Simulated Loans: What are they and why do I see them in my client's plan?

Why do I see a simulated loan on the Balance Sheet?

  • There are certain situations in the Advizr software in which you may see a simulated loan on the client's Balance Sheet.
  • This occurs primarily when the Net Cash Flow for the client is negative and cannot be covered by distributions from assets; perhaps all assets have been used up or portions are not yet vested.
  • Negative net cash flow can occur because of overspending (expenses exceed income) or because a goal target amount is too large for a client to realistically accomplish given their income, expenses, or other goal targets.
  • Instead of cutting off funding to the goals or to the client's living expenses, we will assume that the set Living Expenses and proposed goal target amounts are important enough that the advisor would recommend that the client debt finance those instead. Thus, a simulated Loan Balance is generated, which becomes visible on the Balance Sheet report in the Financial Plan section
  • You can set the interest rate on this simulated loan in the Settings under the Assumptions tab. The interest will then be added annually to the loan balance
  • The simulated loan will be paid down by excess cash flow in future years, before the excess cash flow is allowed to be used towards savings.