What Equity Buy-in Loans Look Like in 2025
What Equity Buy-in Loans Look Like in 2025
Equity buy-ins are when a non-shareholder acquires less than 100% of the stock or equity in a business. It’s a popular loan type in the wealth management industry, frequently used by RIAs and larger IBD practices to recruit, hire, and retain key talent. It’s also a key strategy for succession planning.
An alternative to equity buy-ins is partial asset acquisitions, where advisors acquire client books (instead of equity) over time. However, this strategy doesn’t work for every firm—especially those with existing equity plans. For advisors exploring their options, it’s worth noting that most partial asset acquisitions we handle don’t require an equity injection or seller guarantees.
SBA’s New Equity Injection Rules
Starting June 1, 2025, the SBA updated its SOP for equity buy-in loans. Here’s what you need to know:
Equity Injection Requirements:
The SBA requires the lesser of:
A 10% equity injection of the purchase price (e.g., $50,000 for a $500,000 buy-in), OR
An amount needed to achieve a debt-to-worth ratio of 9:1 or lower on the pro forma balance sheet (based on the most recent fiscal year and quarter), unless exempted.
How to Calculate the 9:1 Debt-to-Worth Ratio:
Debt-to-Worth Ratio = Total Debt ÷ Total Equity
A ratio of 9:1 or lower indicates financial stability and could waive the equity injection. Anything above 9:1 will require an injection to reduce lender risk. For example:
$500,000 debt ÷ $100,000 equity = 5:1 (pass, no injection needed)
$1.2M debt ÷ $100,000 equity = 12:1 (fails, requires injection to reduce risk)
No Equity Injection Required If:
The borrower has been an active operator with at least 10% ownership of the business for 24+ months, verified by both buyer and seller.
The business has a debt-to-worth ratio of 9:1 or lower (e.g., $900,000 ÷ $100,000 = 9:1).
Equity injections must be paid in cash—SBA rules don’t allow seller financing for this requirement. A seller note can be included in the deal, just not as part of the equity injection.
New SBA Guarantor Rules:
After a buyout, owners with 20%+ direct or indirect equity (including sellers in partial buyouts) must provide unlimited personal guarantees. Sellers retaining less than 20% equity must guarantee the loan for two years post-disbursement.
Conventional Loan Insights
Conventional loans offer flexibility but come with different considerations compared to SBA loans.
Deal Flexibility: Experienced lenders can structure equity buy-in loans with fewer restrictions, as long as the deal makes sense.
Seller Consulting: Ongoing seller involvement is typically part of equity buy-ins.
Guarantors: For equity owners with 20%+ stakes, conventional lenders usually require a grantor agreement or similar. Borrowers are personal guarantors, and 20%+ partners also sign grantor agreements.
Collateral: Lenders place a UCC lien on all current and future business assets, but no personal property is used as collateral.
Cash Flow (DSC): When W2 advisors or employees (not owning a book or practice) purchase equity, lenders assess cash flow based on net distributions against debt service.
Loan-to-Value (LTV): Most conventional lenders cap loans at 75% LTV, requiring buyers to provide 25% equity—via cash, seller financing, or a combination.
What Remaining Equity Partners Should Know
Lien Impacts on the Entire Business: Both SBA and conventional lenders place a blanket UCC lien on the entire business, even if the loan is for a small equity buy-in. This lien includes the equity of non-borrowing partners and all current and future business assets.
Personal Guarantees for Remaining Partners: Post-buyout, owners holding 20%+ equity must provide unlimited personal guarantees. Partners with less than 20% ownership must guarantee the loan for two years post-disbursement. SBA loans also include a six-month look-back, requiring personal guarantees from prior owners who held 20%+ equity within six months of the application unless fully divested.
For conventional loans, lenders may require a corporate guaranty or grantor agreement from non-borrowing partners. Depending on the buyer and loan structure, personal guarantees from existing partners may also be required, though this is less common.
Call AdvisorLoans to Discuss Your Equity Buy-In Loan
Need help buying or selling partial equity? Want guidance on structuring equity tranches or succession-based financing?
We deliver 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 wealth management, Live Oak Bank has 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.