Commission Flow - Unsecured Finance vs Property Secured Finance

In this blog post, we will be discussing Unsecured Finance vs Property Secured Finance and how they both affect your Real Estate Agency. 

Most Real Estate agencies often face periods of time when they’re struggling to maintain a positive cash flow. It’s common for there to be a lag time between closing a sale and receiving your commission entitlements on settlement.

To fund these gaps, agency principals have traditionally turned to the banks to get a bit of financial help. With this scenario, the bank lends money to the business up to a certain limit, for a fixed period and with strings attached. In most cases, the bank will require you to put up real estate as security.

One of the driving reasons agency principals go into business in the first place is to secure their financial freedom and to own their own home.

By agreeing to put up your family home as security, you are not only placing your personal assets at risk but you may also be holding your business back in unexpected ways.

As a result of this, not so great lending situation, more and more real estate agency principals are turning to a form of unsecured finance, Real Estate Commission Loans

So how does an advance commission funding facility compare to a property secured finance arrangement?

Peace of mind

There are plenty of upsides to an advance commission funding arrangement, one of which is that you don’t have to put your family home up as security.

Real estate is, as we all know, a volatile and unpredictable market. Sometimes even the most successful agencies run into cash flow difficulties. This can be a stressful ride that plagues most agency owners. But now consider how much worse would things be if your house was tangled up in your business finances?

With an advance commission arrangement, the risks are effectively isolated to your business, without the potential ‘knock-on’ effects into your personal domain.

Exit Strategies

When the time comes to sell your business or hand down ownership to the next generation, additional hurdles can be created by securing business finance with real estate.

In order to exit the business the outgoing principal will need to remove their property security from the business, which may also remove what is often the business’ key funding line.

What would happen if the incoming owner requires that funding line but does not have the required level of security or is not a property owner?

This is another example of where a commission advance arrangement makes good sense, as the amount of security the incoming owner has is not important. The very nature of unsecured finance, like an advance commission service, means that effectively the money belongs to your agency anyway – you’re just getting it sooner, rather than later.

As an additional benefit, the business will also have access to additional working capital which can help the business run smoothly during the ownership transition period.

Decline in property values

Banks always reserve the right to cancel your funding facility within days. Although not a frequent occurrence, we’ve witnessed first-hand companies who have been financially crippled because their liquidity has been sucked out of the business with very little notice.

In Australia, property owners have gotten used to thinking that the real estate market will never reduce in value, but as history has demonstrated markets can decline if prices in your suburb fall, which in turn may mean that the bank will review their valuation of your property too.

Under these circumstances, the bank might even reduce your funding limits, or even call in part of the loan, which may have dire consequences for the business and its cash flow.

The other scenario is that your property value stays the same, which means that your requests to increase your funding or overdraft limits are declined.

Advance commission arrangements are directly linked to the sales you have closed. Unlike an overdraft or loan, you’ll receive the advance commission as and when you’re in a position to receive it.

Consequently, you don’t need to worry about debt spiralling out of control and you can enjoy the benefits of a cash flow arrangement that grows as your agency grows.

Real Estate Commission Advance Finance – reliable, flexible and a safer way to grow

A commission advance facility does not require real estate security, which effectively isolates your business borrowing and protects your personal assets.

It can also feel constricting being locked into lengthy contracts with the banks. The performance of your real estate agency will no doubt fluctuate – therefore it doesn’t make sense to lock yourself into a financing arrangement if you don’t have to.

When you utilise an unsecured finance service such as an advance commission, you have the freedom and flexibility to use our services – as and when the need arises.

To find out more about how a Commission Advance could help your Real Estate Agency go to our How It Works page.