A SBA Lender's Insights from $400 Million Of Closed Deals In 9 Years

hey everyone it's Helen from SNB deal hunter today we have Bruce marks from first pick on the lake with us who is a SNB and search fund acquisition lender Bruce has closed $400 million do worth of deals in nine years uh so Bruce very excited to have you today to talk all things uh SMB lending SBA lending um very very excited yeah our favorite subjects right like yeah yeah that's our favorite subject it's easy to talk about your favorite subjects I love that well Bruce let's you know let's get started what's your background and how did you get into this space yeah so my first five years of banking I was actually on the investment banking side so I did fixed income portfolio management got an opportunity to transition to commercial lending did that for a few years moved to Florida was working with a bank that did participation loans with a bank that was actually a preferred SBA lender now this goes back way back and there were not a lot of preferred SBA lenders in the State of Florida I got recruited by them to join them and learn the SBA program I did that fell in love with with you know small business lending but under the SBA guidelines then went out on my own had my own corporate consulting firm for 13 years to help people write business plans strategic plans help raise capital and then got an opportunity to help start uh an SBA group um with a very close friend of mine who I worked with for many years and slowly got into business Acquisitions and was introduced to the search fund model in 2015 by a Harvard MBA student who called me up and said hey Bruce I'm looking to buy a business and I'm I'm like you're just fresh out of school he goes well do you understand the search fund model and I said never heard of it what what what is that and he explained program to me I ended up not making him alone because I thought it was a little bit too much for him to pull down he agreed he went with a smaller bank got a much smaller loan but once I learned the model I absolutely was dedicated to becoming everything search I went and back to school and got my certification as a certified m&a advisor went back and learned how to become a value analyst and do appraisals business valuations and just Dove really deep and once I made actually my first search fund loan I decided that was it I'm not going to do anything different and so just love the space transparency I'm a Searcher as well I own several businesses so I've gone down that path I think it it allows me to be better at what it is I do because I can both sympathize and empathize you know being there done that and um look at it's it's uh it's been phenomenal to be able to help and be impactful in the space which is the reason I get up in the morning and do what it is I do I I I love being a lender in the SMB world and I love being impactful and I love creating value and changing people's lives because this for sure if a person goes through this journey and is successful it will it will change their life that that's what it's designed to do and it and it does so that's my background how I got into it yeah no thanks for sharing I I didn't realize that you also are a Searcher or are and were a Searcher yourself what are some of the businesses you own and how do you are are do you have someone managing them or what's your role sort of in those businesses yeah yeah so own several businesses um I don't know if I necessarily want to share with the world that what it is that that that I own but I work at First Bank of the lake that is my full-time job and it's my full-time job to help Searchers get their deal to the closing table I am an investor but the way that I handled it I have a few Partners one main partner my job is to find the target basically make sure it looks like it's a good Target to acquire work with the sellers making sure we get the deal under contract I do not run the day-to-day operations of those businesses so I'm an invest I'm a Searcher going through that process but I am an owner I'm an already owner of those of those businesses in transparency I can't get an SBA loan here at First Bank of the lake because it would be obviously a conflict of interest yeah um but we have successfully pulled down several SBA Loans to to acquire businesses so when my clients are going through the process of acquiring a business and getting an SBA loan I know exact what they're going through because did it myself yeah so yeah I'm sure well look you know for those who are you know haven't gone through the process yet tell us more about just give us a general overview of the whole lending process for those you know looking to buy their first business and what that looks like with you yeah um so you know for me and for the Searcher it really starts with the business model right like looking at a target a search and listen we do a lot of Consulting with Searchers and some people are searching part-time as you know some some Searchers are you know hey I've quit my job I'm all in full-time searching um some Searchers are well I'm not sure what size business to buy whether I go small or I go large how much my guarantee so there's a lot of soul searching if you will you know right right like there's a lot of soul searching that goes into the search process right so I I think you know everybody has their own criteria what they're comfortable with I've spoken to people that say I don't feel comfortable pulling down a $5 million guarantee but I'm okay if I do a half a million dollar you know deal and I want to roll up three four five so I want to start small I want to get the experience so everybody has to look in the mirror Helen and like what they see right so you know I used to have a friend that who tell me that he'd be like Bruce um I can't believe you look in the mirror and you you you like what you see right so would be joking with