The short answer
Syndication lets a broker or investor put their own money into a percentage of an advance and take that percentage of the repayments, rather than only earning commission. The return is higher than commission when deals perform and negative when they default — and because the same person often chooses the deal and syndicates into it, the conflict of interest is the part to be careful about.
Commission is paid once and carries no risk. Syndication converts a broker from an intermediary into a participant, and the two roles pull in different directions more often than people admit when they start.
The mechanics
- The funder writes the advance and offers a share to syndicators.
- You fund that percentage of the advance amount at closing.
- You receive that percentage of every remittance as it is collected.
- If the merchant defaults you lose your share of what has not been collected.
- Fees and the treatment of defaults are set by the syndication agreement, and they vary a great deal.
The conflict to name out loud
A broker who chooses where to place a file and also syndicates into it has a reason to prefer the funder who lets them participate over the funder who offers the merchant a better deal. That is a real conflict and it is worth being deliberate about — the merchant is not in a position to notice.
| Commission only | Commission plus syndication | |
|---|---|---|
| Risk | None after funding | Your capital, at risk |
| Return | Fixed, paid once | Higher if it performs, negative if it defaults |
| Cash flow | Immediate | Over the term |
| Incentive | Volume | Deal quality |
| Conflict | Low | Real, and needs managing |
The fourth row is the honest argument in favour. A broker with money in the deal cares whether it performs, and that alignment does show up in the quality of what they submit.