hey what's up ua crew today we're
talking about how to get a loan to buy a
business
this is ryan from unconventional
acquisitions where we build wealth and
businesses
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[Music]
how often do you see people like
stretch to buy a business the first time
and two is what information do you have
on default rates
like how often do any of these loans go
sideways at
these early stage points the data that i
was just pulling up that i looked at
basically says that on average for sba
loans these are loans let's say below 2
million dollars
um the rates and this it looks like a
little tough to pull the data depending
on how you do it but
but the rates seem to be in a default
rate of anywhere from three to fifteen
percent
so like a very low default rate um can
you talk to me a little bit about that
sure um your first question so how often
do i see
people uh you know stretching or maybe
reaching on the size of a business right
um
it's really it's it's it can happen
somewhat often i
i think and it all lends itself back to
miscon you know some misconceptions
about
sba lending if you go into it with the
mindset that you know
the sba guarantees a loan of up to 75
uh and everybody and anybody qualifies
for an sba loan
then you know those are the folks that i
typically get
where uh their net worth you know they
may be targeting a three million dollar
business
and their net worth you know would be
more in line with them targeting
something
um around uh you know a million bucks or
so
and when i say when i when i point to
net worth and and
it being related to the size of the
business that you can acquire
uh you know i'm talking about what sort
of assets you have when we talk about
business acquisitions and we're not
talking about
um you know many opportunities where you
have real estate involved in a
transaction or you have tangible assets
that can help collateralize a
transaction i mean the beauty of the sba
is yes
it mitigates or helps mitigate exposure
for the lender
uh you know that's the design of the
program that's what allows banks to make
these loans to begin with
um but uh you know as loans tick upwards
uh you know as the size of these
transactions get larger
there's more risk associated with them
um and the sba actually requires the
bank to look to you personally to help
mitigate exposure
by way of your personal collateral um
uh you know so uh just touching on
something natasha said
uh with her real estate investments you
know something like that is gonna come
into the fold if she were to consider
using
leverage or using an sba loan um so you
know when you have folks that come to me
and they don't have much outside income
and they don't have assets and they
don't have long term investments rainy
day funds
you know when you look at their bottom
line net worth and it's pretty minimal
you know and they want to target a three
million dollar business because they
have 350 000
in the bank they're reaching okay scale
it back a little bit
um you know it's going to be very very
difficult for you to find a lender
that's going to get comfortable
uh you know with issuing a loan of that
size
um you know i could provide much more
detail on that but
i feel like that's probably you know the
best uh uh
broad answer i suppose with a few
details in there
as it relates to clients trying to reach
on uh on financing
so i know i'm about to interrupt you
before you answer the second question
but
what what are the parameters that you
find most normal for the loans that you
issue how much cash do they have to have
to you know
to their loans and you know you
mentioned 75
uh of the purchase price by the sba
they'll theoretically take i've
definitely heard variations on that
number so what are
what are the guide posts or what are the
parameters how can we put up some
bowling lanes
so people know if a deal is or is not
within their
net worth credit score and the
feasibility of an sva loan
absolutely so um that's again
beauty of the sba misconceptions all
this stuff uh we'll swirl around
all my answers i mean one of the
tremendous advantages of sba 7a and i'm
just going to cater the conversation to
7a because if we're talking about
acquisitions
that's the umbrella of the program that
you're going to utilize 99
of the time unless there's a hefty real
estate or equipment element to the
opportunity and then you might delve
into a little bit of 504. but 7a
there's no other program in existence no
other conventional loan product that
allows for up to 90 percent loan to
value
so there's the potential for you as the
buyer you as the borrower
to only need to bring 10 down
you know 10 of your purchase price or
your project cost
to be able to achieve that financing
there are some very special
circumstances where you could limit
that 10 and bring that number below uh
10 but you're gonna have to have uh some
pretty hefty
uh uh seller participation uh
if you know which which means um note on
complete standby they can't get a
payment for an extend
until the loan is paid off and even
still you're finding these days most
lenders want buyers to have at least 10
percent
you're also going to want to have some
post transactional transactions excuse
me
liquidity you know you can't be emptying
the tank with that 10
when i talk about net worth when i talk
about assets long-term investments rainy
day funds
you know your cash your liquidity uh how
you get there with your 10
whether you're liquidating stocks
whether you're using your checkings or
your savings
or you're rolling over a 401k don't wipe
yourself out
uh that's not going to be ideal uh when
you're trying to achieve
sba finance to uh to purchase a business
um you know so 90 loan to value 10
you know a little bit of buffer there
for some for some post transaction
transaction liquidity uh you know
business takeovers
acquisitions they're tough uh in those
first three to six to nine or 12 months
so the banks want you to be able to you
know have an ability to support yourself
if things
uh take a little bit longer to really
stabilize under new ownership um
uh what was the second portion of your
question there cody
well it was just any other guard rails
you could you could provide so like for
instance
