ADVISOR LOANOLOGY

MASTER LIST OF ACQUISITION DOCUMENTS

Depending on the loan any of these documents may be required if applicable.

BUYER/BORROWER ENTITY

  • Borrower Entity Docs

    • 3 Years of Corporate Tax Returns

    • YTD Financials (P&L, Balance Sheet, Debt Schedule)

    • Last full year Financial Statements

    • Custody or Independent Broker Dealer agreement

    • IRS Tax Return Verification with 4506T

    • Corporate Bio

    • Articles of Incorporation or Organization

    • Bylaws or Operating Agreement

    • IRS EIN Letter

    • Partnership Entity Docs (if applicable)

    • Partnership Agreement

    • 4506-T Form and verification

    • Two Year Projection Pro Forma

SELLER SIDE DOCUMENTS

  • Sell Side: 100% Asset Sale

    • 3 Years of Tax Returns

    • YTD Financials (P&L and Balance Sheet)

    • Last full year financials

    • Bylaws or Operating Agreement

    • Custody or Independent Broker Dealer agreement

  • Sell Side: Partial Asset Sale

    • YTD Practice Performance Statement (AUM & Revenue)

    • FINRA BrokerCheck Report

    • Trailing 12 months revenue statement

    • Bio on seller’s practice

    Seller subordination letter required for all options if seller note is included.

20%+ GUARANTORS

  • Additional 20%+ Guaranty Docs

    • Year End Balance Sheet for the last two years

    • Year End Profit & Loss Statements for the last two years

    • Debt Schedule

    • Interim Balance Sheet

    • Interim Profit & Loss Statements

    • Affiliate/Subsidiary financial statement

    • Personal Financial Statement

SELLER SIDE DOCUMENTS

  • Sell Side: 100% Equity Sale

    • 3 Years of Tax Returns

    • YTD Financials (P&L and Balance Sheet)

    • Last full year financials

    • Bylaws or Operating Agreement

    • Custody or Independent Broker Dealer agreement

  • Sell Side: Partial Equity Sale

    • YTD Practice Performance Statement (AUM & Revenue)

    • FINRA BrokerCheck Report

    • Trailing 12 months revenue statement

    • Bio on seller’s practice

    Seller subordination letter required for all options if seller note is included.

BUYER/BORROWER APPLICANT

  • Borrower Docs

    • Consent to Release Information

    • Loan Application

    • Borrower Information Form

    • Credit Report

    • Last 3 years Personal Tax Returns

    • YTD Income Statement

    • YTD Practice Performance Statement (AUM & Revenue)

    • Personal Financial Statement

    • Personal Cash Flow Statement

    • FINRA BrokerCheck Report

    • Copy of Drivers License

    • IRS Tax Return Verification with 4506T

    • Bio on each advisor 

    • 4506-T Form and verification

PURCHASE AGREEMENT

  • Acquisition Documents: Buy Side

    • Asset or Stock Purchase Agreement

    • Seller Promissory Note

    • Promissory Note Seller Subordination Letter

    • Bill of Sale

    • Consulting Agreement

    • Non-Solicit Agreement

    • Attrition Offset

    • Third party escrow agreement

    • Bank Lawyer comments

    • Corporate resolution statement

    • Closing statement

    • Insurance assignments and new policies 

    • Seller’s resignation letter (100% stock purchase)

    • Partnership Entity Docs

    • Partnership Agreement

    • Combined Pro Forma

What to Know About Pro Formas

Pro forma, a Latin term meaning “as a matter of form”, is a forecast, not a guarantee: The pro forma is a prediction of how the combined business will perform after the acquisition.

For advisor acquisitions banks use the pro forma to evaluate the estimated free cash flow which will be available to the borrower post acquisition. They want to see (just like the buyer should want to see) what the expected net income is after combined revenue and expenses and after the debt service is paid.

  • Does the seller need to seller finance a portion of the purchase?

    For the vast majority of the acquisition loans we do, the seller doesn’t finance any portion of the purchase.

    Sellers “can” seller finance any amount of the purchase with a promissory note but have to subordinate that note to the lender’s note.

  • What is a Pro forma?

    Pro forma, a Latin term meaning “as a matter of form”, is a forecast, not a guarantee: The pro forma is a prediction of how the combined business will perform after the acquisition. It's important to acknowledge the inherent uncertainties and build in reasonable assumptions.

    Focus on key financial metrics: The pro forma should include detailed projections for revenue, expenses, profits, and cash flow for the combined business over several years.

    Be realistic and conservative: Avoid overly optimistic assumptions, especially about cost savings and revenue synergies. Underestimating challenges can lead to problems down the line.

  • What are the primary examples of when seller financing may be needed?