me right but it's true because they have the Searcher has to go through that that process and then determine you know sometimes it's geographically Centric right like they live in a certain area they don't want to move from that area we have Searchers who maybe are on the west coast who their families their wives families are on the east coast and they want to move back there right because they want to be with family so they're looking in those areas so there's some people that are I don't care where I live I'll live anywhere in the United States some people have Roots so they can't you know there's a lot of those dynamics that go into just the search process and how that's that steam some people are well you know I want to just buy off of websites right or I want to do a proprietary search where they're reaching out to people in their local market if you're doing a geographically centered search Okay I want to look in let's say New England area then to me it would make sense to do somewhat of both work with Brokers but also do proprietary because you want to pick the type and a lot of people will tell you Helen as I'm sure you've heard I'm industry agnostic yeah and and as a lender that's what I say but as a as a Searcher I feel like listen I love to eat but that doesn't mean I'm gonna go buy a restaurant right exactly right uh that's just not in the cards because it's not something that I would be good at because I have no experience in that business so I think people have to really do a self assessment of where they think their skill set is going to best be utilized and maybe if it's geographically centered in your search you can then look at the marketplace for those type of businesses reach out to them and start having those conversations with sellers about how to acquire their business right so there's just a lot that goes into just the beginning of the search process itself yep right so you know as far as once you get into starting to look at Targets you're going to get a ton of Sims and and there's going to be things that peque your interest things that don't you know I feel like you have to have some of the Acumen to be able to look at the numbers to understand the business understand the industry that they're in have some skill set that's going to be appropo to to taking that to the next level because if you're buying a business you're not just buying cash flow yep right you're you're buying an entity and that entity has a lot of purse strings pulling at it you have the lender if you get a a loan right you have the seller if he finances it you have a landlord he may want you to personally guarantee the lease you've got your employees and their families you have customers you have suppliers you have vendors you have the community you have so many lives relying on that entity to make that Circle go around so it's really I mean it's it's really not a a short undertaking it's it's a lot to pull it down right and there's a lot to to get through all of the processes but I would tell you getting an SBA loan is not really difficult to be truthful with you um there's some diligence but when you're working with and there's a ton of experienced lenders out there they been through it I've been through this 1300 times I know what to to say to my borrowers and I know how to guide them to make the process easy I I have a saying I'm happy to walk down the aisle I'll actually hold your hand doing it I just don't want to be left at the altar right so I guess I guess to interrupt you a little you know what stage do you like Searchers reaching out to you is it you know early out of the process when they're still in the soul searching phase is it when you know they have a deal under I and they're like Bruce I'm ready let's do this like what does that look like so for me I like it at the beginning because that's how you develop relationships and it's all really in this in this business about relationships right and I want somebody to have a clear understanding of what it is that I can do for them I want to have a clear understanding what they bring to the table are they going to be the type of borrower that fits our bank you know there's a a lot of different lenders and everybody has their own criteria like most Searchers will call me up and say well what does your bank like exactly so I'm right so right what what is your bank like and I am very clear about that that it's not my bank it's what do I like because my bank understands that if it's something that I like then they might see it if it's something I don't like they're not going to see it so for example I don't lend in the retail space I just it's it's very scary for me um and it's just something that I have an adversion to so if somebody calls me up and says I'm buying two or three different retail locations of XYZ for me that's a nonstarter where if they call another bank they may say great we love it it doesn't mean that it's not a good deal and it doesn't mean it's not a deal that can get financed it just means that I have an an aversion to it and I'm not going to lend in that space yep right tell me I guess what types of deals you know do you like tell us a little bit more there you know what types of deals do you look for so I don't like want businesses I like need businesses so one of my favorite ones is Roofing why let's say you and Dylan come home one night and your roof is drip drip drip drip drip right doesn't make it you're you're call call the roofer we got to get the roofing it has nothing to do with whether you can afford it or you can't afford it right it's not like you have an option you got to fix it that's right I love those type of businesses because it's dependent upon you have to not want to so I love those type of businesses so construction type of businesses there's a lot of lenders that are have an adversion to it I love it and I do a lot of it Government