credit score what are you seeing these
days for people's credit
that they need to have across your loan
portfolio right so again
um something you need to realize about
sba loans is is you know
sba is not the lender the bank is a
lender it's a conventional loan it's
backed by the sba again so you know
when you call up a bank uh or you speak
with a bank and they tell you that you
don't qualify for sba lending
99 of time that's not true it's not the
sba deciding that you do not qualify the
sba doesn't really have limitations on
credit score
they don't have timelines for how long
you need to separate yourself from a
bankruptcy
that's all within bank parameters they
decide
where they want minimum credit scores to
be how long of a separation between
bankruptcies
the sba has very you know black and
white strict guidelines rules and
regulations
that the lender must adhere to for that
loan to be guaranteed by the sba
now if i'm talking about you know
averages or what most
lenders that i utilize you know what
they want to see
i can't even necessarily say it's an
exact credit score
we don't want major issues on your
credit we don't want you
uh you know having late payments waits
on your mortgage
no tax liens bankruptcies okay but we
need to explain them how far have you
separated yourself from that bankruptcy
what happened
uh was it personal was it business um
you know
even folks who have felonies can
albeit the sba has to approve it
themselves
they can achieve sba loans so if you've
had a misdemeanor or a felony
we can still submit to the sba and ask
for their approval
for you to be able to be made alone and
again you still have to
you still have to be a qualified
borrower for that given bank
so that's something to really understand
every lender's appetite is different
not many banks out there or you know
many banks out there
don't like to engage in business
acquisitions
uh it's just not within their appetite
because these are riskier opportunities
and again they
typically lack collateral and that's
just not for everybody
but when you work with some of the top
sba lenders some of the nationwide folks
that are top 10
top 25 you know they need to lend money
to make money and they've recognized
that acquisitions
it's a you know a booming industry uh
and they'll play within that space
um and uh you know uh that's when we
start to talk about
individuals and how they can mitigate
risks that are associated with
businesses or how
stronger businesses can help weaker
borrowers
all that sort of stuff but ultimately
it's about fitting within
a bank's appetite to lend as it relates
to
you know who does or does not qualify
for a loan
i totally understand so um how about
answer this question
what's the variance on some of these so
you know you guys work with lenders all
across the country and have
lots of different relationships that
vary depending on industry and geography
so is there a massive variance in you
know what
what banks will allow for credit score
or past history uh or allowances for net
worth
or do you find that they traded a
relatively tighter band
um well it's i will say this there's
definitely variances across
lenders um and uh that's one of our
specialties
kind of knowing who has the appetite for
what or when we look at a given
opportunity and we associate risk
you know i know who to avoid and who to
you know funnel
these opportunities through um you know
i think again when you work with top sba
preferred nationwide lenders there's not
going to be
as much variance um there may be some
slight differences
in you know who has a 650 minimum uh
and who wants folks at 680 because i
certainly have banks
uh who play you know within uh you know
those
tight margins i have some banks where
they don't care about credit score at
all
um if it's explainable if it's not major
if somebody had a blip on the radar and
that's what's affecting their score but
we can tell a good story and and get
them past that hurdle
you know score doesn't necessarily
matter there's other strengths
that can mitigate that sort of weakness
um you know for for for us again
when i'm talking about acquisitions i
have five go-to resources
that'll consider these opportunities
there's certainly more banks
that will ultimately consider them but
for us
i have five within my you know my go-to
bucket
five or six within my go-to bucket that
i know
you know we're not gonna waste time um
there's gonna be a probability of some
success there's gonna be
uh a term sheet if all looks good um
you know and uh uh i you know we stick
to we stick to those
we know that we'll uh we'll do these
opportunities
plain and simple i have a quick question
to interject here joe so
so far we've spent a lot of time talking
about the borrower um
and i think for people who haven't
borrowed in the past in these types of
deals
what they don't realize is that there's
a difference between like
personal loans like a mortgage or
something on a house that you live in
versus like commercial loans when you're
buying like a
60 unit complex and whatever and one of
the things is that
the deal sometimes matters a lot more
than the borrower right so having an 800
credit score
and some money in the bank doesn't
guarantee that you're going to get the
loan either so what sort of standards
are they looking for
on the businesses absolutely ryan that's
a tremendous point again uh
you know that's that's another thing
when folks come to me i mean i can help
pre-qualify borrowers right
i get that question all the time can you
pre-qualify me what
what amount of a loan do i qualify for
it is it's not a home mortgage we don't
pull
your credit we don't look at your pfs
and say you can get three million
dollars i mean there may be some brokers
that do that
uh and i can certainly look at their
information
and try to help them understand what
their sweet spot might be
or their range of borrowing capacity but
you're right
these are business loans the business is
paramount
you are you know the the the second
piece of the puzzle here
and you and your strengths can be a risk
mitigant
but to in order to achieve financing to
purchase a business
uh it is going to be about the
historical financial performance of that
business and
its ability first and foremost to cash
