Equipment finance brokers get paid in two different ways. The equipment finance broker is not to be mistaken with a mortgage broker. Different finance brokers get paid differently. Commission is different for different lending product types. Today we will explain how equipment finance brokers get paid but first we will clarify the different types of finance brokers.
Types of Finance Brokers:
Like other professionals, a finance broker’s role can be specialised. There are predominately 3 types of finance brokers.
- Mortgage Broker
A mortgage broker deals with arranging home loans and investment property loans.
- Business Finance Broker
Business finance brokers specialise in property secured loans for businesses. These loans are usually used to purchase commercial property or types of business loans that are secured by property assets.
- Equipment Finance Broker
Equipment finance brokers get paid via two different means. One is an origination fee or documentation fee. The other fee is a commission determined on a percentage of the money being borrowed.
Equipment Finance Broker’s get paid by an Origination Fee or Documentation Fee
The equipment finance broker will get paid this fee which is based on the amount of paperwork and verification documents required for the application. At the time of this publication, finance brokers are legally able to charge maximum of $990 for an origination fee.
A fast track or low document lending application will usually range from $250 – $450. These applications usually require a minimum amount of documentation. A full loan submission will usually attract a fee of $450 and upwards to the maximum of $990. A full loan documentation is far more labour intensive and will require more time and effort by the equipment finance broker.
Equipment Finance Broker’s get paid a Commission Fee
The other fee is a brokerage commission. The equipment finance brokers get paid a commission determined on a percentage of the customer’s total loan amount. Brokerage commission fees range from 1% to 8% of the total amount borrowed. Wholesale base rate plus the brokerage commission determines the client’s overall interest rate.
Brokers have the advantage of being accredited with a panel of banks and lenders. They are not restricted with interest rates and products from just one bank. This gives them many choices for their clients. They have a diverse range of products with competitive interest rates.
Example of how a customer’s rate is calculated
For example: see table below:
|Wholesale base rate||4%|
|Customer rate (base rate 4% + brokerage 1.5% = 5.5%)||5.5%|
This example shows the bank provides a wholesale rate to the broker of 4% for a $100K new excavator. With the 1.5% applied for the brokerage, the client’s rate is secured at 5.5%. The broker is paid 1.5% of the total loan amount $100K, which totals brokerage commission to $1,500.
How Base Rates are Determined
Wholesale base rates are determined on the following criteria:
- Asset Type
- Asset Age
- Loan Amount
- Term of the Loan
- Repayment Structure (Weekly, Fortnightly, Monthly, Quarterly, Half Yearly or Seasonally)
- Residual/ Balloon
Brokers generate over 5.5% of new loans in Australia. They are a vital part of sales for the banking industry; hence banks provide attractive wholesale rates to equipment finance brokers. Their wholesale interest rate along with often-low overheads & salaries allows them to secure attractive finance for business equipment.
It’s no surprise that brokers generate more than half the new loans in Australia. Apart from their often low-overhead running costs, few incur the exorbitant executive salaries associated with banks. Equipment finance brokers get paid through a brokerage fee and brokerage commission. Brokers also give a welcoming customer service that is so often lacking in our banks today. As reported from Will Haylock from Will Finance “our small businesses need support from industries like our equipment finance brokers to recover and immunise against COVID-19 economic downturn”.
For any questions or more details regarding “how equipment finance brokers are paid”, please do not hesitate to contact Will Finance.