Contracting work love it love Government Contracting but then there's a lot of lenders that don't right so for me the the absolutely the need type businesses for me it just speaks to me that there's a very good chance that this business is going to be around yep in the long term right is technology going to take that business away not really I mean it's only going to add to those type of products that they might put up on your roof but it's not taking it away there's it's not gonna like if you were the private Equity Group that bought Blockbuster Video I don't I don't think that worked out too well for you right like so right so you know just all those kind of things and I get very granular because the thing that I take most responsibility for Helen is is this is all about the Searcher that comes to me it's not about me making a loan and I want to make sure that I'm doing it for them and their best interest in buying a business that I believe has the best chance of success for them and so I'm very opinionated and I have very strong opinions after doing this for 40 years and seeing all types of businesses both as a business owner as a Searcher as a lender as an investor and as an advisor that's a long time and a lot of different right roles abolutely that I hope to utilize all of that in helping Searchers acquire a good you've probably seen this I I refer to this as the 3g's of a good deal right lending to a good buyer buying a good business with good strong cash flow and so if we have those 3g's we should be in good shape I love that I love the 3Gs I guess you know I love that I guess going back to the process you know you someone engages with you early on what does that timeline look like for you know I guess when they actually are when they found a deal they like and they come to you and you like the deal now what so I you know I'll share the good and and and and the bad right so I had this uh Searcher call me up on I know very well December 11th of last year and he said to me Bruce um I wanted to speak to you three months ago I wanted to speak to two months ago I wanted to speak to you a month ago and now I'm speaking to you because my deal is in Jeopardy of not happening I was quoted a really low rate by a very strong very well-known National lender and I got sidelined by the rate and I submitted my application in August here it is December 11th and the seller has come back to me and said unless I give him a commitment letter by the end of the year year his my Loi is expired he's not going to renew it he's not going to sell me the business and he's going to put the business on the market for more now this was December 11 and I said to him well he said I have everything believe me I've been working on this since August and he did on December 21st so 10 days later 11 days later I issued him not a term sheet but a commitment letter well and we closed his loan on January 28th so super fast right because generally the buyer controls the process right so that process can go really quick or it can go really slow I'll give you a flip side I approved a loan in March of three that was for gentleman buying a business and it had a a big piece of real estate real estate was really the majority of the deal we got the loan approved no problem quick but the property was contaminated it had tanks that needed to be removed it had its soil that needed to be replaced it had asbest in the buildings it took literally almost one year later we closed the loan in March of 24 that's why I don't really do real estate lending I don't really like it because of that Pro but it's just a function of the deal so there was a deal that we got approved pretty quickly but it took a year to close cuz you know had other had other issues we've seen deals where we've had them approved and then it takes a long time because the Su goes on vacation or they're taking time to get the documentation so the process for me I like to start at the very beginning build a relationship I also like to be in well before the ioi or the LOI and the reason is is because I have seen and this is this is sta statistics I had five deals in 2022 four deals in 2023 and two years two deals in 2024 approved an enclosing that did not hit the closing table that's 11 deals why because the buyer and sellers could not get to the closing table mostly over working capital issues because the sell you have to understand when a seller looks at an Loi he's just looking at the purchase price yeah yeah he's just seeing what he's getting but then when he realizes oh you want me to hold a note now I've got to leave you working capital I have to pay my attorney I have to pay my broker and I have to pay capital gains tax wait a minute my my deal price has just been cutting half y right I mean you know that right we can joke but that's what happens and so when people come in and I say to them okay you want to submit an Loi have you seen balance sheets no right you get this all the time right like they're making I want to submit an Loi off the sim the broker won't let me see the tax returns unless I submit an Loi you hear this all the time right yep how do you submit an Loi if you don't know the conversion cycle of the business and you can't just look at it by giving one snapshot of a balance sheet because you have to consider does the business have any seasonality what's the work in process in the business there's a lot of factors that go into that working capital number and if you don't have that right you it's not like the business doesn't need it it's going to need it one way or another so you're either going to have to put it into the deal or you're GNA have to borrow it well if you borrow it it could be another ter on top of your deal yep if you're paying a full multiple and now you that it doesn't include working capital well that could be now you're paying a five multiple the deal Dynamics totally shift so