Posted by John Behle on November 09, 2001 at 14:17:59:
In Reply to: Can you elaborate? ... posted by Jess on November 09, 2001 at 12:55:29:
There are a couple approaches.
1 - Create a note against their property as additional security and take normal steps on the commission notes. Except, as long as you have the note against their property as additional collateral, you really do not need to do extensive or even ANY due diligence on the commission note or notes - as long as they do not exceed the note you have created.
2 - Structure the note on their property like a line of credit or draw. Let's say their outstanding commissions would not exceed 20k at any given time. You create a 20k note and then advance whatever is needed or would normally have been used to purchase a commission.
When you are paid, the amount you advanced is paid also. Payment can be specified as at least 10% of the outstanding balance per month. The interest rate on the 20k note is not important. It shouldn't be too high because of concerns about usury and chasing potential borrowers away (agents).
The default rate on the note though would be important and should be a rate you could live with. The default rate would be the rate on any defaulted amount if payments are not made timely. You really only want it to be a short term line of credit, but want to be protected as to both security and yield if you are note paid timely.
Even though the note is 20k face amount, the balance is whatever it is at the time. It is spelled out each month or after each payment or advance.
How you structure all this could be affected by any lending laws or regulations in your area. If they are restrictive, you may have to structure the note solely for security or "performance".
If you have well established security with the agent's home, rental property, land or whatever - you can be in a position to move quickly, with less risk and charge them much less than any other's out there.