AdvisorLoans List of Lending Myths
AdvisorLoans List of Lending Myths
Our running list of lending myths according to our the lending reality we live in.
Myth: Cash Flow Is All That Matters
Reality: Cash flow is critical, but ROI matters too. If the target practice doesn’t cash flow independently and relies on your existing profits, risk and return expectations shift. Aggregation strategies differ from one-off acquisitions.Myth: Cash Down Payment Is Always Required
Reality: Most AdvisorLoans-facilitated loans require no cash down payment for advisors with a book of business.Myth: SBA Always Takes the House as Collateral
Reality: Collateral depends on property equity and loan size. If equity is <25% or the loan is ≤$350,000, the SBA doesn’t require it.Myth: Partial Equity Buy-Ins Are Ineligible for SBA Loans
Reality: Since October 2023, SBA rules allow partial equity buy-ins.Myth: Lenders Always Require Seller Financing
Reality: Lenders prefer it, but it’s not required if LTV and cash flow requirements are met. Seller financing is often at the seller’s request, not a mandate.Myth: Valuation Firms and M&A Brokers Don’t Get Bank Fees
Reality: Many receive 1% fees from banks, either as disclosed referral fees or undisclosed kickbacks, influencing their recommendations.Myth: Sellers Must Receive All Bank Proceeds at Closing
Reality: Payments can be spread over 2–3 years via escrow without seller financing.Myth: All SBA Lenders Handle M&A Loans the Same
Reality: Lenders differ in criteria, preferences, and policies, impacting approval and terms.Myth: Bank Approval Means it Must be a Good Deal
Reality: Banks focus on cash flow and historical data, not ROI or CAGR. A deal may cash flow with your practice’s profits but not be profitable alone and still get approved for a bank loan.Myth: Valuations Are Only for the Seller’s Practice
Reality: SBA loans may require buyer valuations for no-down deals, and conventional loans often request them on the buy-side for >$5M loans.Myth: 1.75 or 1.50 DSCR Is Required for SBA Loans
Reality: The SBA requires a minimum 1.15 DSCR. Some lenders will go to the 1.15 minimum, many prefer 1.25, but some go up to 1.75, impacting loan amounts (e.g., 50% more dollars at 1.15 vs. 1.75).Myth: Interest Rate Is the Primary Deciding Factor
Reality: Criteria, deal structure, and down payment requirements often outweigh rates. For ongoing acquisitions, amortization term is more critical.Myth: Conventional Loans Are Always Better Than SBA
Reality: This is completely dependent on the advisor and their situation. There are key areas where an advisor would prefer to have an SBA loan with lower equity injection requirements and typically more lending dollars available.Myth: SBA Loans Are Easily Refinanced with Another SBA Lender
Reality: Inter-lender SBA refinancing is complex and uncommon, though possible.Myth: Advisors Need Life Insurance to Qualify
Reality: Conventional loans always require it, but SBA loans can waive it with a denial letter and acceptable continuity plans.Myth: Seller Financing Is Always Good for Buyers
Reality: Short-term (e.g., 50% over 3 years) can strain cash flow, risking approval. Long-term (7+ years) is typically optimal.Myth: Lenders Always Provide Ongoing Financing
Reality: Lenders vary in enthusiasm for rapid follow-on loans, especially smaller banks new to advisor lending.Myth: I Read it Somewhere so it Must be True
Reality: RIA and IBD nuances vary. Advice for PE-funded RIAs or aggregators are not suited to typical advisors.Myth: SBA Loans Have More Restrictive Covenants
Reality: SBA loans typically require fewer covenants, like annual tax returns and updated PFS.Myth: Borrowers Receive Acquisition Funds Directly
Reality: Funds are wired to sellers or held in escrow, not paid to borrowers.Myth: Banks Won’t Touch Advisor Loans Under $250K
Reality: AdvisorLoans supports loans >$100K for advisors.Myth: Buyers Should Make a 25%–30% Cash Down Payment
Reality: Rare for advisors with books; AdvisorLoans minimizes cash down payments.Myth: SBA Lending to Financial Services Is New
Reality: Since 1996, 477 banks have funded 4,719 SBA loans to advisors.Myth: SBA Fees Are Waived for Loans ≤$1M
Reality: This is a myth as of June 1 2025. For loans >12 months, fees are 2% (≤$150K), 3% ($150,001–$700K), or 3.5%/3.75% ($700,001–$5M). Short-term loans (≤12 months) have a 0.25% fee.Myth: Sellers Have to Guaranty a W2 Internal Buyer’s Loan
Reality: For an advisor selling a book to a W2 advisor who will be paid 1099 for the purchased book. Seller guarantors and grantor agreements only come into play when selling a portion of equity instead of assets.
AdvisorLoans is Ready to Help
We’ve closed hundreds of conventional and SBA loans by delivering independent lending advice we believe serves the best interests of the advisors we work with. Our consulting is relaxed, unbiased, and straight-up candid. We’ll give you an instant read on your loan request’s viability, highlight any workarounds or red flags, and ensure the loan aligns with your strategic goals or future financing plans. We can help you compare SBA and conventional options, address equity injections, and share the best solution for your goals.
Over the past five years, AdvisorLoans has originated one-third of all SBA-funded dollars for advisors in the wealth management industry, Live Oak Bank has also originated one-third, and over 150 banks together have the other third. Whether you need an SBA loan now or want to craft a financing strategy around the unique opportunities SBA lending offers advisors, give us a call today.