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Financing Options For Making An Equity Purchase In A Financial Advisory Practice

Financing options have improved for financial advisors over the past few years. This greater access to capital solutions allows advisors of every age and experience level to engage in business deals that can help them secure and grow business assets. Associate advisors who, in past years had to rely on personal cash to make equity purchases, can now leverage loans to buy into the practice.

In many situations, advisors can leverage both conventional and SBA loans to secure capital for business needs. However, the SBA looks at equity purchases differently than other asset purchases. In an equity purchase, you are buying stock in the practice. But since the value of a practice is in the client relationship, you are essentially buying a percentage interest of all clients served by the practice. In an asset purchase you are buying 100% interest over a specific client group, be it a portion of the clients or all the clients served by the practice.

The SBA can provide loan options for partner buyouts (complete asset purchases), but not for partner buy-ins (partial equity/stock purchases). An equity buy-in will normally utilize a stock purchase agreement and typically involves an existing owner(s) selling a portion of his stock to another individual.

Since SBA requires stock purchases to involve a 100% change of ownership, an advisor making a buy-in (first-time equity/stock purchase) for a percentage of interest will need to leverage a conventional loan but can use an SBA loan down the road when it’s time to complete the succession process. In most cases, this would mean working with two separate lenders. However, Salt Creek provides both Conventional and SBA loans under one roof, allowing advisors to build a long-term relationship with a lending partner while taking advantage of all programs available to them.

Outside of lending options, advisors must also educate themselves on the operational changes that must occur as part of an equity purchase. We will cover this topic in the next post.