ADVISOR LOANOLOGY

“An ounce of prevention is worth a pound of cure.”

~ Benjamin Franklin

Selling to Successor:
What to Know

Selling to an internal successor is what most advisors prefer or plan.

It might be to an existing partner, junior or associate advisor, or even a family member. In most cases an internal advisor can qualify for an acquisition loan for the full purchase price.

  • Can I spread out payments over multiple years without seller financing?

    Yes. Part of the purchase can be placed into escrow and then disbursed over multiple years.

  • Can they get a loan for the down payment and then do an earn-out for the rest?

    If they qualify for a conventional loan they can. Any form of an earn-out is not allowed with an SBA loan.

  • Can I lend successor money for a down payment?

    You can’t lend it to them.

  • Can they use the phantom stock I gave them as a down payment?

    Conventional: If the buyer is doing a conventional loan, no problem.

    SBA: The equity owned needs to be reported on their last two years tax returns to qualify. If the equity is phantom stock, a verbal agreement, or equity that you gave that has no benefit unless you sell someday, then lenders typically will not view that as eligible equity ownership that could be applied as the down payment.

  • What does it cost to see if my successor qualifies?

    Nothing, AdvisorLoans provides pre-approvals for free.

Next-Gen & W2 Advisor Lending

How does financing work for a W-2 advisor seeking to buy out their book of business and transition fully to a 1099 compensation structure, or possibly a hybrid W-2/1099 role?

What steps must the W-2 advisor take to gain ownership of their book while compensating the practice or senior advisor with an override, platform fee, or overhead fee for the support provided?

There are options.

W2 & Next-gen Advisor Buying Their First Book/Assets

Financing partial and complete books and practices is entirely possible for W2 advisors and depending on your perspective, this model offers its own set of benefits.

Advisors can sell partial books of assets to next-gen advisors as one time events, then more maybe later as a we'll-see-how-it-goes future sale, or sell assets in structured tranches over time.

Unlike selling partial equity, selling partial assets avoids personal or corporate guaranties on the selling side.

The equity injection requirement for W2 advisor buying a book is 10% which can be cash down payment of which 50% can be seller financed on a ten-year standby note. However, the equity injection for an expansion loan is waived. So if the W2 advisor first becomes an established 1099 business then it could be structured as an expansion because it in fact would be. These are looked at on a case by case basis but bottom line is that the SBA makes it viable to get loans at 90% and 100% LTV compared to a 75% typical LTV conventional loan.

What Sellers to W2 Advisors Should Know

Partial Books to One Advisor


Partial books can now be sold to the W2 Advisor who also owns 1099 business with no buyer cash down, no seller guaranty and no seller financing. You can sell assets to a W2 advisor, pay them 1099 for that business, and charge a platform fee option to provide the home office services you cover as their principal firm or RIA. The W2 buying advisor can transition fully to 1099 replacing or increasing current salary income (after debt service) or they can continue to receive W2 income and 1099 income (for what was acquired).

Partial Books to Multiple Advisors


An advisor can sell $250K GGC/revenue to one advisor or multiple books to 4 advisors all in this same structure. A $1.5M revenue advisor ready to slow down can sell $1M in 4 different asset tranches to 4 different advisors and sell the last $500K when ready to retire. The advisor buyers do not guaranty each other loans in this example as they are assets purchased separately. In partial equity buy-ins any remaining partner with 20% is required to be a personal guarantor.

W2 Advisor Book Buyout SBA Loans

W2 Advisor Buys A Book

Asset Purchase / Book Buyout

5% Cash Down
Buyer pays a 5% cash injection based on the total project cost. The seller finances 5% on a ten-year standby note. the note can collect interest but no payment can be made until the SBA is paid off.

5% Seller Standby Financing
The seller can eliminate the need for the buyer to come up with half the required cash.

No Seller Guaranty
This is a simple asset/book sale and there is never a seller guaranty in an asset sale, especially a partial book buyout.

W2 /1099 Advisor Buys a Book

Expansion Acquisition

SBA Exception
There is no down payment required by the SBA and it will only be dependent on the bank feeling comfortable with the experience and credit of the advisor in relation to the size loan they are seeking.

Exception Criteria
Business expansion loans involve an existing business starting or acquiring another in the same 6-digit NAICS code, with identical ownership and in the same geographic area, treated as co-borrowers.