there's just a ton that goes into that thought process so I like to get in early to have those conversations with Searchers and add value to make sure that if they are going to submit an Loi at least it has some meaning yep no that makes sense I guess you know you spoke about some some of these mistakes Searchers make what are some other you know common mistakes that you see Searchers make um ones that work with you um worrying too much about the seller not wanting to offend the seller because they don't want to lose the deal see that a lot you see that a lot right so that's a that that's a real com I don't want to go back and I don't want to retrade Bruce because I don't want the solid a walk right A lot of times they're going through the broker and they think the broker is representing them the broker is not representing the Searcher the broker is paid by the seller he's hired by the seller his job he's getting paid by the seller his job is to get the highest price for the seller right and they want to make and the seller says to the broker protect me I don't want to have conversations that's your job so it's hard getting in and establishing a relationship with the solar and this is maybe somebody you're going to continue to work with after the deal closes yep right so I think like in anything else it's establishing that relationship understanding the roles right and making sure that it's a good deal for everybody and communication is the key but a lot of times the Brokers don't want to let you get to the to the seller it's it's the emotional right there's a lot of ups and down and as you know because I know you're an investor as well deals die three times and they come back right like so they die they come back they die they come back I mean had it happen several times on my deals I my wife used to say to me when I get up in the morning is is the deal still on or did it die last night right that was just the common uh you know question that she'd have and I'd be like no the deal died last night and then i' next morning yeah deals back on yeah if it doesn't if it doesn't die at least once something's wrong it's true it's true and it's just it is emotional roller coaster for everybody I I think that you know that you have to get the structure right you have to get the working capital right you have to understand the conversion cycle of the business you have to understand how the business generates its cash why it generates its cash listen I had a deal approved a couple of weeks ago um it had an 80% concentration risk we got the deal approved right in the this is I can't make this stuff up right in the LOI the buyer had that we are going to do in f reorg as part of this acquisition the deal gets approved we issue the client the commitment letter he's all excited he goes back to the seller hey got the commitment letter better for the bank now let's start talking about the purchase agreement and the seller literally says to him well what's this F reorg now he's saying that after he signed the LOI and the clients call me calls me up and goes I don't know if the deal is going to happen because the seller doesn't understand an F reorg I said I have a referral for you I need you to call this gentleman he's excellent and he's going to explain it very well so that the suic can understand what his benefits are as well and here it is two and a half weeks later since I've issued the commitment letter I don't know I have no idea but the seller signed the Lo it was right in there because he didn't understand what he was signing and what people here's the biggest mistake that you I I think from what I've seen generally The Searchers today are very bright they probably have a high Ed education they maybe gone through Wharton Harvard Stanford Booth Kellog rice all of those right there's a lot of information out there they're researching it and when they meet with the sellers the sellers started this business 30 years ago right and now we're selling it they don't know the lingo they don't understand it right and so things are put in the LOI that is just beyond them and and then the Searcher says oh well this deal is going to get to the closing table sometimes it does sometimes it doesn't yeah could I think you know being able to educate the seller a little bit is almost part of part of the job of a Searcher I I had one Searcher we closed his loan he was buying a business in Florida and literally by the end of it I had a phenomenal relationship with the seller because every time I would try to go back to the Searcher and say okay this is what you need to relate to the seller the Searcher would call me and sayth seller wants to hear it from you so I get on the phone and speak with the seller well literally by the end I had I don't know seven eight nine telephone calls with the seller he was like calling me up like he was like hey Bruce let's go for drinks and just literally because although the Searcher would explain to him what I said he wanted to hear it from me and he wanted it to understand that it was the SBA rules the requirements why the bank looked like and that it wasn't coming from the Searcher right so it was just I I ended up I had a deal that we closed in Texas several weeks ago and I remember getting on the phone with the seller the seller's attorney the buyer and the buyer's attorney and we were working out the language that that needed to be satisfied in the purchase agreement ment and they're asking me and I post it on X hey I'm now an attorney I want to get paid $1,000 an hour I love that no I mean it's I love that you're you know you're willing to be so involved in the process I'm you know I'm curious I guess you know maybe this is a good sort of tradition to my next question but like how what is the best way for a Searcher to do diligence On A lender you know there obviously there's so many lenders out there um you're obviously one of