EIN). Your EIN is also known as the Federal Employer Identification Number (FEIN) or the Federal Tax Identification Number, is a unique nine-digit number assigned by the IRS to business entities operating in the United States for the purposes of identification. When the number is used for identification rather than employment tax reporting, it is usually referred to as a Taxpayer Identification Number (TIN), and when used for the purposes of reporting employment taxes, it is usually referred to as an EIN.
Most brokerages can register for their EIN online. To learn more about EINs, the application process, and registration process visit the Internal Revenue Service’s website.
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The Commercial Loan Broker Institute includes full training, marketing, and support.
