Conventional Loans

Loan Purposes:

  • Acquisition

  • Expansion

  • Partner Buyout

  • Equity Buy-in

  • Debt Refinance

  • Lines of Credit

  • CRE (local)

Loan Options:

STANDARD TERMS: 10 YEAR

RATES: Current Range 7.5% to 9%

PREPAYMENT: Yes, varies by lender

LIEN POSITION: Lender in First Lien Position

LOAN AMOUNTS: $250,000 to $50 million

TYPICAL AMOUNTS: $2 to $5 million

Criteria:

CREDIT:
Typically over 700LTV: Most have LTV maximum of 75%


DTI:
Debt-to-income maximum is from 30% to 40%DSC: A historical 1.5 DSC for two years is typically requiredAUM: Direct or indirect minimum AUM is typically about $50 millionREVENUE: Typically will need to cash flow based on recurring revenue


EXPERIENCE:
Typically a minimum 7 years and 3 years being independent

Conventional Loans

Conventional business loans are traditional financing options provided by banks, credit unions, and increasingly, online lenders. Conventional loans are commercial loans that are not backed by an SBA guaranty.

Because this loan type is not backed by an SBA guaranty none of the SBA rules apply but the flip side is that these loans have a higher qualifying and cash flow criteria. This translates to more stringent eligibility requirements but can also offer faster approval processes, lower interest rates (currently anyway), higher loan amount limits, and the guard rails for loan structuring (especially for acquisitions) are set much wider.

  • Key Qualifying criteria?

    • Minimum independent advisor experience from 7 to 10 years

    • Acceptable personal net worth of borrower

    • Credit score north of 700

    • AUM and revenue minimums vary by lender

    • Loan amount minimum ranging from $250K to $500K

    • DSCR minimum ranges from 1.5 to 1.75

  • • No personal property collateral (SBA loans can sometimes require a junior lien position on personal property)

    • Fixed rate (most SBA lenders offer variable rates)

    • Flexibility for acquisition deal structures for partial equity acquisitions, earn-outs, and longer term seller continuation

  • Standard conventional loans are ten year terms with 10 year amortization schedule. There are also 5 and 7 year terms available. The two balloon terms available are 7 year term with 10 year amortization and 10 year term with 15 year amortization.

    Most conventional lenders will set their rate from 3% to 4.5% over the 10 year treasury rate.

  • Most conventional lenders will charge anywhere from 1% to 2.5% origination/bank fee. This amount is rolled into the loan and not paid out-of-pocket.

  • Are some lenders better for acquisitions than others?

    Absolutely. Lenders familiar and committed to the wealth management niche are more comfortable with lending to advisors who are strategically focused on inorganic growth through acquisitions. Of course, the subsequent acquisitions have to cash flow and make financial sense.

    If your intent is to do multiple acquisitions that will need bank financing, we feel it is imperative that you speak to the bank directly about those goals before you get “trapped” with a bank that limits the frequency of ongoing acquisition funding.

  • Are there pre-payment penalties?

    Conventional lender prepayment penalty varies. Some will charge a flat 2% for the life of the loan while others will charge a staggered penalty such as 4% year 1, 3% year 2, 2% year 3, 1% year 4.

    Most conventional lenders allow for prepayments such as 10% of the loan amount in any given year. The prepayment penalty is primarily applied when the loan is being refinanced with another lender as opposed to making an extra payment.

  • Do I have to move my operating account to the lender bank?

    You should not have to do this for loans under $5 million, and none of the LoanBox lenders require this as a standard policy. If the bank eventually earns your banking business from providing a great loan experience then good for all.