No Seller Guaranty
This is a simple asset/book sale and there is never a seller guaranty in an asset sale, especially a partial book buyout. SBA seller guaranties come on the partial equity buy-in side but not partial asset side.

What is the SBA equity injection seller standby note?

If your buyer is utilizing an SBA loan to finance the purchase of your book or practice then the buyer’s down payment requirement depends on if it’s considered an expansion acquisition. In most all cases when an established independent advisor or firm is acquiring your business with an SBA loan they will not be required to make a down payment and you will not be required by the lender to seller finance a portion of the sale. However for book and practice acquisitions where the buyer is currently 100% W2 or has issues for whatever reasons with coming up with the full 10% cash for the required equity injection, there is an option for you as the seller to step in and help in a big way, all with minimal exposure to you.

Seller notes allow the seller to finance part of the equity injection, reducing the buyer’s upfront cash need.

Full Standby Note: Can cover up to 50% of the 10% injection (e.g., $50,000 for a $1 million project, with the remaining $50,000 from buyer/borrower sources like cash).

Terms: No principal or interest payments for the entire term of the 7(a) loan, which is a ten-year term. The note must be subordinated to the SBA loan with no acceleration clauses.

Get 95% cash and a 5% promissory note on a 10 year standby

If your buyer is utilizing an SBA loan to finance the purchase of your book or practice then the buyer’s down payment requirement depends on if it’s considered an expansion acquisition. In most all cases when an established independent advisor or firm is acquiring your business with an SBA loan they will not be required to make a down payment and you will not be required by the lender to seller finance a portion of the sale.

However for book and practice acquisitions where the buyer is currently 100% W2 or has issues for whatever reasons with coming up with the full 10% cash for the required equity injection, there is an option for you as the seller to step in and help in a big way, all with minimal exposure to you.

Seller notes allow the seller to finance part of the equity injection, reducing the buyer’s upfront cash need.

Full Standby Note: Can cover up to 50% of the 10% injection (e.g., $50,000 for a $1 million project, with the remaining $50,000 from buyer/borrower sources like cash).

Terms: No principal or interest payments for the entire term of the 7(a) loan, which is a ten-year term. The note must be subordinated to the SBA loan with no acceleration clauses.

Here’s how it works:

  • Upfront Cash: You could receive 95% of the purchase price (up to the SBA-approved valuation) in cash at closing, funded by the SBA loan and the buyer’s cash contribution.

  • Standby Note: The remaining 5% is a 10-year standby note from you to the buyer, with no principal or interest payments during the SBA loan term (typically 10 years). At maturity, the buyer pays the principal plus accrued interest (e.g., 9%, negotiable) in a lump sum.

  • Subordinated Lien: You hold a subordinated lien on the practice’s assets, behind the lender’s first lien, securing your claim if the buyer defaults (though secondary to the lender).

Example: You sell your practice for $1 million (SBA-approved valuation). The buyer needs a $100,000 equity injection (10% of project costs, including price, fees, and working capital). You provide a $50,000 standby note at 9% simple interest. At closing, you receive $950,000 in cash. In 10 years, you collect $95,000 ($50,000 principal + $45,000 interest).

Attrition offsets, hold-backs and clawbacks, as well as any additional seller financing without a standby period can be included in the payment structures.

W2 Advisor Converts to Expansion Loan Eligibility...

Expansion Through Acquisition: When an established business starts or acquires a business that is in the same 6 digit NAICS code with identical ownership and in the same geographic area as the acquiring entity and they are co-borrowers, SBA considers this to be a business expansion, and SBA will not require a minimum equity injection.

If W2 Advisor Becomes a 1099 Advisory Business

1. Entity

Can technically do as a sole proprietor but let's start off right with s single member LLC.

2. Start Book

Don't need much but $25,000 to $50,000 in GDC/revenue depending on the acquisition amount objective. Seller transfers these clients and their ownership to successor new rep code.

3. Agreement

Seller and successor advisor have entered into a service agreement which shows the clients owned, that they are owned, and the payout which will be received. W2 income can continue but acquired assets must be paid 1099.

4. Expansion Ready

The next-gen advisor still has the W2 income they have been relying and living on but now also owns a fledging 1099 advisory business and is ready to expand. SBA doesn't have time periods which have to be met prior. You're ready to acquire as an expansion loan.