Unlocking Growth: Lending Insights for Accounting and Financial Planning Firms

Business Brokering Sunday 19th of May 2024

Unlock the potential of your accounting or financial planning firm with expert insights into bank credit policies. Discover how to leverage your firm’s goodwill to secure the financing you need for sustainable growth.

This article delves into the tailored lending solutions available for funding working capital, acquisitions, and succession planning. 

Lending Insights for Accounting Firms

Bank credit appetite remains strong for lending to accounting firms, with at least six major lenders specializing in professional services. These lenders offer tailored solutions for funding working capital, acquisitions, and succession.

In our previous article we discussed funding succession via Partner Equity Loans. This article provides an updated overview of general lending policies for accounting firms.

Bank Credit Policy

From the bank's perspective, the strength of an accounting firm lies in its recurring revenue profile. Consequently, bank policies are designed to lend against the goodwill of the business, unlocking this value.

1-Partner Accounting Firm

  • Maximum Lending: 50% of revenue up to $1 million
  • Interest Cover Ratio: > 2.5x
  • Repayment Profile: 10 - 15 years

2+ Partner Accounting Firm

  • Maximum Lending: Up to 3.0x – 3.75x adjusted EBITDA
  • Interest Cover Ratio: > 2.5x
  • Repayment Profile: 10 - 15 years

Note: Adjusted EBITDA is calculated by normalizing partner salaries to align with industry averages.

Other Considerations

These policies are primarily based on lending against the business's goodwill. Including property in the security structure can strengthen the deal and improve terms and conditions.

Each of the six lenders has subtle differences in policy and credit appetite, often related to the number of partners or minimum recurring revenue requirements. Therefore, it is important to consider all available banking options.

Lending Insights for Financial Planning Firms

Bank credit appetite is also robust for lending to financial planning firms, with at least six major lenders specializing in professional services. These lenders offer tailored solutions for funding working capital, acquisitions, and succession.

Bank Credit Policy

For financial planning firms, the recurring revenue profile is crucial from the bank's perspective. Thus, bank policies are structured to lend against the goodwill of the business, unlocking its value.

2+ Partner Financial Planning Firm

  • Maximum Lending: Up to 3.0x – 3.75x adjusted EBITDA
  • Interest Cover Ratio: > 2.5x
  • Repayment Profile: 10 - 15 years

Note: Adjusted EBITDA is calculated by normalizing partner salaries to align with industry averages.

Other Considerations

Similar to accounting firms, the lending policy is based on the business's goodwill. Including property in the security structure can strengthen the deal and improve terms and conditions.

The six lenders have subtle differences in their policies and credit appetites, often influenced by the license arrangement, number of partners, or minimum recurring revenue requirements. Therefore, it is crucial to consider all banking options.

Matt Todman CA

Matt is a Finance & Mortgage Broking specialist with over 15 years of experience in banking, stockbroking, and accounting industries. He helps accountants, businesses, and business owners fund their growth aspirations.

Matt has access to a large panel of lenders and implements a thorough credit process to increase the likelihood of a successful loan application. For discussions on funding structures or general lending questions, contact Matt at matt@threestorycapital.com.au or 0413 990 888.


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