flow
or debt service the loan that you are
looking for and again another tremendous
consideration is what is the purchase
price of that business and does the
historical financial data
support that purchase price you know we
see a lot
in this space that uh you know sellers
of businesses may have an idea of what
they feel their business is worth or
they've talked to some
uh someone that says you know you can
sell your business at one to one revenue
uh you know and when we look at the
historical uh
tax data you know they may have played
uh
you know the op the game for years and
and not reported as much to the bottom
line and now they want to exit
and we need to help folks understand or
i need to have conversations very often
uh with sellers and especially buyers
unfortunately you know this person that
has played the game
and now wants to exit and hasn't
reported all their income to the bottom
line
when the bank has to do a valuation or
when we armchair evaluate that
opportunity and we try to create
enough cash flow you know it's not
adding up it's not
uh evaluating in our opinion or to the
bank's opinion
to what that seller may feel the
business is worth so yes
it's very important when you're
considering buying a business and you're
thinking about
you're thinking about utilizing debt or
leverage
the way we evaluate businesses is going
to be quite different than how an equity
group
evaluates it how someone a cash buyer
may evaluate a business
you know for us it's going to be about
that tax data
historical income and uh and does it
support
you know that loan and that asking price
is there any way to get around you know
if a lot of these small businesses
don't report taxes like for instance
some of these cash-based businesses such
as laundromats
etc are banks willing to work with you
on some sort of margin that they might
anticipate that type of company
has or is it really here's the tax
numbers and we'll give a multiple or a
percentage of those numbers but
you know nothing else um it's really
going to be about what we can prove
because the sba um you know
they make it their job and their
business if a loan ever goes into
default and you touched upon the very
low default rates but when they do go
into default the sba will do everything
in their power to avoid
paying the guarantee to the bank uh in
the instance of a loss
so if the bank has not verified
income if they've not collected
documentation
and they were to ever be audited on that
loan
uh and they made that loan in absence of
of uh verifying that that business has
actually created that income
or if someone is you know committing tax
fraud so to say
and they've made a loan uh to somebody
who's buried income or hidden income
you know that could end up getting the
bank in trouble so
you know it's really again i've
certainly worked on business
business acquisitions and worked with
business owners where they're not
reporting
everything right down to the bottom line
but if we peel back the onion in their
tax returns
they're not doing anything wrong and we
can find ways to verify the income
and we work on carve-outs as well you
know you might have a business owner
who owns five businesses rolling up
under one tax return
and they want to sell one or two of them
uh it is
you know it is financiable it creates a
little bit more difficulty but when
we're talking about being able to verify
things
you know there may be an extra step of
using a third-party
uh you know outsourcing a
finance company that can verify those
numbers or having audited financials or
reviewed financials from a cpa all those
things can
sometimes mitigate or be enough to prove
what a business is making if they're
just not reporting it all to the bottom
line or if it's not
you know in in plain sight due to uh you
know some other factors rolling into
somebody's tax returns
yeah i wanted to dig there for a second
with you too so
there's this whole thing on the seller's
discretionary earnings too as opposed to
just profit right so we talk a lot about
profit but
there's a lot of legal things that
people do to not pay taxes on money that
are going to show up in these businesses
especially probably in the smaller ones
i think you're going to see even more of
it
in like that 300 000 to 500 000 profit
range or even lower than that in the
100 to 250 range where you've got an
owner operator
who's covering the cost of his car and
his car insurance and health insurance
and whatever and that can be hundreds of
thousands of dollars
each year too uh which would technically
be
profit right and those are things we can
find that are legal to do and
able to add back in but aren't going to
show on the bottom line
as profit in some cases right correct
correct that's
completely accurate ryan um you know and
and sometimes it does create difficulty
for us i mean ultimately
you know i mentioned taxable income i
mean effectively we do work off of
ebitda
so we can add back you know
discretionary uh
things like uh uh we can certainly add
back owner salary we can certainly add
back depreciation and interest expense
now when we delve into you know your
other expenses that are buried in your
tax returns if there are some one-offs
um if there are some discretionary
things or things being paid to outside
parties that will not continue or not
be on an ongoing basis upon the takeover
by somebody else
sure we can give credit to those but
again it's going to be about what we can
prove now when we talk about
the little stuff and every business
owner wants to claim
you know my travel and my vehicle and my
this and my that you know
and every business owner is going to do
it
uh the problem there is is most banks or
pretty much any bank is not going to go
through the exercise of gathering all
your gas receipts and your
plane tickets and you know performing a
full audit on these smaller
discretionary items
there's some consideration for them uh
as
bankers and evaluators underwrite these
opportunities
but it's just kind of fluff so if the
majority of your ebitda
is being created by all the little
things you know
that's not going to be as ideal for a
bank
you know because they just don't want to
go through the exercise of verifying it
of documenting it
of having it all in a file in case there
