Mortgage broker business finance for advice firms

An advice firm's cash flow is set by the housing market's pace, not by how hard its advisers work. The features lenders ask about are specific to the trade:

• Paid on completion. Procuration fees from mortgage lenders usually arrive only when a case completes, and completion can sit weeks or months behind the advice, especially on chains and new-build purchases with long build programmes.
• Client fees vary. Some firms charge on application, some on offer, some on completion, and some charge nothing. The fee model changes the cash profile considerably.
• Network share. Appointed representatives receive income after the network has taken its percentage, often paid on a monthly statement cycle.
• Protection clawback. Life and income protection commission taken on an indemnity basis is paid up front but can be clawed back if a policy lapses within the earn-out period, so a good month can carry a liability into later ones.
• Market swings. A sharp change in the base rate or in housing transactions can cut purchase volumes quickly. Firms with a large remortgage and product transfer book tend to be more resilient, because clients coming to the end of fixed rates generate work in any market.

Illustration only, with round, hypothetical numbers. A four-adviser firm starts a paid lead campaign that costs £5,000 a month. Leads convert to applications within about a month, but average time from application to completion is around three months. The firm pays for three or four months of leads, and the extra advisers' time, before the first additional procuration fees arrive. A £20,000 to £25,000 facility bridges that period. The question a lender will ask is whether the campaign's conversion figures are real, so keep the tracking data.

Most finance for mortgage and protection firms is unsecured against property and backed instead by personal guarantees from the directors or partners, because an advice business has few physical assets. Lenders rely on the firm's completion income rather than on anything they could sell. For larger facilities and client bank purchases, a lender will usually also take a debenture over the company, giving it a charge over its assets including the rights to future income, and will require any deferred payments to the seller to rank behind its loan. A firm or director with a commercial property may be offered a secured loan with a longer term. If guarantees are a concern, ask about personal guarantee insurance.

An unsecured working capital loan or revolving facility for an established advice firm typically takes one to three weeks from a complete application, quicker when commission statements and management figures are up to date. A client bank purchase usually takes longer, often several weeks to a few months, because the timetable depends on agreeing heads of terms, producing the maturity profile, confirming network consent where you are an appointed representative, and settling the data transfer arrangements with your compliance adviser. Funding a move to direct authorisation should be lined up early, since the capital and set-up costs fall due before your permissions are granted.

Borrowing into a falling market is the obvious risk: a firm that sizes repayments on last year's completions can be squeezed if volumes drop. Build in headroom, and consider whether repayments that are partly interest-only, as in this split-structure facility for an established brokerage, would give you room while acquired income builds. Choosing non-indemnity protection commission reduces clawback risk at the cost of slower cash, which can be cheaper than borrowing to cover the gap. Many small firms are partnerships or sole traders; borrowing of £25,000 or less by sole traders and small partnerships can be regulated consumer credit, which brings additional protections.

• Goodwill finance: buy a client bank
• Working capital loans: bridge the completions lag
• Unsecured business loans: recruit and train advisers
• PII premium finance: spread the renewal
• Revolving credit facility: smooth uneven completions
• HMRC loans: spread corporation tax