The Importance Of Shopping Around For Your Next Financial Advisor Loan

When it comes to major financial decisions, most advisors recognize the importance of surveying the market for all options and evaluating them to find the one that best fits your needs. However, we have seen many advisors secure a loan offer from a single lender and assume that what is true of one lender is true for all. In reality, lenders are just as varied as any other business, and there are many factors specific to the individual lender that can impact the terms and services they are willing to or capable of offering to you. 

Knowledge and Understanding of the Business

First of all, most garden variety lenders focus their loan portfolios on “typical” businesses with hard assets such as real estate, inventory and equipment. Very few lenders are actively involved in the investment advisory market and understand the nuances of how the industry operates. Typical lenders don’t know how to value and assess financial advisor practices, whose business is largely based on the goodwill of the clients they serve and lacks the traditional tangible forms of collateral. Because they don’t understand the industry or how the business operates, they are unable to creatively structure loans that make sense for a financial advisor’s needs. 

Willingness to Assume Risk

There is risk inherent in any loan. However, just as with investors, different lenders will have different levels of risk they are comfortable assuming. The level of risk is also influenced by the composition of their loan portfolio including how diversified it is, the total volume, and how its performing. Their understanding of the risk and their willingness to assume risk is reflected in the loan terms they offer.  Therefore, identifying a lender that has a track record of lending to advisors or similar types of goodwill/cash-flow based businesses will be valuable to advisors who need a consistent source of ongoing capital.

Preferred Loan Products

Just as advisors tend to offer specific investment products over others, different lenders also have preferred loan products. Each loan product has its own standard terms and structure that may or may not be favorable to the advisor’s needs. This is particularly true for lenders who do not specialize in the advisory space and have designedtheir standard loan products for other industries and business types. Lenders who offer government guaranty loan products must also adhereto strict guidelines issued by the SBA. Whether for conventional or government guaranty loan products, traditional lenders have to develop terms within the existing framework of the respective loan product and often cannot look beyond that structure to create an offer that meets the needs of the deal.

Lending Criteria

Lastly, each lender has established their own criteria for evaluating and providing credit. Some of this is influenced by the loan products, their portfolio, and their willingness to assume risk. However, some of it can be influenced by an individual credit analyst or manager tasked with structuring and/or approving a loan. This adds a great deal of variability between lenders, even when all other items are equal. Bottom line, don’t assume that what is true for one lender is true for all. Always look at several lenders when considering a loan. Secure their loan terms and compare them to see what is best for your situation. Be sure to include at least one specialty lender who actively engages with and lends to the financial advisor space. Often, they are the most flexible and willing to lend to financial advisors, especially for acquisition and succession loans that will help grow the business and ensurethe continuity of the firm.

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