Acquisition Loans:

What is AdvisorLoans expertise with wealth management M&A?

Acquisitions and partner buyouts is over 70% of our loan volume by dollars funded. We have closed/funded more than 200 acquisition loans for Wealth Advisors. We utilize our expertise and experience in acquisition loans to help our clients with best practices, work-arounds, and making the acquisition lending process easier.

How do I pre-qualify for an acquisition loan?

Call us for a free consultation, complete our application, and provide a few documents. We can generate SBA term sheet proposals in 1-2 days and conventional term sheet proposals in 2-7 business days.

What are the types of acquisitions loans AdvisorLoans handles?

Internal – Within the same broker dealer or custodian platform

External – Acquiring a practice at a different broker dealer or custodial platform

Complete Asset Purchase (100% client acquisition)

Partial Asset Purchase (acquiring less than 50% of seller’s clients)

Complete Equity Purchase (100% equity/stock purchase)

Partial Equity Purchase (partial equity buy-in or buy-out)

What are the primary lending options for an acquisition loan?

AdvisorLoans helps advisors with acquisition loans using conventional and SBA lending, and sometimes in combination.

What about a loan for me to buy out my partner(s)?

Complete Partner Buyout Loan A complete partner buyout is purchasing 100% of the equity owned by that partner.

For conventional loans down payment is mostly dependent on the Loan to Value (LTV) based on the combined equity ownership.

For an SBA loan the complete partner buyout there is a 10% cash down payment requirement unless two conditions are met.

First, The borrower must have been active in the operations of the business and has been a ten percent or more owner over the last two years. This needs to be attested to by both the borrower and seller.

The second requirement is a Maximum Debt-to-Equity of nine-to-one. This is determined based on the business balance sheet over the most recent year and quarter. Banks have to be able to document both requirements.

It is SBA’s intention that for an SBA loan being used to finance a complete change of ownership, the seller, who no longer has any ownership in the business, is not required to provide a guaranty.

Can I get a loan for a partial client or partial stock acquisition?

Partial Partner Buyout Loans The partial partner buyout is when a borrower is purchasing part of the equity owned by a partner. The partner who is selling will remain on as a partner since they are selling just part, and not all, of their equity.

For conventional loans down payment is mostly dependent on the Loan to Value (LTV) based on the combined equity ownership.

For an SBA loan, this loan requires a ten percent cash injection unless two key requirements are met.

First, there is also the same nine-to-one maximum debt-to-worth condition.

The second condition is any remaining owners of the business who have twenty percent or more in equity, are subject to the SBA guarantor requirements. This includes the personal guaranty and the property collateral requirements.

What is the SBA's 12 month rule for seller continuation?

The SBA requires that the seller may not remain as an officer, director, stockholder, or employee of the business after the sale.

This rule does not apply to a seller simply selling a partial client list to another advisor, nor prohibits an advisor to continue as a licensed advisor for a broker dealer or custodian that could continue doing split business on new clients brought in.

Are down payments required for an acquisition loan?

Conventional: While a borrower’s personal financial situation and credit profile have influence, the primary equity injection criteria from conventional lenders focus on the Loan-to-Value (LTV) ratio. Typically, conventional lenders cap LTV at 75%, although some may extend to 85%.

For acquisitions, LTV is calculated by combining the value of the buyer's and seller's practices, resulting in most conventional acquisition deals meeting the LTV requirement. If a $1M value practice acquires a $1M value practice then $1M loan/$2M value = 50% LTV.

When a $333,000 value practice acquires $1M value practice then $1M/$1,333,000 = 75% LTV. In this case an equity injection (down payment and/or seller financing) is not required based on LTV but the lender may have other reasons they may want to see "some level" of injection (5%-10%).

Rule of thumb if both practices valued at same multiple, the buyer’s value needs to be at least 33% of the seller’s value (or visa-versa) to meet a 75% LTV.

SBA: Change of Ownership Loans These loans entail acquiring a business, assets, or equity, where the ownership is entirely transferred from the seller to the buyer. These loans include new business purchase loans, expansion business purchase loans, and complete and partial partner buyouts.

In terms of Equity Injection for a Business Purchase, there are three ways to meet the equity injection requirement: 10% Cash, Full Standby Note, and Partial Standby Note. If choosing a Standby Note, the borrower will have two loans: an SBA loan with the lender, and a promissory note with the seller.

For changes of ownership resulting in a new owner (complete change of ownership): At a minimum, SBA requires an equity injection of at least 10 percent of the total project costs, (all costs required to complete the change of ownership, regardless of the source of funds) for such transactions.

What are change of ownership loans? A loan resulting in a change of ownership is when you are purchasing a business, assets or equity, whereby 100% of the ownership transfers from the seller to the buyer.

These include: A new business purchase loan An expansion business purchase loan And complete and partial partner buyouts.

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

• For the vast majority of the 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.
• If the deal isn’t cash flowing strong enough, the lender may require the seller to finance a portion.

What factors could be impacted by the loan program and lender I use?

• Down payment
• Seller note (promissory)
• Seller continuation
• Retention clawbacks
• Valuation and Price
• Timeline lead times
• Partial equity purchases
• Non-solicitation
• Lien subordination
• Escrow disbursements
• Consulting agreement

Can I get an acquisition loan if I am currently a W-2 advisor?

Typically, yes.

Can I get an acquisition loan if I am a 1099 advisor without production?

Typically, yes.

How much does it typically cost for a lawyer to create all of the purchase documents?

We can refer you to lawyers with expertise and experience in advisor acquisition purchase agreements. For most acquisitions, the lawyer fees for the purchase documents and exhibits costs between $2500 and $4500.

How much does it typically cost for a third party escrow?

Some lenders will handle any escrow provisions interally and others will require a third party escrow firm. Escrow firms vary in pricing strucutre. Some charge a lower fee like $750 to $1000 for a single disbursement after one year but then gets more expensive if there are multiple disbursements and years. Some will charge a flat fee like $2000 to $2,500 for unlimited disbursements and years.