were ever an audit
so we really want to stick to the
obvious stuff the provable stuff
and the little things they're not going
to hold as much weight
right that makes sense
okay talk to me a little bit we were
talking the beginning about
misconceptions and clarity surrounding
loans
so can you talk to me about some of the
major misconceptions that people have
in going and getting financing from a
group like yourself that we haven't hit
on thus far
what else do people get wrong um i think
one of the biggest ones is
uh you know that sba loans take a long
time
um you know we close
we close acquisition loans on average in
45 days and i'm talking again
no real estate involved you're buying uh
you know a business
namesake if you will um you know uh
our banks are pretty darn seamless when
it comes to processing and we do a lot
of work on the front end and we do a lot
of documentation gathering and analysis
and you know cash flow uh uh
evaluations and all that stuff out in
front of actually approaching
the lender we almost pre-underwrite
opportunities
um the biggest thing about sba loans is
they're conventional loans so they're
document intensive and it can be a
daunting process
that can weigh you down it's it feels
like it's never ending but if you're
prepared
and you're working with somebody who
knows how to package these opportunities
who knows what to expect who's going to
lay it out for you you know here's
what's coming
here's what your process is going to
look like once we get through this
we're going to move on to that um you
know you'll be fully prepared and you'll
be in the driver's seat to move through
a loan
process quickly uh you know it's
important to work
with sba preferred lenders
that's another thing you know not all
lenders that
offer sba are created equal
you know uh you want to work with folks
that are preferred that removes a three
to five week process
out of your out of your loan closure
when the loan does not actually have to
be submitted to the sba for approval
so again i think that's a real big one i
think a lot of folks when they talk to
other bankers or they talk to folks who
went through an sba loan process or they
worked with a small bank
who was trying to figure it out the
whole way along um
you know they've got a really bad taste
in their mouth
about sba and how long it takes and how
difficult they are
uh the reality of it is you know it's no
different than
any other conventional loan process that
you would go through
uh you just need to you know you need to
know who you're working with and work
with the right folks
i like it well crew tell me what other
questions you have for joe also because
i'm definitely monopolizing this
although i'm happy to
talk to me about um where rates are at
today
just given this environment we're in and
have you seen any tightening
in um loans given this environment
yes definitely so um
you know acquisition loans uh working
with
most of your top 10 top 25 sba
preferred lenders you're probably gonna
be at the premium of a six percent rate
now in my seven years experience working
for multi-funding
uh the lowest i've ever seen interest
rates was six and a half percent the
highest i've ever seen them
is eight and a quarter percent eight and
a quarter was actually not too long ago
maybe a couple years ago
um you know but right now the premium is
at six percent it is
based off wall street prime which is
currently
three and a quarter and uh the bank will
add a multiplier to that that never
exceeds
two and three quarter percent so are
there lenders out there that can offer
you
five and three quarters five and a half
i've even had some
regional small banks offer folks four
and three-quarter and i quickly tell
them that hey
if that bank can close that loan at four
and three-quarter to purchase the
non-real estate asset
you know you have my blessing go and
take that loan uh i can't compete with
that
but again most of your top sba lenders
they're just going to price things at
that premium
of uh of that six percent and it is a
variable rate
you're not going to find fixed pricing
on a non-real estate asset purchase
the rate only adjusts when the prime
rate adjusts again that multiplier
stays the same through the life of the
loan um
you know another tremendous advantage
and when folks think about rate and you
get sticker shock
over six percent or you're comparing you
know this to a conventional mortgage
uh you know you need to remember that
there's no
other conventional loan that offers a
10-year amortization
uh on to purchase a non-real estate
asset
literally there this is the most
advantageous
uh debt instrument that there is to
purchase a business
longer amortization equals lower monthly
payment this is a zero prepay penalty
loan
they are designed for the average
borrower to pay them off in five years
you pay the loan off in three or five
six years whatever you're not riding it
out for ten
you your effective interest rate shrinks
significantly
um you know and uh it's a tremendous
time to get sba loans with
rates being so low and honestly i don't
think the prime rate is going anywhere
for a little while but
i don't have a crystal ball but we'll
see what happens
but again a very advantageous time to to
to try to go out and get an sba loan to
uh to purchase a business now
tightening of the belt yes this you know
this economic uncertainty the pandemic
uh has created um a lot of
uh losses for banks right there is going
to be defaults or there already have
been defaults there's businesses that
aren't going to come out of this
they have loans with banks and uh banks
are starting to think about their
balance sheet or they're starting to
think about
you know losses on um on those
opportunities a lot of banks got really
heavy into the ppp
loans uh you know and they're waiting on
that forgiveness to go through and
be able to do all that and clean up
their balance sheets so you do you
have a lot of tightening of the belt um
you know
in january i closed the three million
dollar e-commerce business acquisition
my buyer didn't have a lick of
collateral
no equity in his personal real estate he
did own another business
so he was seen as an advantageous
borrower to the bank but they got
