Are Real Estate Commission Advances Loans?

Saturday, January 27, 2018, 6:00 AM | Leave Comment

No. A commission advance is not a loan. It does not accrue interest, neither do you get a fixed repayment period with fixed amounts to pay.

This advance is afforded to real estate practitioners by commission advancing companies. The money is advanced on commissions that are yet to be paid.

There are glaring differences between commission advances and loans.

  • Loans must be repaid. With interest. Real estate commission advances do not need to be repaid. Your debtors are the ones who will pay the commission advancing company.

  • There are no upfront fees for real estate commission advances. There are upfront fees for loans.

  • With real estate advance commissions, the advancing company buys your commission at a fee and recovers the money once your business closes.

  • With the commission, you gain access to money that you have already earned. A bank loan is money that belongs to the bank.

  • A bank loan accrues a monthly/ annual interest. The commission advance only attracts a single fee.

  • Credit checks are not necessary for commission advances. They are mandatory for bank loans.

  • Commission advances are approved in a day. Bank loans may take up to a week.

A real estate commission advance is only available to real estate players. Loans are available to anyone who demonstrates the ability to pay back. The decision to take a bank loan or a commission advance will depend on factors like how much money you need.

If the commission advance is not sufficient for big plans you may have for your agency, it is advisable to go for a loan. If you are not in good books credit wise, banks and other financial institutions may not trust you with their money.

Reasons why commission advances may be preferred over loans

Many agents and brokers are increasingly choosing to take a real estate commission advance.

The following may explain why:

  • If you need funding fast, you may be better off with a commission advance. You can access the money the same day you apply for it. With a loan, you have to wait for credit checking amongst other time-consuming processes.

  • No credit checking with commission advances. If you have bad credit, that may not be a factor to consider.

  • You do not owe money when you take a commission advance. It is recovered from your commission once it is paid. Without interest.

  • You are able to access funds quickly for emergency business or personal needs. No banks have ever offered advances on loans. You have to wait it out.

  • With an advance, you are able to reduce other business debts. With a loan, you are only adding to them.

  • Loans are expensive owing to the interest they accrue. The interest may also not be constant.

Getting a real estate advance commission equates to owing a financial institution money which you will pay back with interest, simply because a commission advance is akin to receiving money that you have worked for, which the company can recover once it is paid.

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