SkyView Partners, the Minneapolis correspondent that connects registered investment advisors in search of M&A capital with conventional loans from banks across the country, said Tuesday that so far this year, its clients have closed 42 loans, 121% more than in the first eight months of last year, while client loan volume rose 49% to $76.6 million during the same period.
SkyView has received $500 million in loan applications from RIAs so far this year, despite the pandemic, in comparison to a previous $1 billion total over its three-year history. And on the basis of applications taken in recent months, the company expects to take in another $500 million in applications by year-end, said Rob Perry, chief credit officer.
Live Oak Bank of Wilmington, N.C., an FDIC-insured bank and a leading provider of SBA loans to RIAs for growth purposes, has experienced a similar uptick, according to Mike McGinley, EVP, small business banking.
McGinley confirmed that Live Oak's RIA channel, just one of the numerous industries it makes SBA loans available to, "fared well [during the pandemic]. The stock market rebound helped a lot, but we also found that a lot of our RIAs actually added new clients during the pandemic, as people investing money on their own sought advice from professionals during uncertain times." He added that "businesses with a low amount of leverage compared to their cash flow will have room to absorb decreases in the market without a significant impact: Our underwriting analysis builds in the effects of a market downturn to ensure RIAs are not overleveraged." Live Oak was not able to furnish its numbers for loans closed, loan volume or applications taken by press time.
SkyView and Live Oak are competitors. SkyView focuses on taking applications only for conventional loans—97.6% of its loans are funded in such a fashion—while Live Oak focuses on applications and funding of SBA loans. The two do occasionally refer to each other applicants for loans that they feel would be better served by the other's program, but they aren't compensated for these referrals, according to SkyView CEO Scott Wetzel.
One major driver of this increased lending has, unsurprisingly, been historically low interest rates. "The decrease in interest rates has increased activity, encouraging some to refinance existing debt, and increased the amount of potential borrowers looking for acquisition financing and working capital," McGinley said.
Another factor, according to Wetzel, is the growing popularity with RIA clients of partial sale applications—as opposed to applications for complete sales—which has come about as advisors have sought a liquidity event and an equity partner to accommodate the increased client service demands wrought by COVID-19.
Additionally, the bank partners who finance the loans brought to them by SkyView (SkyView takes loan applications, collects all source documents and underwrites the loans before they are sent to the banks) have become more comfortable with making RIA loans after seeing the sector perform over the past few years and, most importantly, through the worst of the pandemic. "Bank perspectives have changed about this industry as our clients have proven to be resilient in times of market turmoil,” Perry said. “Where they couldn’t see the potential of borrowers in ‘good times,’ they now see how low risk these transactions are when there is economic stress.”
To date, Wetzel said, SkyView’s largest bank partner has increased its capacity for RIA loans to from $25 million $200 million. Further, he said, two other significant bank partners doubled their capacity for RIA loans after witnessing the performance of RIA borrowers during the pandemic. SkyView declined to disclose the names of these three bank partners, or any of the bank partners on its national network. However, Wetzel did divulge that the leading conventional lenders for RIA M&A are Crestmark Bank, based in Michigan; The Bancorp Bank, based in Delaware; and Coastal States Bank, based in Atlanta.
McGinley added that Live Oak, like more conventional lenders, fully services its loans, collecting quarterly financials and annual tax returns to confirm that its portfolio is performing well, which enables it to "get in front of any potential issues a customer is having." He added that the "outstanding" performance of its RIA portfolio as well as the evolution of RIA borrowing "have led us to also adapt our loan programs in a prudent way."