the the the great ones but how how would someone go about doing diligence yeah so it's a great question thankk you for asking so I think you know like like I always say Helen you if you're hungry and you want to go out for dinner you're you're not going to go to a pizza restaurant you know and expect to get Chinese food because it's just not going to happen right so there's there's a lot of lenders out there like I said when people call A lender and say what does your bank like they're really saying okay tell me the type of deals that your bank will do so I can see if it's a fit with what I have right so does your bank like construction lending that type of thing so going back that you know where it's where it's you know my my opinion I I think what you have to do is you have to look at and I'm very upfront about this I you know you have to find out what the bank the lender their their their credit criteria is right so for me I like to do the larger deals only because I'm one person and I can't do everything I can't be everything to everybody right so um I tell people I'm a one trick poing I only do large Goodwill Acquisitions I don't I don't want to take the deal that so Searcher calls me up and says Bruce I'm buying a daycare you know it's worth $4 million the real estate is worth 3.25 million and the the business is 750,000 right because that to me that's really a really real estate deal and that's not what I do and I'm not good at that I'm not a good real estate lender so I'm very upfront with people so if they're doing their diligence you have to find out what type of deals that lender likes and it's pretty well known in the marketplace like you have certain lenders who will do certain types of loans and other lenders that won't right so I think the diligence is and I'm very very clear with this with Searchers is you want to find the right person that's going to look at the transaction but what happens if that transaction falls apart and you find something totally different right so it may not be so much transaction related I think it has to be who do you feel comfortable with that's going to get your deal at the closing table who brings the experience I'm very upfront about this people will say to me ruce I'm looking for a good SBA lender and I'll say that's not me SBA is just the funding tool that we use to get the deal to the closing table if you want an SBA lender just to get a loan I'll refer you to several so I like to separate myself and think that I bring much more to the table than just hey we'll give you an SBA Lo to fund your deal we talked about this at the beginning where our bank is a little bit different and maybe this will will help shed some light so we understand the search fund space my loan committee who I present the transactions to really gets the model we've closed I remember last year we closed a $7.9 million transaction to a 29y old Searcher who had a net worth of under $100,000 there's not a lot of banks that are going to do that deal right because they're going to look at it and say well what's the collateral what's the post closing liquidity how much does the Searcher have in assets all of those things and I like to say here at first L if we're looking for a way to get out before we get in we probably shouldn't get in right so so our bank is not a huge collateral lender if it's there great we're not a big real estate lender we're not a big we're we're a large Goodwill we love the Parry Pursuit which we can talk about deals so that's a little bit about us that's probably different than maybe some of the other banks that you I know you refer a lot of people to a lot of different banks so you know it's great for you to understand hey I know I've got a client this would be a good bucket for for Bruce or hey this is a really strong real estate deal don't send it to me yeah yeah no I'm not good in real estate that's not me no I love how transparent you are that's great um you know it's it's tough when you you know you talk to someone I do everything it's like oh maybe that's a red flag um but but I love how transparent you are Bruce I mean you know you spoke a little about bit about per Pursuit lending you know tell us more about you know the you know Perry Pursuit for deals that are larger than that 5 million SBA cap yeah so I can tell you that the majority on of my deals are per Pursuit transactions per Pursuit just means equal footing so it's basically the same terms and conditions as the SBA 7A loan so it's let's just say a 10-year loan at prime plus two just 10 and a half percent just to make things equal so generally they're a deal where might be a $10 million purchase price where the seller is going to hold a million dollar the buyer is going to put in a million dollar right so both putting in 10% and then they come to First Bank of the lake for a $5 million SBA loan and A3 million conventional loan behind the SBA it's a big risk because we are behind the SBA as well and we are 100% unsecured and so as a true cash flow lender everybody asked what's your debt service coverage ratio what's your debt service coverage right like that's what they always ask and I always come back with what's yours right like what do you feel comfortable with Levering up that amount of money but in the Perry pursu scenario we absolutely do want to be we do have a requirement that our debt service coverage ratio be over one and a half 1.6 times on the larger per Pursuit because all we have and all we are relying on is the pure cash flow and what I what makes us comfortable and what makes us sleep at night is if you've got that strong of a debt service coverage the business can sustain some hiccups a cold right some up and downs in the business and it's still going to have cash flow to service the debt the last thing you want to do you know there's I talk about this all the time people look at it and what's the business