    W2 advisors, advisors without production, and advisors whose practice has too low of a value compared to the seller practice value being acquired.

    If the deal isn’t cash flowing strong enough or the lender has other concerns about the deal, the lender may require the seller to finance a portion of the purchase. In these cases, a 10-25% seller note is the typical percentage the lender would require.

  • Do all seller promissory notes have to be subordinated to the lender?

    For bank financed deals, both SBA and conventional, the lenders we work with will require the seller to subordinate the promissory note. It doesn’t matter if the bank is financing a minority or majority of the purchase price, a subordination letter will be required for most every acquisition loan.

    The lender provides the subordination letter that must be executed by the seller. However, our lenders do not require any previous seller notes to be subordinated if there isn't a lien filed.

    In virtually all cases, lenders require that the seller note be subordinated to the lender. This means the seller is in second position behind the lender. It doesn’t matter if the seller is financing 5% or 95%, the subordination is required.

    Some sellers who are financing a majority of the deal may not like being in second position to a lender who is financing less than they are. While this is understandable, it’s just the way it goes in commercial lending.

MASTER LIST OF THIRD PARTY DOCUMENTS

Depending on the loan any of these documents may be required if applicable.

THIRD PARTY DOCUMENTS

  • Third Party Documents

    • Assignment of Life Insurance

    • Life Insurance Assignment Acknowledgement Letter

    • Copy of Life Insurance Policy

    • Worker’s Compensation Insurance

    • E&O Insurance Documents 

    • Franchise Agreement (if franchisee)

    • Affiliation Determination Letter

    • Corporate Program Agreement

    • Third Party Escrow Agreement

    • Lawyer Comments and summary

IF BUYER/BORROWER TRANSITIONING IN CONJUNCTION WITH LOAN

  • DEBT REFINANCE DOCS

    • Credit Bureau Reports

    • Credit Bureau Report Explanation

    • Business Credit Report

    • Business Credit Bureau Report Explanation

LOAN AGREEMENT

  • Loan Agreement

    • Note / Credit Agreement / Compliance Agreement

    • Security agreement

    • Unlimited Personal Guarantee(s)

    • UCC lien filing

    • UCC Financing Statement/exhibits

    • Form W-9

    • Estoppel Certificate

    • ACH addendum

    • Undertaking Letter - conditions for post-closing instructions and compliance

    • Loan Closing Package

THIRD PARTY SEARCH RESULTS

  • Third Party Searches Results

    • Credit Bureau Reports

    • Credit Bureau Report Explanation

    • Business Credit Report

    • Business Credit Bureau Report Explanation

    • Lexis Nexis Search on Borrower

    • UCC Lien Search on Seller practice

    • UCC Lien Search on Borrower practice

    • Federal and state tax lien search and open cases on Borrower

    • Bankruptcy Search on Borrower 

    • Background Search on Borrower

IF BUYER/BORROWER DEBT REFINANCE INCLUDED

  • DEBT REFINANCE DOCS

    • Credit Bureau Reports

    • Credit Bureau Report Explanation

    • Business Credit Report

    • Business Credit Bureau Report Explanation

SOLE PROPRIETER

Tax return (Form 1120S)

  • Multiple shareholders 

  • Taxed as a S corporation

  • K1 and Form 1120S

  • Only individuals (not entities) can be a shareholder

TAX RETURNS & EXTENSIONS

S CORP

Tax return (Form 1120S)

  • Multiple shareholders 

  • Taxed as a S corporation

  • K1 and Form 1120S

  • Only individuals (not entities) can be a shareholder

SINGLE MEMBER LLC

LLC is a company not a corporation

  • Taxed as a pass through entity

  • Typically taxed as a sole proprietor

  • No LLC return, pass through to personal tax return

  • Schedule C

MULTI-MEMBER LLC

LLC tax return (Form 1065)

  • Each member reports profits and losses on their personal tax return

  • Members can be individuals, LLCs, or entities

  • Each member receives a K1

S CORP TAXED AS

Tax return (Form 1120S)

  • Multiple shareholders 

  • Taxed as a S corporation

  • K1 and Form 1120S

  • Only individuals (not entities) can be a shareholder

C CORP

Tax return (Form 1120S)

  • Multiple shareholders 

  • Taxed as a S corporation

  • K1 and Form 1120S

  • Only individuals (not entities) can be a shareholder

INTERUM FINANCIALS

2023 year end P&L and balance sheet and YTD P&L will be needed. Most banks will have policies requiring they have financials updated within 120 days of funding and an updated personal financial statement within 90 days.

IF ON EXTENSION

  • Sole proprietors and LLCs on extension provide Form 4868

  • S Corp on extension will provide Form 7004 

  • If no payments have been made banks want to see the estimated amount available in your account