and they got behind him um my banker and
i were laughing
two months later saying that if that
loan had not closed in january and had
dragged out three more weeks
they probably would have backpedaled and
tried to get out of the loan
you know gone are the days of getting a
three million dollar what we like to
call airball
uh loan uh you know to purchase a
business
um you know so banks are again they're
looking for risk mitigants they're
looking for stronger borrowers as loan
amounts
tick upwards and uh hopefully
as we emerge from this and as we kind of
get past all the craziness
you know you'll get a little bit of
opening up again
a lot of banks who have completely moved
away from doing
business acquisitions non-real estate
related opportunities they'll start to
come back in the mix as well
yeah this is really helpful thanks um a
couple questions
somebody asked uh sort of me privately
here instead of the group
um a couple things basically she said
one or sba person
or sba loans personal recourse and two
would be why would i use the six percent
loan rate if i have financing options
elsewhere
so i'll let you answer those first joe
and i can give my two cents
sure um yes sba loans again they're
conventional loans they require personal
guarantees
uh one thing it's very important to
understand sba rule
uh when you again and i touched on this
earlier but i'll mention it again
not only are they they require personal
guarantees but
if you live in a state that doesn't have
the homestead act
um and you own real estate you have more
than 20 equity
in that real estate and you're
purchasing
a business that does not offer any
collateral again
it's an asset that cannot be liquidated
by the bank in the instance of default
they will put secondary liens on your
personal real estate
that means your home that means
investment real estate that you own
personally
uh you know anything uh any real estate
that you own
they will put secondary liens on that
real estate to help collateralize the
loan
do you need a million dollars of
collateral to get a million dollar sba
loan
absolutely positively not and again
uh collateral offering collateral or
having significant equity
in real estate can be a risk mitigant
on larger loan opportunities or riskier
loan opportunities
um you know so if you don't have any
real estate you can certainly still
potentially qualify
for an sba loan but again the more risk
associated with an opportunity
that's not going to help you as a bar
we're trying to
uh minimize your equity in your real
estate by running out and getting a
heloc
um you know i've certainly had folks do
that before you're not really helping
yourself
i i think most folks need to be
comfortable with um
you know personally guaranteeing and if
they own that real estate
okay i'm putting it all on the line uh
to be able to get
one of these loans now the question
about um
if you have options you know it's kind
of a broad question
i don't necessarily know what those
other options are
i mean if we're talking about other debt
options that are lower than
six percent my question to you would be
are they putting a squeeze on you
elsewhere
uh is it a 10-year amortization or is it
a five-year amortization
is it a 90 loan-to-value loan or is it
a 75 or 80 percent loan to value
uh uh loan that you're being offered if
it's less than six percent
and it's the same parameters because
there are certainly
sba lenders that will do like i said
they will offer slight discounts
uh to given borrowers or in certain
situations
um uh you know uh they may do less than
six percent
uh and i would encourage folks that if
you can find a good
spa preferred lender and you feel
comfortable with their ability
to get the loan done and they're
offering you some tremendous pricing by
all means you need to exercise that
option
but if we're weighing things like equity
uh or if we're laying other outside
resources where we're trying to compare
you know a 100 ownership takeover of an
acquisition of a business
by utilizing an sba loan at six percent
at 90 ltv over 10 years
versus you know uh uh you know having to
shell out portions of your business
at what seems like a lower rate or a
lower cost
i mean you need to think a big picture
uh
if if you're willing to delve out your
profits long term
to be able to use uh other people's
money
then maybe that is the best option for
you
but if you want you know a business to
be solely yours and you want this very
affordable loan
that's why it's a tremendous option for
a lot of folks
yep i agree the only thing i would say
is so i you know i'm
a private equity investor so i take
people's equity all day long
right i take people's equity in micro pe
businesses and across other industries
and it's interesting because a lot of
people think about my
capital as being having a very low cost
of capital because i don't require any
sort of
um you know any sort of interest rate or
payout on a continual basis
but the reason we make so much money is
because
uh equity is actually really expensive
and so yeah
so um you know it's it's just something
to you know and this is
would be even a disadvantage against me
i would happily
loan out but i would be a higher rate
than six percent by
quite a long shot if i was to do this on
a on a small business perspective
um but i would happily loan out money um
you know at these rates for a couple
year period but equity is really
expensive so just remember that
especially how i do this
if i buy these types of businesses is
you know when i'm trying to buy a
business like this
you just have to model out your payback
on the loan
inside of uh you know your expectations
for what the what the
business is going to make because to to
joe's point
i'm never probably going to get a loan
and use a 10-year six percent interest
rate
uh on a business that does two million
bucks and just a hundred couple hundred
thousand dollars in profit
i am definitely going to prepay that
loan and i'm going to look for
sort of a timeline that's usually three
to five years to pay that off
so that by the end of it i own a hundred
percent of the business
and all i did was use future cash flow
to pay off the loan up front
where you got to get a little nerve you
know be a little particular is just
