Conventional Loans

Key Qualifying criteria?

• Minimum independent advisor experience from 7 to 10 years

• Acceptable personal net worth of borrower

• Credit score north of 700

• AUM and revenue minimums vary by lender

• Loan amount minimum ranging from $250K to $500K

• DSCR minimum ranges from 1.5 to 1.75

• No personal property collateral (SBA loans can sometimes require a junior lien position on personal property)

• Fixed rate (most SBA lenders offer variable rates)

• Flexibility for acquisition deal structures for partial equity acquisitions, earn-outs, and longer term seller continuation

Standard conventional loans are ten year terms with 10 year amortization schedule. There are also 5 and 7 year terms available. The two balloon terms available are 7 year term with 10 year amortization and 10 year term with 15 year amortization.

Most conventional lenders will set their rate from 3% to 4.5% over the 10 year treasury rate.

Most conventional lenders will charge anywhere from 1% to 2.5% origination/bank fee. This amount is rolled into the loan and not paid out-of-pocket.

Are some lenders better for acquisitions than others?

Absolutely. Lenders familiar and committed to the wealth management niche are more comfortable with lending to advisors who are strategically focused on inorganic growth through acquisitions. Of course, the subsequent acquisitions have to cash flow and make financial sense.

If your intent is to do multiple acquisitions that will need bank financing, we feel it is imperative that you speak to the bank directly about those goals before you get “trapped” with a bank that limits the frequency of ongoing acquisition funding.

Are there pre-payment penalties?

Conventional lender prepayment penalty varies. Some will charge a flat 2% for the life of the loan while others will charge a staggered penalty such as 4% year 1, 3% year 2, 2% year 3, 1% year 4.

Most conventional lenders allow for prepayments such as 10% of the loan amount in any given year. The prepayment penalty is primarily applied when the loan is being refinanced with another lender as opposed to making an extra payment.

Do I have to move my operating account to the lender bank?

You should not have to do this for loans under $5 million, and none of the LoanBox lenders require this as a standard policy. If the bank eventually earns your banking business from providing a great loan experience then good for all.