Dashboard: Getting an SBA Loan With No Down Payment

[Music] welcome to another 21 hats dashboard I'm Lauren Feldman and today my guest is Ami Kazar who is founder and CEO of multifunding Amy's an all-around expert on small business finance who has been a guest here before welcome back Amy always a pleasure to be with you my friend always a pleasure to have you here uh you've been a guest here a number of times but this is the first time you've been here since you decided to move your column from Inc magazine to 21 hats I'm assuming you did that because of the big bucks I'm paying you oh yeah it was I was just those you know your monthly checks are just out of control and I just couldn't resist it understood understood uh who could I I don't want to go too deep into the policies of another publication but I would like to point out your move is related to a topic that I know you care deeply about which is the occasionally sketchy tactics of Fast Cash alternative lenders who can get money to a business really quickly but but can leave it in a very difficult spot can you tell us a little bit about that yeah Lawrence so as you know and I think many of your listeners know I don't like lenders who offer fast cash and money in your bank in 24 to 48 hours and something that sounds too good to be true and it does it is and then more often than not puts businesses in a debt trap we see it time and time again in our work where we see business owners come to us and they're stuck on this expensive debt that has to be paid off pretty quickly and it's killing their cash flow so they got themselves in a pinch and things are tough and they went online and they said saw some offer an enticing offer we have the money in your account in 24 to 48 hours and they grabbed it and then the dominoes started to get fall and fall and fall and fall how does this relate to Inc magazine in your move issue with Inc was that they came out with their preferred Partners list uh a list of companies that they say small businesses can't live without and in that preferred Partners list they included a handful of these lenders and that to me is completely unacceptable if we are going to be working as I do and you do uh in order to provide tools and resources and information and help to small businesses and entrepreneurs uh decisions like Inc made and other big publication and other big companies make as well are simply unacceptable to me well we're happy to have you here at 21 hats Tomy um let's let's move on you've you mentioned something on your blog recently that was news to me and I suspect uh to others as well which is that under under certain circumstances the SBA will lend a business money with 0% down do I have that right yeah it's it's a it's a little trick it's a little C trick but if you are in a business say you're to keep it simple in the dog food business and then you want to go acquire another business and the business you're acquiring is exactly in the same industry as you are and you're it's like a dog food manufacturer one and dog food manufacturer two coming together you can in fact um try to get a loan for that second acquisition with 0% down um now if you're the dog food company and you're buying a cat food company that wouldn't count but if it's essentially really yeah it has to be an identical industry and and being both in the pet food isn't identical enough well that might be a slight extreme but I don't think so you it has to be in in the same industry in order for it to work wow and so the the but the catch is you have to be acquiring another business that that's the only purpose correct if you're buying your first business you have to have the down payment and I think that's appropriate what's the SBA thinking on this do you know what why are they encouraging this well I don't know if they're encouraging it it's kind of a little secret role that's been there for a long time and it's just that they see it as a business extension or expansion rather than acquiring a brand new business so if you were to go get an SBA loan for growth Capital say a $350,000 loan to hire a bunch of people or to buy some equipment and you have an existing business you could get that loan was 0% down I see because it's it's considered expansion capital and that is the same vein that they think about these um business Acquisitions as long as they're in the same industry as you're in today and that story makes sense am I right do you find that a lot of business owners are unaware that this is an option oh 100% now that doesn't mean that you should just run to do that acquisition because it's 0% down um the acquisition has to make sense the company you're buying has to make sense the company has to approach raise for the purchase price you're still going to be on hook on the hook for the debt you have to cash flow the payments that's harder to these days because interest rates are higher and these are all the kinds of choices that have to be considered it so I would not encourage someone to run into an acquisition just because it's 0% down there there's more to the puzzle than just that got it all right next topic you wrote a column uh for 21 Hats about it was kind of a warning to business owners that they need to pay attention to their eidl loans uh or they can get in trouble I think I think you raised two issues uh one is you better have used the money for Approved purposes and the other is keep in mind um that this loan can get in the way if you subsequently need to borrow more money do I have that right yeah so I think we have to put the Eid program into context and it's going be a problem for a long time so let's look at the Historical intent of the program historically the eidl is there if a hurricane or a tornado literally blows a business off the face of the earth and the program is designed to give that business or entrepreneur long-term cheap Capital to recover from the crisis Co came and the government had no idea what to do EO was never intented intended to be a program that was used on a national scale for a national crisis and $390 billion was released in loans up to2 million and the truth of the matter is that um people got it for very different reasons there were legitimately some businesses a percentage of those business businesses that were completely decimated by Co and they should have gotten that money and hopefully they will are on their road to recovery now and they'll have time to pay it back there were plenty of businesses who got that money who didn't need it at at all and there are other businesses who got that money who were in deep trouble before covid and this was another Lifeline for them for their business and so now the government has $390 billion of these loans out and a big mix of borrowers here's what people need to realize and understand about the eidl program first of all this is an ioe you to the US government you owe them the money you borrow you lent them the money it's like borrowing money from the bank it's the US government you owe them your taxes take this money you owe it to them secondly they have a lean on your business so if it comes time to borrow money again and the new lender is going to want to lean in front of the US government the US government or the sbaa is going to have to allow that and this is what it means if you're going to need to borrow money again the lender is going to ask you what did you do with your idol money did you use it for permissible purposes and if you didn't you have a character problem that you're going to have to get to the lender with assuming you can do that the lender is then going to have to go to the government to the SBA and ask them to subordinate their lean to their new lean and while the SBA does not have clear guidelines when and when they're not doing that right now they will build them and that could get