making sure that your expectations are
reasonable enough because
you know that loan has to be paid you
know
every single time and you have to have
that as part of your equation it could
hang over your head if you don't if you
don't do the due diligence right
so um so i think that's that's smart
ryan were you gonna ask a question well
no i was just piggybacking on what you
just said i mean i think that that is
one of the most important things and
it's one of the reasons we talk about
looking at things just based on
multiples of profit right as opposed to
just revenue or whatever other ways you
would use to
figure out what the business is worth
future growth all those things we don't
take those into consideration
and they're not going to win the sba
loan either so the thing that we would
want to consider
is if we're saying okay there's enough
profit here
if things just stayed the same that we
know we could pay it off and say
three years and it's on a 10-year note
you've given yourself the cushion that
in the down
month you're not going to have to come
up with three or four times the payment
in order to cover it on a shorter term
note like you would need to
and then at the same time like you said
you're effectively pushing down your
interest rate by paying it off faster
over time
and then if you add in like the 3m model
that we talked about which are what
other markets could be
we be and what marketing are they not
doing like where are the other
things that are not being taken
advantage of the in the business because
most of the businesses that we're
talking about is how could i actually
impact the business so that it creates
more
income right then potentially even opens
up opportunity to pay it down even
faster
and so i think that there's we also talk
about other strategies right sba is not
the only one
but it is one and uh i think for people
looking at structuring it'll be cool for
people to see the one that we put
together the other day
cody for people to see how they can
combine these things how do you combine
seller financing with sba and how do you
take
50 of the value as sba instead of 75 or
90 or whatever
based on what you can do with seller
financing and what you have putting into
the deal yourself
yeah it was perfect that was my next
question like joe what do you think
i'll add cody you know just very quickly
i mean
please you know the top sba preferred
lenders
they they're not they don't even require
like a depository relationship you could
bank with whomever
you want every month your loan payment
is going to come out of your business
checking
and you're going to hear from them once
a year to make sure that
things are on the up and up they're
going to ask for your tax returns make
sure
that you've not made material changes to
ownership something that would affect
their filing
of the loan with the sba so you know
when you think about utilizing
debt and getting an sba loan you're
never going to have to answer to anybody
you know your projections or the way you
thought about this business and
presented it to
the bank and got through underwriting
and got the loan approved
once the loan is closed the business is
yours you answer to nobody but yourself
uh plain and simple um you know that
that's
that's another kind of beauty of i guess
using debt using leverage for these
types of opportunities
yeah agreed no dilution and no having to
theoretically
you know go out and restructure cap
table or deal with invest i mean
yeah i understand the difficulties of
dealing with investors i got a lot of
them
um so one of the other questions i had
for you jill was let's talk about
you know uh stacking of financing so
you know i know that like of course for
you would be great if they did all the
loans specifically through you
but you know what are you seeing the
most creative
and the smartest people do to finance
businesses
you know are the things that they
they're you know are you seeing people
use equipment loans on top of
sba and seller financing like what
what's the right
sort of sauce or combination that you
think makes sense or what are some
creative ideas that you've seen
um when it relates to stacking you know
you have five million dollars of
borrowing capacity
with the sba um you know when when
business acquisitions or business
opportunities are beyond five million
dollars we have a multitude of lenders
who will uh you know do peripheral
conventional lending alongside your five
million dollars of sba so we can get
beyond five million
uh explain what what um party pasto
means
for those people i think equally
essentially it's basically just the side
by side
um you know you have you have your sba
loan in in a first position you have
this
conventional loan through the lender
that they service on their own
uh you know alongside or on top of
uh your sba loan and it's still under
some very
uh favorable terms it may mimic
the 10-year amortization it may be a
little bit
shorter typically it's a little bit
short it's written more like a
standard conventional loan um you know
but but that's how some lenders can get
creative going beyond your borrowing
capacity
so i also deal with serial entrepreneurs
uh you know they want to hit their
borrowing capacity with sba they want to
buy a multitude of businesses that's
fine
it is a revolving 5 million dollars it's
not a one-time thing
as you pay down your loans your
borrowing capacity opens back up
um you know and i think it's important
to understand that when you get
uh when you get one sva loan you've now
put yourself in the driver's seat with
that bank with that lender
who's going to be the first person to
jump at the opportunity to work with you
again
uh you know it's much more favorable to
go back to your existing lender that has
liens on your house and
you know as your personal guarantees and
liens on your businesses
well now we want to buy this business
will you work with me again
versus having to go to another lender
and them having to sit
secondary behind that other lender that
already made you the sba loan
so you know uh very quickly for for for
good
borrowers who look at good opportunities
and want to build out a nice portfolio
of businesses
or you know if you're using laundromats
as an example you own three you want to