throwing off and what's the EAA what's the SD if they're buying a smaller but that's not cash flow right and I don't want C is to mistake that number because cash flow you could have an even a business that's great but you're having working capital issues it's going to be difficult right you're gonna run into difficulty you know this as a business owner so to me it's going through that conversion cycle understanding the business understanding the strengths of the business and how you're going to be able to repay the loan and when we get more comfortable with that number going up it's actually easier to get transactions done because to me the bigger is better just is no I like that you know a lot of people ask me like should I go should I buy a smaller deal for my first transaction you know just test the waters out um so I always like to ask folks for these P for these podcast interviews you know why go bigger or why go smaller but um love I'll if I can just address I yeah let's say you come in and you say Okay Bruce I'm buying a million dooll business and you know I'm going to put down 10% the sell is going to hold 10% but generally those deals don't come up with working capital yeah so and with the deal cost it ends up being a million dollars so they buy a business for a million they put in 100,000 the seller holds $100,000 but they need $200,000 with the working capital to Clos so it ends up being a million dollar business so if you're buying a million-dollar business and let's just say you're paying a three and a half multiple right so you've got roughly $300,000 in cash flow well what is the Searcher need to live on most Searchers today are 125 to 150,000 and it's hard to imagine living with less right if you're a Searcher and this is it so let's just say now that 300 is down to 175 so if you have a million doll loan you know your payments are like $133,000 500 a month so that's $162,000 yep well you started with 300 you took 120 17 you're not even at one to one right and so there's no room so you come in and you go okay well maybe I'll take only a 100,000 well great you got $25,000 left over that doesn't include paying the solar debt yep and what if the business you has a little colder hiccup as we mention well and that's point so so small is tough small doing a small transaction for me uh it's just so tight Helen that I get very very com uncomfortable so let's just take that same three and a half multiple you're buying a million cash flow you're taking three and a half million dollars now right so again 350,000 in $50,000 hold so you're let's say that's 700 so let's just say with deal cost back in you're let's say at a 2 million 8 loan so you have loan payments of rough let's just round to say $40,000 a month so 40 time 12 is 480 maybe you add another 100 for the seller and maybe you add another 125 but you're buying a million you still got $250,000 left over to protect on the downside risk that's much better than scenario a with the low right y so for me just in the way that I think in the way that my Bank has agreed in the way that we look at transactions bigger gives us more cushion stronger debt service coverage not to mention that when you buy such a small business generally it's you and yourself right there's not a secondary te of management in place yep generally the books and Records aren't as clean as it would be generally no policies and procedures and I mean there's just a lot of things right Helen that when you look at it buying a big business is better it has all the levers that you generally need to pull in the search fund space and look at if you're a Searcher and you've gone through an MBA program and you have some business Acumen it's probably it's going to align with you more to buy the larger businesses that make more sense right and especially if you're going to roll I I remember just to share I had this gentleman several years ago this goes back probably more than not here at First Bank of Lake it was at my prior institution and he said I'm going to buy these small Main manufacturing businesses Bruce and I'm going to buy3 to $400,000 in cash flow I'm going to roll up four of them grow this and get it to $2 million in EBA and sell it out a five multiple and that's my strategy and I remember after he did the first one he came to me for the second one and the first one had not worked out well and I said to him what happened you know the salary that he needed when you get into manufacturing capex and working capital right I can go really deep into what and why and I said to him I can't lend you on the second one because you haven't proven yourself on the first one yeah and I and I remember that uh and it just stuck in my head how hard it is to buy a small business generally it's small because maybe the marketplace determines that it needs to be small maybe the marketplace isn't there to grow it even though you think you want to listen as I learned I was wrting I was speaking at Wharton University a few months back and there was a panel before mine and I had heard somebody on the panel make this comment and it resonated with me and I say it every day now upside is theoretical yep right that's what everybody's believes they're buying Bruce I can take this I'm buying it here and I can right no one ever comes in and goes well I know it's going to be lumpy for the first which is is the truth as you well know you're laugh you're a business owner you know how that works right um that's the belief upside is there I can take this business I can do it much better than the guy who's had it for the last 25 years yep maybe probably not the first year or two right it just takes time right to to do that and now as a business owner I know that so I laugh when I just see oh yeah we're going to just you know take that business to the next level that's the bet upside is theoretical but you've got to drisk the business for the