As an independent financial advisor or registered investment advisor, at some point in your career you may have the opportunity to take out financing in order to acquire a practice, or to conduct a full or partial partner buy-out. For some advisors, they may even become serial acquirers and frequently buy additional practices. However, the more likely scenario is that you'll only go through this experience once, which is exactly why you will want to rely on trusted experts in the financial advisor loan space from Advisor Financing LLC when obtaining your advisor loan. We have worked with thousands of advisors in order to assist them in securing financing, and are happy to provide complimentary consultations and advice so you ensure you are aware of every step in the financing process. We've also compiled a list of the most frequently asked questions for financial advisor loans here.
How does Advisor Financing provide the best rates and terms for financial advisor loans?
Due to our extensive industry experience, the strength of our banking partners, and our corporate structure, we are able to obtain and offer the lowest rates and most flexible terms in the industry. Our firm has been running virtual operations since our inception, which has given us the ability to lower our operating costs, increase flexibility, and grant us the ability to meet each individual financial advisor's wants and needs in the most cost-efficient manner. As a boutique firm, you will be working directly with one specific Advisor Financing loan specialist from start to finish throughout your financial advisor loan process.
Do you offer lines of credit?
We are able to offer lines of credit in conjunction with a loan utilized for internal transitions, acquisitions, or refinances of this debt. We do not currently provide standalone lines of credit.
How long does the loan process take?
Generally, financial advisor loans can be approved and closed within 45-75 days of receiving a completed file of documentation. As necessary, this is able to be expedited and loan closed upon as quickly as you desire and provide required information.
Do you provide conventional or SBA financing for RIA loans?
Through our years of experience working with independent advisors, we have found that typically conventional loans are more favorable than SBA solutions. However, we are able to provide side-by-side analyses of both options and utilize the financing path that makes the most sense for each individual scenario.
Does the selling financial advisor need to guarantee the loan?
Dependent upon the specific characteristics of your purchase agreement for acquisition or partner buy-out, a guarantee may or may not be required. Typically, if the seller is remaining in the business in greater than a 20% ownership capacity, a guarantee may be required.
What is the difference between an acquisition and a partner buy-out or internal transition?
An acquisition occurs when one RIA or independent financial advisor purchases another and takes over the ownership in that practice. Partner buy-outs and internal transitions occur when ownership changes hands within the internal partners of a firm or team, whether a partial transition or a full transition. This is an important distinction as it helps determine who the guarantors for the loan will be.
What does a typical loan look like?
Each financial advisor loan will be structured dependent upon the unique characteristics of the deal. In general, loans will be structured with a 10 year amortization and fixed interest rates over the first 5 or 7 years. After that point, the interest rate will reset based on existing market conditions. We've found this is preferable for financial advisors that are continuing to grow their practices as it allows them financial flexibility and the opportunity to either accelerate payments, or to consolidate and refinance in the future as additional acquisitions occur.
Do you have prepayment penalties?
In general, there will be no prepayment penalties for advance principal payments made out of cash flow for the business. There may be prepayment penalties if refinancing with a separate institution. Your specific loan term sheet and loan documents, as well as your Advisor Financing loan specialist, will be able to guide you on prepayment penalties. We also recommend learning more about prepayment penalties with our comprehensive prepayment penalty guide.
What are the fees?
For our standard conventional advisor loans, there are three loan fees that occur throughout the loan process. These are as follows:
1. Term Sheet Fee: Upon acceptance of the term sheet that outlines your specific loan terms, a term sheet fee is due to Advisor Financing. This schedule is as follows:
- $500 for loans under $500,000
- $750 for loans between $500,000-$999,999
- $1,250 for loans between $1,000,000-$1,999,999
- $2,500 for loans between $2,000,000-$4,999,999
- $5,000 for loans over $5,000,000
2. Bank Admin Fees & Third Party Fees: Upon acceptance of the term sheet, a due diligence deposit is due to the bank and is applied toward any banking admin fees, third party fees, UCC filings, etc. that are incurred throughout the loan closing process. The deposit is typically between $1,000-$2,500 and total loan fees average around $3,000-$4,000. Any amounts over the deposit can be added to the final loan balance.
3. Origination fee: 2-3.5% of loan value. This fee can be added to your entire loan balance and is not required to be paid out of pocket.
Does the purchasing advisor need to bring cash to closing?
No, our conventional loan programs do not require a down payment to be made to the seller. Our flexibility and experience in the industry allows us to work with you and structure loans as best as possible to your specific purchase agreement.
How much of the purchase price are you able to finance?
We typically finance between 70% - 100% of your negotiated purchase price. Our loan values start as small as $250,000 and can easily go up to $10,000,000. Loans over this amount require an additional underwriting process.
What is a seller note or subordinated debt?
At times, your purchase agreement may call for the seller to hold a note in which the buyer pays the seller out of business cash flow over an agreed upon period of time. If this exists, it is called a seller note and will be required to be subordinated to the bank financing.
What is the collateral required?
Standard collateral for RIA loans is a first lien position on the business and an assignment of life insurance in the amount of the loan on the guarantors.
Is a deposit account required?
Many of our banking partners desire to have a strong relationship with advisor clients and require a banking relationship. However, if you greatly desire to maintain your existing banking relationship, we can pursue alternative arrangements and flexibility.
How will practice valuations be determined?
A valuation is not always a requirement of our loan process. If you'd like to obtain one or a valuation is required, we can recommend several partner firms that will assist in determining an accurate valuation of the practice to be acquired.