tricky also so my best advice to people is if you got an idle loan pay attention document what you use the money for have a clear use case be prepared to back yourself up if you need to and if you took the money and it's still sitting there and you just haven't used it and you're using it kind of saving it for a rainy rainy day fund remember that interest is acur and continues to acre and maybe it makes sense just to pay it off and be done with it Amy what do you do if you're not confident that you used the loan money appropriately is there some way to to fix that you might want to talk to your bookkeeper or or your accountant about that or your attorney so that you can come up with the best possible story and if you didn't you didn't if you didn't could you just pay it all back would all things be forgiven if you've got the money but Lauren I've right I've met people who've bought jets with this money I've met people who invested in crypto with this money I've met people whove had people will call in who've paid off their divorce settlements with this money um a lot of this money was used for crazy stuff and it that's going to create problems for people got it what is the current lending climate like are business owners trying to get loans right now and are they getting them yeah we're having no problem getting loans through we haven't seen as tightening the the interesting question that businesses have to consider is do they borrow money at higher rates today and sometimes the higher rates are giving people pause which is understandable of course my advice about that is it's all about the business case so I always tell people don't borrow money without a plan and without a strong thesis that you'll be able to pay the pay the loan back and understanding what the um what bad could happen if your plan doesn't work out those same principles hold true if the interest rate is 6% or 10% it just means that at 10% plan's got to be even better and stronger so it was interesting I was on a call with a old friend this week who is um in a particular business and a competitor has coming up for sale that he's been trying to buy for 10 years and the owner is finally ready to retire and it's about a um call it a million dollar transaction and if he doesn't buy it now he's going to lose it because this guy's going to sell it to somebody else guy's ready to retire so he's interest expenses on this loan are going to be about another $40,000 a year versus the low of the market and probably he should still do it because the rates will eventually go down so yes it's a little bit more expensive maybe he can get the price of the acquisition knocked down because of his higher borrowing cost but it's not enough of a reason in my opinion this for him not to do the transaction because these higher rates won't last forever all right two more quick questions I I did an uh end of the year uh 21 hats morning report in which I highlighted what I thought were the best small business stories of 2022 um and you wrote two of them um both as it happens for ink magazine uh one of them you said a line of credit should be part of the furniture I think is the phrase you used um why do you say that and when's the best time to to get a line of credit and and how much should someone try to get so let's let's unpack that a little bit so a line of credit used wisely is like an insurance policy so it's not there the line of credit is not there uh for to go buy a house or go on an extra vacation or a fancy car or this or that or crypto or invest in crypto the line of credit is there for seasonality working capital or unexpected emergencies and so you should think about the line of credit like an insurance policy I I tell the story sometimes when I speak is if you had a pizza shop on the New Jersey Shore and suddenly out of nowhere your air conditioner blew out and it was heat of season and you needed 50 Grand it was Friday you needed 50 Grand by Monday to replace your unit and if you don't have a line and you call a company like multifunding and say I need 50K by Monday and it's Friday what is any lender that um we reach out to going to spell the answer is blood and Desperation you never want to be in that situation if you can help it so if that business business had a line sitting there that checkbook in the drawer for the unexpected emergency they could then cover that and deal with how to refinance it later so that's just one example of why a line is so important I'd like to see lines at the greater of 10% of Topline sales or 85% of AR and 50% of inventory if you're in the B2B business that's very specific if you don't have that and I and I know there are a lot of businesses that don't is there a good time or a bad time to get it or should everybody just be on their way you you should go get it you should go get it and you need to talk to banks in your community or local Community Banks and hopefully a bank that you're going to be important to who's ready and willing to get to know your business and talk to them about a line and hopefully you can get one and that will probably require you to move your deposit relationships over to them which is okay and then you can go from there is this uh the same kind of thing as with a lot of lending that just because One Bank says no doesn't mean you won't be able to find another bank that will say yes 100% sometimes you have to kiss a bunch of frogs to meet a prince all right in uh the other piece you wrote uh you said the primary job of a business owner is to get fired what did you mean by that sure so I'm constantly trying to get fired Lauren let me know if I can help but I'm still here what I mean by that is that we should always in my opinion be trying to take the things we are doing and we're working on where we think we've kind of got them down to a routine or if there's something we're doing that we can put in the hands of somebody else and we can afford to do that we should do that to free up space for ourselves to think or to work on other things for the business so I'm constantly um multifunding will actually turn 13 next week which is kind of crazy and over the 13 years I'm constantly trying to take move stuff off of my my plate and on to other people I'm trying to have no work to do how's that going good yeah except the chees keeps moving you seem pretty busy to me you're you're always flying around the country but it's okay that the cheese keeps moving right so that means that it gives me time for exploration and to explore new ideas and to do new things and to work on the future of the business but the business should the the core functioning of the business should not run on me so when I started I processed all the loans I haven't processed to loan in about five years as an example this is one of those things that I think everybody understands makes sense and is the right way to go it can just be hard to take that first step it's extremely difficult and extremely critical if you're ever going to scale I remember remember one of the biggest fear points for me when I would say well I can't relinquish handling these files and handling these customers to others because then customers won't like them customers like me I can do this better than anybody else can well in fact now there's a team doing it who is much better at it than I ever was and customers don't really want to talk to me anymore they want to talk to them and that's great and now the trick is to take some of the key people on that team and convince them that they got to find people who are better than them at it so they can move on to do other things as well interesting Ami cassar is founder and CEO of multifunding which helps businesses with their financing needs thanks for taking the time Amy and thanks for hanging out of 21 hats oh it's a pleasure laar have a great week everyone he