ADVISOR LOANOLOGY

Basic Loan Documents Needed for a Loan Proposal

If you want meaningful feedback and acquisition loan pre-approval then these are the first set of documents to start finding and compiling.

Applicant(s)

All Loans:

  • Application

  • Practice Performance Statement

  • 2024, 2023, and 2022 personal/business tax returns

  • 2024 P&L and Balance Sheet (if 2024 is on extension)

  • 2025 Interim Financials

For Any Acquisition:

  • Letter of Intent or deal terms

  • Pro forma

Sell-Side

Partial Book:

  • Report showing seller’s total AUM

  • Amount of AUM/Revenue being sold

  • Percentage of revenue in recurring revenue

  • Any associated costs buyer will incur

Complete Asset/Equity Acquisition

Report showing seller’s total AUM

2024, 2023, 2022 Tax returns or Schedule Cs

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.

  • 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.

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

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