Does AdvisorLoans lend to next-gen and W2 advisors?

Yes. While virtually all other lenders in the advisor lending niche will not take on these loans without a seller fully guaranteeing them, we love helping these advisors grow through acquisitions.

Can I keep W2 income after the acquisition loan?

Yes, as long as the acquired revenue is being received as 1099.

Minimum amount of AUM required for the borrower?

Many conventional lenders will have an official minimum AUM requirement of $20M to $50M to be considered for even a small loan. The SBA itself does not have a minimum AUM requirement, but many SBA lenders do set a borrower minimum AUM of $20M to $30M. AdvisorLoans does not have a minimum AUM size we will work with for SBA loans, we even help advisors with no AUM get acquisition loans.

I’m 1099 with AUM, do I need a cash down payment?

For SBA loans, back of the napkin, an advisor with $100K in revenue that receives a $200K valuation (at just a 2 times multiple) would be able to purchase a $2 million acquisition without a down payment. If a buyer’s practice values at $500K then a $5 million (minus SBA fees) acquisition could be done without a cash down payment.

I’m currently a W-2 advisor, down payment requiremed?

For SBA loans, a startup business automatically triggers the 10% equity injection rule. Startups would be required to either come up with 10% of the purchase price in cash.

I’m 1099 advisor with no book, down payment requiremed?

For SBA loans, if you don’t have a book, or production you own at all, you would not be able to apply any practice value to the equity injection rule and therefore would be required to either come up with 10% of the purchase price in cash.

Bank qualifying issues with W2 and Next-Gen advisors?

Qualifying Variances Depending on the W2 Advisor W2 advisors qualify differently and each deal can have variance from other deals.

For instance, let’s consider a W2 advisor with 10 years of experience in an advisory business This advisor has a decent personal financial statement (PFS) and good credit, indicating they practice what they preach from the bank's viewpoint. If the advisor has only five years of experience, the bank might set a higher threshold for the initial GDC required and a lower loan limit they feel comfortable approving.

In short, an advisor with three years of experience and a PFS that reflects this as well, is unlikely to secure a $3 million loan, even with positive cash flow. In banking, the individual’s experience and personal financial statement play a crucial role. The bank assesses whether the advisor can manage payments and avoid default during downturns. In the worst-case scenario, they consider if the advisor has the means to cover payments if a default occurs.

The more seasoned the W2 advisor, the stronger their personal financial statement tends to be. Credentials such as CFP (Certified Financial Planner) or CFA (Chartered Financial Analyst) also carry weight in this evaluation, though they are not decision factors. Advisors with more experience and impressive qualifications will generally have access to more favorable loan scenarios than those with less experience or weaker financial profiles. Each case is unique and requires individual negotiation.

Buying first book of business?

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.

Partial books of assets can be sold 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. But the equity injection for an expansion loan is waived. So if the W2 advisor first becomes an established advisory 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.

Biggest lending and M&A myths?

W2 NEXT-GEN ADVISOR CAN'T BUY ASSETS WITHOUT A DOWN PAYMENT A 1099 next-gen advisor who qualifies for an SBA expansion loan can avoid a down payment. The W2 advisor can establish their new 1099 advisory business and do an expansion loan while maintaining W2 income. A W2 advisor whose loan does not qualify as an expansion loan can avoid a cash down payment if the seller does the 10% two-year standby note.

SUCCESSION THROUGH EQUITY IS THE ONLY WAY TO TRANSITION TO NEXT-GEN ADVISOR OVER TIME It's one way but not the only way. Partial asset tranche sales and a converger plan where there is a structured buy-transition-buy model are two structured ways (with a lot of benefits) whereby a seller can sell to their internal or next-gen advisors over a defined period without convoluting equity shares and ownership.

SELLERS HAVE TO GUARANTY ANY NEXT-GEN LOAN Being "next-gen" has nothing directly to do with a seller guarantying your loan. It's all about if the acquisition is an equity buy-in or a book, the ownership makeup after the sale, and the same fundamentals all other loans are judged by like cash flow, equity injection thresholds, and credit policy. There are no seller guaranty loan options.

SELLERS CAN ALWAYS GET A BETTER DEAL IF THEY SELL TO A PEER Really? Full valuation price, 90% paid up front, and no clawback is a pretty strong offer out there. When selling to a qualified internal employee who has strong existing relationships with the clients, the seller would not usually have to finance more than 10% of the purchase price. And the only reason they need to do this is to get the buyer out of the 10% cash down payment requirement.

SELLERS HAVE TO FINANCE A BIG PORTION OF ANY NEXT-GEN LOAN If the next-gen advisor is 1099 and owns a book then they could qualify for a complete or partial book acquisition without any seller financing required. If the W2 next-gen internal has 10% cash down payment then the same applies.

THERE IS NO WAY A $50K GDC ADVISOR CAN GET A $1M LOAN WITH NO DOWN PAYMENT OR SELLER FINANCING Yes there is, maybe, most likely. If the advisor has 5+ years experience, a decent PFS, clean U4, great credit, and has a $50,000 recurring revenue book they own and receive 1099 compensation for, then yes this is possible through an SBA loan.