The Importance of Choosing a Niche Market
The commercial loan brokerage industry is a competitive market. For every borrower, there might be a dozen brokers trying to get their attention. How do you stand out in this playing field? Finding your niche in the market can be the first step away from chasing clients and towards clients chasing you.
When it comes to brokering deals, opportunities are nearly endless for commercial loan brokers. But, is every deal worth chasing just because there could be money on the table? In fact, that can become a broker’s Achilles heel so many deals, so many terms, so many lenders. If you don’t know your borrower’s industry and how it’s financed, you end up trying to build every deal from scratch.
It’s true that many brokerages operate as generalists when brokering commercial loans. As generalists, brokers work commercial real estate loans, equipment leases and loans, SBA Loans, Accounts Receivable Financing, and Factoring. All of these forms of finance create huge opportunities for commercial loan brokers, but they also can create a lack of focus and make your marketing and operations much more difficult. If you drill down on any one of the various products you can broker as a generalist, you can also discover products within the products. For example, for commercial real estate lending, you could specialize in multi-family dwellings, retail, shopping center finance, hotels, restaurants, large cap office space in urban centers, and so on. There are quite few niche areas you can become an expert in when it comes to offering your services as a commercial loan broker.
What is a loan broker niche?
A niche is an area of focus where a broker or brokerage becomes an expert. The broker or team work closely with lenders and borrowers in that industry or category of borrower such that they can identify the specifics of a deal quickly and structure a deal so it will move through the process efficiently and to a successful close. By focusing on a narrower market, a broker can more quickly become a subject matter expert, or find deals in an industry they already know well. Additionally, a niche allows for the development of relationships with important players, quickly separating the broker with a top tier service offering.
A niche could be something like a real estate niche as described in the previous section, the construction industry, or flag hotel financing, but it also could be a particular borrower scenario, such as startup businesses in their first two years of operation, or distressed businesses that are at risk of foreclosure. It could also be small businesses with less than $15 million in earnings with at least three years in operation. Each of these scenarios present a coherent scenario with a pool of potential borrowers and enough financing options available to close deals consistently.
Benefits of Niche Marketing
The reason focusing on one or two key areas is so advantageous, especially in the commercial loan broker field, is because doing so allows your firm to develop a higher degree of expertise. By working in the same market segment day in and day out, you will become immersed in the elements that make that sector unique. Over time, this in-depth experience will help your company emerge as a trusted resource, both for existing and prospective customers. You’ll also be able to dedicate your time, effort and marketing dollars to a much more targeted audience, increasing your ROI.
How do you select your niche?
Selecting a niche is a process of research and discovery. A broker can look for trends, like optimism about starting small businesses, can identify industries where they are most familiar and experienced, or identify risk factors like new regulations or restrictions on bank lending.
Objective factors such as average deal size, broker fees associated with a financing instrument or financing amount, and ability to connect with and serve the market segment come in to play early in the process.
Founders can also ask themselves a series of questions about their knowledge, experience and team: “What did the brokerage team do before they launched a brokerage? Is there an industry they know well? Answering these questions can help narrow down a niche and allow the broker to begin establishing a unique identity.”
Sometimes a direction can be identified by looking at the connections that the broker already has. Do they have a large network in a particular industry or is there a community in their area that is underserved? These can further help to identify a suitable niche. The needs of the market are often the best solution for finding and growing a niche.
Having a genuine interest in the area the broker is working in can help them feel more connected to their work, and lead to deals that they are more passionate about and driven to close.
Niche selection is often a combination of objective assessments of market trends, financing barriers, and opportunity, along with personal elements like areas if expertise, interest, or preference.
Helpful Tips to Narrow Down Your Niche Market
- The Ability to Adapt: The commercial lending industry is always changing, so it’s important for brokers to be flexible. Brokers need to be able to understand the way the industry is trending and to use that information to their advantage. Whether that means noticing a particular commercial property type seems to be doing well or that a large number of loans are coming due in a given year, it’s important for brokers to pay attention to the industry and adapt accordingly.
- The Desire to Learn: Because the commercial loan industry is ever-changing, brokers also need to constantly educate themselves about new developments. The more informed you are about the commercial loan industry, the better you’ll be able to serve your borrowers.
- The Right Network: Without trustworthy and reliable referral sources and lenders, a broker’s hard work might be in vain. Finding the right network of sources and lenders will allow you to place different types of commercial lending vehicles and serve the needs of many different borrowers.
Using that niche to succeed?
The broker can also leverage connections in that market or vertical. This is where knowing an industry well can help. Who are the people who work there, and what are they doing with their funding? Who are the largest lenders, and what are the pros/cons of each? Answering these questions allows for easy access to both funding and deals.
It is important that broker be open to evolution. Just because someone is familiar with an industry doesn’t mean they will find that industry to be the right fit as a broker. An adjacent one might open up though. Real estate might turn into a focus on multi-family dwellings, or equipment could turn into a specialization in a specific industry or vertical.
Additionally, it is important to recognize that success in a niche does not limit a broker. It just provides them with a better starting point in one area where they are more competitive than others.
Brokers Serving Brokers
Finding a niche allows the broker to be better situated to make deals with other brokers who also have a niche. Joining a broker/lender network allows for mutuality and better financing solutions within the network. When one broker focuses on complex, high value real estate and another focuses on equipment, they can refer deals to one another, stay focused, and earn a standard referral commission from their peers when deals resolve. A network of brokers will allow for each person’s niche to shine as one broker sends clients to another based on their needs or location.
Next Steps: Beyond Niche Discovery
Now that you’ve figured out which market your firm is best suited for, the real work can begin. Developing a strategy and establishing yourself as a key player in your chosen area of expertise isn’t something that happens overnight. It takes time and effort to truly achieve the results you’re after. That said, here are a few tips to get you moving in the right direction.
- Leverage Your Experience – On-the-job experience is extremely valuable and a critical component of successfully establishing yourself as a niche market expert.
- Build Your Portfolio – Focus on landing a few good clients and then build on that momentum. Over time, this will help your commercial loan brokerage to develop a reputation as a leader in your chosen market.
- Establish Alliances – In such a competitive industry, putting down roots in a specific segment can be challenging. Linking up with other professionals who are also related to the industry (but not direct competitors) can help.
- Promote Your Specialty – Once you’ve identified and begun conquering your particular niche, make sure your marketing efforts are aligned accordingly.
Making a name for yourself in one vertical market is a very successful path for most business loan brokers. It also keeps you focused and allows you to learn their jargon, equipment, and industries. This takes you from the “local finance broker” to a trusted advisor within the vertical markets you serve.
A niche is an important tool to refine your work, but it isn’t everything.
A well-chosen niche can rapidly accelerate a broker’s book of business. It allows you to stand out in a competitive market and attract clients to you, rather than needing too aggressively chase them down.
But a niche alone doesn’t make a perfect loan broker. Even if you have all of the best connections and detailed knowledge within a particular industry, if the rest of your operations, presentations, online presence, contracts and other assets are not rock solid, you will likely still struggle to grow in the long run. Ownership of a niche needs to be combined with a solid business plan, outstanding marketing, the skills to efficiently and accurately assess clients, and much more. If you are interested in strengthening your entire brokerage business model, be sure to check out our commercial loan broker training and support programs.