Bringing Project Financing: Should I get a commission?

Discussion in 'Growing and Managing a Business' started by pasi0013, Feb 17, 2012.

  1. pasi0013

    pasi0013
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    I'm introducing a financier to a development team for a construction project. Should I expect a commission if this introduction results in successful financing?

    For a background:

    $900,000 construction project.

    After preliminary talks and document sharing the financier says the project looks favorable.

    I'm expecting to get an electrical contract out of the resulting deal that may be worth $200,000 with a margin of +/- 20%.


    This is the first deal of this size for me. Can I ask for 2 or 3 points on the total to put this relationship together? Any help would be greatly appreciated.
     
  2. Fergal

    Fergal
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    Welcome to Business Advice Forum pasi0013, thanks for joining and posting your business questions.

    If I was in your position I'd speak to your contact at the finance company. Ask them if they are happy with getting the finance deal and if they have any structures in place to pay you a commission for that type of introduction. Even if they don't agree to rewarding you, you will still maintain a good relationship with the developers and benefit from getting the electrical contract. On the other hand the finance company may be happy to give you a commission on the basis that they would like you to introduce them to similar deals in the future.

    You are obviously closer to the deal and know the individuals involved, this may give you a good feel as to whether the developers would be happy to pay you some kind of fee for introducing them to the funders. However, from personal experience I feel that they might be grateful for your role in putting the deal together, they may well believe that you are already benefiting by getting the electrical contract. Personally I would be very reluctant to ask them for a commission, but I would hope that they would appreciate my help and that they would remember it when they are considering contracting out electrical work in the future.

    Good luck with it!
     
  3. ArcSine

    ArcSine
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    pasi0013, financing 'birddog' fees are fairly common, more or less so depending on how difficult it is to put the financing in place. Some points to consider...

    • Finder's fees typically are agreed to at the outset, where its existence is understood by all parties, as well as its terms and conditions under which it'll be paid.
    • They should be in writing from the outset, so that no party can claim they didn't understand all the terms.
    • The size of the fee (usually some percentage of the financing commitment secured by the finder) is largely determined by the degree of complexity of the necessary financing itself.

    It would have more in your favor if the commission had been discussed earlier, but that's not to say it's too late to enter into an agreement now. As Fergal noted, you know the parties, the structure of the project, and the details of what has transpired to this point, better than any of us, of course. So ultimately it'll come down to a judgement call on your part.

    Fergal makes a good point that the other parties might be expecting that the valuable electrical contract constitutes your 'compensation' in exchange for your financing birddog services. Again, that's something that you'll have a better read on than anyone else, given your interactions with the parties thus far. Still, since such commissions are fairly common, it might not hurt to see where you can get with some negotiations in that direction. Just don't jeopardize your electrical contract deal in the process.

    Best of luck with it!
     

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