A frequent conversation that we have is providing education as to what you as an independent financial advisor or registered investment advisor should be looking for when securing financing, whether you are securing financing for an acquisition, full or partial partner buy-out, or refinancing previous debt used for an acquisition or buy-out. Below are some considerations that you will want to take:
1. Will you be taking out SBA financing or conventional financing? There are many key differences between these types of financing.
2. What type of collateral is required? This can vary dependent upon who your lending partner is. Collateral can include a lien on personal property, a lien on business assets, life insurance assignment, personal guarantees, pledging personal assets such as savings accounts or retirement accounts, and many other items.
3. What percentage of financing are you able to obtain?
4. How long of an amortization are you being offered, and what is the term on the interest rate?
5. Is the interest rate fixed or variable, and what is the interest rate? Are there any conditions in which the interest rate can be adjusted? We have provided some general education on what you need to know about variable and fixed interest rates here. There are pros and cons to selecting either a variable or fixed interest rate for acquisition loans or partner buy-outs. Ultimately, Advisor Financing is here to act as your advocate and ensure you understand every step of the financing process and terms you are being offered.
6. Are there any prepayment penalties? If so, what are these, and in what scenarios do they apply? If they do apply, is it based upon the initial balance of the loan or the balance at the time of impact? Learn more about prepayment penalties from our prepayment penalty guide for financial advisors.
7. What are the fees involved?
8. What are the reporting requirements?
9. Are there any other conditions or requirements?
Of course, there are many other questions and considerations that will have an impact, which is why it is best to work with an expert in the financial advisor loan industry. We can help guide you through what would be considered standard terms, as well as what items to look out for. For example, if you are offered terms of a 5 year amortization and interest rate; this is going to require a significantly higher monthly payment which greatly impacts your monthly and annual cash flow versus a 10 year amortization schedule. Another example is if a financial advisor loan requires a lien on property an you decide to sell that property, additional complications will arise as you need to find a way to release that lien. A final example is in regards to prepayment penalties - the higher a prepayment penalty is, the more locked in to working with that specific lender you will be for the entire length of a loan, even if your needs and situation may change. Our team can guide you through exactly what the terms mean and how this will impact yourself and your financial advisory practice. As experts in the industry of providing loans to financial advisors and RIA loans, our job is to know the ins and outs of what the terms mean and to advocate for you as an advisor to ensure we are providing you with the best available financing solution.
If you have any questions, please reach out to us today. We work with thousand of independent advisors and registered investment advisors annually, and are always happy to do a complimentary consultative analysis and phone call.
