What Your RIA Firm Needs to Secure Bank Financing

What Your RIA Firm Needs to Secure Bank Financing | Elevate CPA Group

It’s likely your RIA firm will need to secure a line of credit at some point. This is especially true if you plan to bring in a new partner or make a capital acquisition. When you do, it’s important to have your ducks in a row, so you can get the right financing and terms for you.

To help you put your best foot forward when applying for a line of credit, here are six things to have on hand.

1. Current financial statements

Your RIA firm’s financial statements need to be accurate and professionally prepared. Typically, banks want to see these reported under Generally Accepted Accounting Principles (GAAP). At a minimum, your financial statement should include a balance sheet, statement of operations/income statement, and possibly a statement of cash flow. “Not having your financial statements lined up can delay and even derail the process,” explains Russ Larsen, Group Executive Vice President at Wintrust Investment Advisor Banking. “It’s important to make sure yours are current and solid before you apply for financing.”

2. Timely, filed tax returns

Lenders want to see tax returns—for your RIA firm and its owners—for a few different reasons. Not only does a tax return verify your income, it also helps to determine your level of risk. If you haven’t fulfilled your tax obligations, a bank will not want to do business with you. Larsen adds, “If your bank asks you to provide these, don’t panic—it’s a routine request.”

3. Specific purpose of funds

A line of credit can give you the capital you need to add a new service, hire another rep, or fill gaps in your cash flow. When you apply, be prepared to tell the bank how you plan to use it. You may also want to consider including a spreadsheet analysis demonstrating your use and payback of the funds.

4. Cash flow analysis

Your bank will want to see this to make sure your RIA firm can support the debt. The worst thing is to have all the financing together only to have a cash flow analysis show your firm can’t support it. For this reason, consider running your cash flow analysis sooner rather than later. Larsen recommends providing this along with your financial statements. The bank can also provide a model that can help an RIA prepare this analysis.

5. Personal guarantee

Your bank may or may not want this. Whether or not your bank will require it may depend on the number of years your RIA firm has been in business, the amount of the loan, the quality of the financial information and your personal relationship or history with the bank. “If you’re concerned about this requirement, talk to your lender,” Larsen says. “Often, personal guarantees are capped, and lenders are willing to work within your comfort level.”

6. A tax expert

If you’re feeling overwhelmed by the prospect of getting your information together, Elevate CPA Group can help. Our CPAs can analyze your cash flow to demonstrate payment of interest and assist with getting your financial statements and taxes in order.

Ready to take the first step? Contact us today.