add three more
um you know you'll have banks that'll
jump at the opportunity especially if
you've been
positively servicing your debt and
you've you know you're creating nice
income and your businesses are on the up
and up they're going to jump at the
opportunity
uh to work with you again so that's
another good thing to understand you
know it's not a one-and-done
situation unless you just run out and
you know when you you
borrow the five million dollars all at
once
yep and so i like it so what about
um i think it's smart because where you
do sit in the in the
capital stack is so important for
anybody who's lending to you
and and that actually can be a huge
hindrance um if you don't establish good
relationships where they're okay
being you know further down in the
capital stack i mean typically
if i'm a lender i want to know who else
has any sort of lien on your business
before i would give you a dime
um and so i i do think that's a really
important point
um what about uh timeline
so sometimes you know the deals are hot
right and people need to close on
something quickly
and so you know one of the things i
liked about when we spoke and some of
the people that worked with you before
is
you know you talked about speed to close
um so can you talk about expectations on
timeline
um and how quickly can you close some of
these deals sure
um my process is this you know original
engagement
uh you know i like to have a
conversation i like to get to know
people
um and then you know answer any of their
questions
uh talk about a process and then very
quickly
immediately after that conversation move
to gather pertinent information
i certainly respect the business
acquisitions you know timing is of the
essence
right sellers don't want to wait around
especially when you're dealing with
getting a loan they don't want to hear
uh i mean most of them don't want to
hear that to begin with so the last
thing they want to hear is you're going
through some
you know getting pulled through the mud
and you don't know where you're at with
your loan process
that's something that we always help
people avoid so
again i gather all pertinent information
from our borrower borrowers
okay and i gather pertinent information
financial information on the target
business
and we build out a file i don't pull
anybody's credit i don't apply with
anybody on your behalf this is for my
analysis for our discussion
uh you know good bad otherwise um and we
very quickly within a day
we're delving into the opportunity
together upon my receipt of all that
pertinent information
okay and again i talked about just
touching on
engaging with people if they don't
necessarily have a target business
it may be good you know if you're
shopping or you want to have that
ability to jump at something
engage with me early uh you know allow
me to review
your information and help you understand
what what your borrowing capabilities
are going to be
and then work on the business from there
we've already built out half of what we
need
so when you do identify an opportunity
we grab that and we hit the ground
running
so my initial analysis i usually like to
turn that around within 24 to 48 hours
of everything that i receive
i then take my loan analysis my loan
write-up to my
preferred banks that i choose that i
think would be
interested in the opportunity that's one
or two three if need be
i usually get their feedback within
sometime
same day if i catch them on a good day
sometimes it may take me
you know a business week but my guys are
pretty good uh
you know and i do all that work out in
front for them so it's easier for them
to analyze an opportunity
if they have questions they'll come back
to me with those a few questions
concerns
if they feel like it's a good
opportunity for them i get a proposal
my bankers do not like to issue me term
sheets or proposals
if they do not feel they can get the
loan approved in underwriting
again another thing that we do very
differently a lot of banks out there
especially big name banks
you could call them on the phone tell
them your opportunity and you have a
term sheet in hand
okay a term sheet is the furthest thing
from a guarantee to lend
it is merely a proposal it's non-binding
and
again our banks don't like to hand those
out uh without some meaning behind them
without some worth behind them
um and again we're very transparent i
mean if my lender identifies something
that they do like they don't like uh
they're gonna share that we're going to
talk about it i'm going to be sharing
all that with the client
now once i get a proposal which usually
happens within a week
give or take if you like what you see
in front of you and again i'm pretty
much set expectations within this call
but if you like what you see in front of
you and you feel comfortable you sign it
again it's non-binding all that does is
move us to the next step which is
underwriting the loan opportunity
you're going to get a short list of
additional needs some of them for the
seller
most of them for you as the borrower
bank documentation application all that
stuff
we get that all over to the bank now
underwriting happens
again typically within a one to two week
window
we are actually getting a loan decision
so
either a yes or no and if we in what
we're supposed to do out in front
we bat a very high percentage on getting
those yeses
okay i don't like to end up with no's
and uh and again my lenders don't like
or my bankers don't like to issue
proposals to end up with a no
so the hope would be that we've done
everything we were supposed to do and
within that two to three week window we
actually have a decision on the loan
uh and hopefully it's a yes from the
time of that yes that approval to a
commitment to the actual loan closure is
usually a three to four week process
you have all your third party uh uh you
know all your third-party
uh uh processes that need to happen the
business evaluation which usually takes
about two weeks
gathering all your entity documentation
getting your life insurance
uh um you know uh uh assigned to the
lender
all the third-party stuff that's gonna
happen in that three to four week window
so usually
i would say on average again i close
these loans in 45 days i've done them in
under 30.