downside that's when you know that you're buying a good business 100% no I completely agree there and you know you mentioned rollups a little bit tell us about you know if someone wants to buy multiple businesses um how does that work with you guys with an SBA loan you know different NYX codes same NYX codes like what how does that work yeah so the SOP 5010 7.1 comes out from the SBA and it it says okay if you're buying a business in a different nakes code that you can apply for another $5 million SBA loan but behind the SOP is the Federal Register and that's really what the Federal Regulations are based upon and every Bank um looks at that sop and determines it differently I I kind of refer to it as the Bible right it's the the Bible of SBA lending but if you look at a Bible the regular Bible whether it's the Old Testament new you had one religion to begin with whatever that might be and then now there's 3,000 religions why because you have people that said no this is what it meant no no no no hen you're wrong this is what it meant no no no Bruce you're wrong this is what it meant that's the SOP 51071 because there are certain rules and regulations in there that yeah it can't be denied anybody over 20% has got a personally guarantee the loan right boom but this one is one of those gray areas so for First Bank of the lake if somebody calls me and says Bruce we've got a $4 million SBA loan and we're taking down another $5 million and transaction and we want an SBA loan we are not going to do that so we're one of the lenders that's going to say no but I'm in a deal right now presenting the loan on Friday for a Searcher that we made a loan to two years ago who bought a great business out in California and we lent him I think 3.7 3.8 he's paid down his loan to 3.3 but he's now found another $3 A5 million transaction and he called me up and he said can you do this for me and I said yes because we can do Perry puru lending right it's only if I look at what you have left in your guarantee I still can lend you the other million and a half that you need to pull down this new deal so that's why it's also important to go with a lender that does pray pursue because that's how you can get one two maybe three to roll up right and still because the SBA Helen has no limit how if you wanted to get five $1 million deals you can do it yep right because you're you're s under that $5 million guarantee so we're doing a deal right now for for a gentleman who's buying his second business it's a great transaction um and and so we're able to do that for him but as far as the SOP and somebody coming to us and that's another reason to your point why you want to check with different lenders and find out well what's their thought process on that right will you do that I get that all the time I get that that that question all the time another one is is okay if it's over 20% you have to personally guarantee but I'm buying a business Bruce and the seller is going to roll 15% Equity does he have to personally guarantee some banks will say yes some banks will say no again in our case we want the seller to if he's going to roll let's say in this case 15% Equity we want the seller to have a limited guarantee on that 15% so if they're doing let's say a $5 million deal and the seller is rolling 15% we're going to go back to that seller and say we want you to provide a limited guarantee of up to 750,000 and and do that so I'm in a transaction right now where it's in closing the seller was rolling 12% on a $12 million deal so we did a Parry pursue loan the buyer came in and said okay I'm going to guarantee 88% of it and the seller is going to guarantee 12% of it and that's how we how we proceeded I just got another transaction like that as well every Bank looks at it differently some banks out there will say no we don't require that if it's under 20% the solo does not have to personally guarantee any percentage of it again to your point why you want to be transparent and why you want to find out what each lender's thoughts are around the SOP policies and procedures what are some of the other sort of common sort of sop procedures where there is this sort of gray area and where do you guys stand on you know you covered sort of The Limited guarantee but what are some other ones that you you see this come up and where do you guys stand um a a lot of it is well the biggest one I would tell you is is on licensing licensing like somebody will come in and say Bruce I wanna I'm I'm interest I had one story where I was speaking with the guy and he say you know Bruce I wanted to talk to you I've spoken with a couple of other lenders I had a great deal under contract contct and I I lost it because I I I know you need a license to buy an HVAC business and I said well what do you mean and he said well you know I spoke with two or three different lenders and they said you need a license to acquire an HVAC business I said no no you don't he's like yeah you do I go well I'm telling you you don't so but if you don't want to listen to me he's like are you for real I'm like I'm for real he's like so if I go back and I try to get this deal even though I don't have a license you would do the deal yes we would do the deal that's a gray area so we've done many transactions where if a person is buying an HVAC business Plumbing business an electrical contracting business again I love Contracting Rell I love that space I have closed many deals as a matter of fact the deal that I was just talking about we're doing per Pursuit was for a gentleman and it was in the plumbing business and he has since now got in his c36 pumping license but he didn't have it when he bought the business he didn't have it yep and as long as there's a transition plan as long as it makes sense as long as there's a succession plan we are okay with you acquiring that type of business without the license but there are some lenders that absolutely say oh no you need the license right so that's another one of the gray areas another one is around lease oh you need a 10year lease I'm getting a 10year SBA loan well what about the thought process where the businesses run remotely and they run it out of the house have we done those deals yes then is the lease really an issue so to me right like so it's a great area I always go back to this question is the location conducive to the success of the business if you've got a restaurant on the water I would argue yes location is conducive to the success of the business right you would agree with that but if you're a distributor distributor and you're in a little Warehouse in XYZ you can move across the street and do the same business right so again a gray area but I'm okay with going no you don't need a lease for 10 years so there's all these little twists and turns and again it's just doing your diligence as a as a Searcher or a business buyer on the philosophy of each one of the lenders that you work with no that's super helpful Bruce I think you know one I know we're uh you know at time but I have one final question to ask you um again wow it's over already I know I can't I just looked at the time I was like what um well look I think a lot of people ask me about the personal guarantee you know collateral tell us a little bit more about that like what is that what does that personal guarantee really entail for searchers just walk us through that a little bit sure so if you open up the sop 51071 it will tell you collateral is not a determining Factor when making an SBA loan and it will also tell you that if the loan is 100% collateralized but does not have cash flow the lender cannot make that loan that's actually what it says in there so if you come to me and say Bruce I'm buying real estate and I'm putting down 20% and you've got 100% collateral because it's only 80% leverage but the deal hasn't cash flow I can't do that deal but if you come to me and say Bruce I'm buying a $5 million business I don't own a home there is no collateral but there's strong cash flow I can do that deal so it's pretty cut and dry to be to be clear now there are some banks that will say without collateral I'm not doing a deal that's their choice that's their choice we look at it and go collateral is not a determining factor and like I said if I'm looking for a way to get out before I get in I shouldn't get in yep so collateral does not matter to me nor does the strength of your personal financial statement let me tell you why I've lent on many transactions where we've lent to people that don't have a strong personal financial statement but they've got a strong background the 3G is of a good deal right y business they're buying is good good it's got good strong cash flow they've got a great background an Acumen for the business that's what we're looking for now what does the personal guarantee mean well you are guaranteeing the loan with the personal assets that you have if you don't own a lot there's not much that you're guaranteeing but people will think oh I don't have much so I can't get a $5 million loan that's not that's not true generally the personal guarantee is never going to cover the loan anyway right so it's really not it just comes down to a psychological thought process of what does that really mean but I would tell you if you're worried about it and that's your leading Factor then you have to either get over it and apply or you can't and you don't right because it's not it's that's not a great area you gotta and let's say there were 10 people people that had 10% ownership there must be one guarantor on the Lo that is an SBA requirement so if you had 10 people owning 10% one of those 10% guys is going to personally guarantee but as a Searcher let me tell you that it matters who's in your cap stack it matters who your minority owners are can you rely on them are they going to be there if a capital call is needed are they going to be there if you can't pay the pref or a dividend are they going to support you in your deal in case you get trouble and you need more working capital that's when it matters right because those things are going to be the things that you're not going to have to worry about your guarantee if that makes sense absolutely so no that's that's super helpful insight I think a lot of people will you know find that really really helpful I guess last question is just you know how can someone reach you they want to contact you Bruce and you know get started and start building that relationship with you so they can reach me through you hopefully yeah right of course um they can reach me through email uh or Twitter or yeah just but hopefully they they're listening to this and they call you and say hey Helen introduce me to Bruce that's happy to make that intro Happy to make that intro and Bruce posts you know the best content um on Twitter by far I mean as an ex now um I'm constantly everyone you know reading my newsletter knows I constantly share you know your your War Story Saturdays um those are just those are great I love this past one I thought it was was good this past Saturday with the the F reorg and the 338 a little bit about you know the what we look at for DTI debt to income ratios for Searchers and salaries and stuff like that so would love it when you share my content very I appreciate it I really do I'll make sure that one is on is on today's newsletter that's going out so definitely yeah yeah definitely well look Bruce H thank you so much I know we're over so really really you know grateful for your time today I think people will learn a lot from this podcast and this interview um you know obviously let's stay in touch and um yeah can't wait to to follow you more and hear hear some other stories awesome thank you so much for for allowing me this opportunity Helen I greatly appreciate it thank you Bruce