i've done them in longer than six months
how quickly we're able to move
is going to be dependent on you and a
little bit on your seller
um how you know how swiftly and how well
everybody's on their p's and q's
and again my banks are pretty darn
seamless
uh when it comes to churning these
things out it's you know it's
it's the same process every single time
so as long as you keep it moving as long
as there's no hang-ups
uh uh you know then we should be able to
move through that process
in an average of 45 days it looks like
natasha
just asked asked a question excuse me
about life insurance
yes the lender the the sba actually
requires
that you have a policy or a writer to
your policy
that assigns a lost payee to the bank if
you
god forbid whatever pass away um to
to cover the entire amount of the print
you know the principal amount of the
loan
uh so you will need to get a life
insurance policy
uh to cover uh a total loss uh on that
loan
um and you will need to have business
insurance i
i typically like to tell folks whatever
insurance policies
that the current owner of the business
has unless you're gonna make some
uh extraordinary material changes like
maybe you're gonna run the business out
of your home or you're not gonna have
any employees
you're probably gonna need the same
exact insurance uh
that they have on the business as well
so hopefully i answered
uh your question and maybe even more
there natasha
so real quick joe a follow-up to that so
if they just added a like a 10-year term
life insurance like rider just to cover
the
amount of the loan they can do that it
doesn't touch any of their other life
insurance stuff
that's right they just need to add you
know you can assign your policy
you can add an additional policy it's
really up to you but yes
there will need well and to clarify it
because i think it sounds scary when you
say assign your life insurance policies
no all of this remember is
you don't have to over collateralize the
loan i mean they're going to want
what the loan is worth and they're going
to want to make sure you don't die
because if you die you can't pay
and you really want to have that same
assurance too because you want to make
sure that this doesn't fall down
you know to somebody else in your family
if you have
this sort of instance happen so um when
you know when he's listing off all the
things that you can use as collateral
those are options it doesn't mean that
you know i need to give him
all of my entities in order to backstop
this
so so this is part of the negotiation
that you use also as well with deciding
which banks require what collateral
and again there is variance depending on
which ones but it's better to know sort
of all of that
up front yeah i mean there's a few
things that are sba rule
right so you can't negotiate sba rule i
mean if it's if you're gonna get one of
these loans you just have to
stay within the rules and regs of the
sba and you know the collateral
and the life insurance those are sba
rule
um so just you know setting expectations
that those will be required
no matter whom you work with if they are
doing the loan as an sba backed
conventional loan those will be required
and honestly
i've done acquisitions uh without sba
backing and i'll tell you
the lenders want to take the same stuff
you know that the sba does they want
your home
as collateral if you're not buying real
estate they want you to have life
insurance
uh you know to cover uh uh the the
the principal balance in the instance of
you know your demise
so it's pretty standard it is and the
but the only thing i would say for
everybody remember
is sba and loans in general are not the
only option so when we talk about
negotiating like he's
he's a thousand percent right he's an
expert on this space um but also
remember that you can negotiate some
different aspects with the seller
and that's where you can get really
creative with what you
can or cannot put down and you can also
get really creative with
some alternative uh fundraising sources
so this is where other people's money
come in if you don't feel comfortable
putting
you know i don't know all of your real
estate property into it and you want to
get down the total cost that you have to
get from the sva
so there are there are lots of different
levers to pull but that's why when you
do this
you know when you start to do this deal
you realize where are the guard rails
where can i absolutely not mess around
and you know that is typically that ten
percent down
ish and and to joe's point some of the
collateral mandated
um but remember you can always change
how big of a loan you take out
so then your collateral becomes a whole
lot less and you maybe
aren't as stressed about that um okay
so i think that's all the time we have
uh ryan anything you want to close on
joe thank you so much for doing this we
were really helpful and i appreciate you
helping all of our buyers
just one last quick question that i
think joe will be able to answer super
fast
is what are the things that they should
be going to their seller asking for
up front immediately if they know that
sba is going to be part of their
purchase
you know if you can get it from them
right off the bat three years tax
returns
uh and current year financials uh as as
you know as late as you can get them so
september's over
if people are good with updating their
quickbooks
get them through the end of september
especially now more than ever
banks want to see as current of
financials as possible because
the sba themselves have put a lot of
rules in place surrounding kovid
and uh the effects it's having on
businesses so banks are are being
kind of demanded that they get very
current financials so
you know a lot of time sellers are
hesitant to give you tax data they want
you to
sign an loi or make an offer um same
thing on that side of the transaction
those lois
are you know sometimes uh can be
meaningless so if you need to
enact one of those to get some tax data
that's going to be your most pertinent
information you know don't
don't just ride it out on uh in-house
financials and and expect you're going
to get a lot of consideration
on the loan that way okay definitely
agree
don't buy on those either um okay well
thank you everyone i hope this was
useful
thanks for joining us joe you're the man
and if they want to get in touch with
you we'll put his contact information in
the facebook group
so anybody can reach out to joe and he's
also listed on the multi-funding website
uh which is listed in facebook as well
thank you so much everyone
yeah thank you
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