What you can learn about financing Acquisitions after 1200 SBA Acquisition loans - Bruce Marks

On the computer. Welcome to the top M&A entrepreneurs today. I have a guest, Bruce Marks. Bruce is out of Florida, and he's done, completed over 1200 SBA loans for acquisitions. That's incredible. Thanks for being on the show, Bruce. Yeah, thanks for having me, John, really excited to, to be here and uh You know, participate for sure. So, you are using LinkedIn out there and I'm looking at your profile right now. It says I help finance business acquisitions, M&A advisor speaker, over $300 million in search fund lenders. So, do you just focus on search funders? So, it's a big part of my business, but what I do is I finance, you know, I help buyers finance M&A transactions. So, that could be searchers, it could be buyers, it could be partner buyouts. It's, it's one basically vertical, which is lower middle market M&A, but, you know, ultimately, the borrower can be one of those, you know, three categories. Yeah. So you can help me out because uh there's a lot of M&A coaches popping up. Some of them are houm, some of them are selling real life stuff, but I, I, I get a lot of people coming to me and said, hey, they found a deal, and they got an LOI and they had no foresight to work on financing with this. uh, and you know, and I hate to do this to them, I said, hey, look, you need to go, you know, if you can't finance this deal, you don't have the capital for it, it's not a deal. Yeah, yeah, yeah, that's absolutely right. Doesn't matter who, what kind of LOI you have or what you negotiate. If you can't find it, it's not a deal. I can't help you, man. Like I had a guy yesterday come to me and uh from outside the United States and needs to raise capital 90 days for $20 million like. Uh, do you, do I know anybody could do that? I, I don't, yeah, right, like I was gonna say, I don't. No. So how, so how did you get into this and uh what's, what's the, the goal here to, to help an entrepreneurs and how to, we're just gonna jump into this, like, what kind of entrepreneurs you help, how, what do they need to look like, uh, what's the process, how long does it take, and, you know, the success stories. Yeah, so, um, you know, I got into this many, many years ago. Go. OK. So, Mark, I, I wanna hear the story on how you picked this niche and find everything like, what, what are you looking for? What kind of entrepreneur you're looking for? What do they need, what assets, what financial background, how long does this process take and, you know, what's a good deal, what's a bad deal, everything. So let's get into that. OK, I hope we have more than an hour. No, man, you gotta be, you gotta be zero in on the top points there. Yeah, no, I'm teasing you. So, yeah, you know, I, I made my first SBA loan many, many years ago and was just a generalist, uh, for a number of years and Ended up having my own business for 13 years, John. Um, had a corporate consulting firm and then ultimately sold that. So, got an opportunity to come back into the banking business. And since I'd been through the, the startup of a business, growing a business, selling a business, it just made sense for me to, to dive into that world, right? So, I did, and I was working with basically Main Street transactions at first. Right? You know, working with business brokers and helping them and their clients get deals to the closing table, and like anything else, it just kind of evolved. In 2015, I was first introduced to the search fund model, uh, a Harvard MBA, uh, graduate student approached me and said, Bruce, I'm looking for some financing. It's a bigger deal. Um, I asked him how much money are you putting in? He said, well, not much. And I said, well then, then how are you, how do you expect to get SBA financing? And He explained the model to me. I, I absolutely fell in love with it. It, it made really good sense to me. I've always been a really strong cash flow lender. And, and this just resonated with, wow, these deals are to good people buying good businesses with good strong cash flow. So, let me, let me stop, like, because I've interviewed a search funder in the past and I asked the same questions like, so why is somebody gonna lend you $15 million to buy a business you when you just got out of Harvard? You have no experience running a company. 0. Yeah, so it, it depends, right? So, in terms of a lot of the clients that I end up having are either people that worked for 567 years, and then went back to school, went to Harvard, went to Wharton, went to Stanford, went to Kellogg, Booth, whatever, all the bigger schools. And then dived into the ETA entrepreneurialship through acquisition program, and then when they came out, so they now have an MBA, but they've got 5 or 6 years of experience behind them, right? So, I think the The self-funded search model, which is where I play versus the traditional search fund model. And, and I think that what you're talking about is kids coming out of school that are more working with the traditional search fund model. They get the investors behind them. They've got a management team behind them. They don't want to be there operating it on a day to day basis, so they're a perfect candidate, and I'm not saying that that's how they all go. I'm just saying from my perspective, Very seldom is a searcher, if you will, who's been out of Harvard or Wharton for, you know, 6 months approaching me for SBA financing. Because obviously, this is, yeah, yeah. So I'm just, I'm, you know, I'm just speaking on my experience, right? And I do a lot in this space, but very seldom do I see searchers who are approaching me and saying, You know, I'm 24 years old. I just got out of Harvard, and I now want to go buy a $15 million business. Yeah, OK. So it's somebody that's got a track record, maybe in a CEO position at somewhere or a higher level. At least they have some type of management running a company experience. A lot of, a lot of my clients come out of the private equity world, right? So they, they went to school, they got their MBA, they then went to work for some of the private equity groups. Gs, capital markets, investment bankers, um, and then they're doing that and getting their feet wet, getting the experience, going in, learning how to operate a business with the company, being in the board meetings, understanding the direction of the company, how to build it, how to grow it, and then coming back and saying, I don't want to be in the corporate work. Force anymore. I want to buy one of my own, build one on my own, get some investors and make money for myself. And so, that's what I typically see, and it's the majority of the business that I have today. Yeah. So, and that person looks like, what kind of net worth do they have? Like 500, 2 million, 5 million? I, I guess I'll share a couple of stories with you because everybody likes stories, #1. And number 2, they can relate to it. So, had a really interesting borrower come to me. He had a really strong background. He was in the military, so he came out of the military. So he had great military training. He went back to school, he got his MBA and he came to me and he said, Bruce, um, I'm working with some investors. And we are looking at the acquisition of a $6.5 million dollar transaction. I said, OK, he had $50,000 to put into the deal, John. 50. And, um, he raised up about $1350 on the deal. Did it, was this raised just commitments or it was in an escrow or a fund somewhere? Yeah, we ended up closing the deal, so it was actually raised dollars. And, and what they did was they had put in about 3 in equity. The seller held the small loan, and we did a $5 million SBA loan. But the searcher, in this case, or buyer, whatever you want to call him, put in $50,000 into the transaction. And so when we look at it, it's, and, and the way that I look at it is, is you're betting on that person who you're lending to. And to me, it really doesn't matter whether he's putting in $50,000 or $250,000 cause his skill set is not gonna change, right? His aptitude is not gonna change. He has all those things. Whether he brings in 50,000 or 250,000. So, to me, it really doesn't matter. Um, I'm not looking at the net worth. I'm not looking at his assets. We're a pure cash flow lender. Um, the business did he end up owning in the cab table. So, so what ends up happening is, is they own the majority of the common. And then they'll do some preferred, and that looks a little bit different, but the way for the investors, yeah, yeah, exactly. Yeah, yeah. So they end up generally owning anywhere from 75% to 80% of the common. And the reason is, is because with SBA, you cannot have anybody own more than 20%, and otherwise, there would be a guarantor on the loan. And obviously, from, from an investment standpoint, that's what you're looking at, you know, you, you're not guaranteeing the loan, you're looking at it as an investment vehicle, you're supporting that searcher, you're getting a pref return. Ultimately, they grow that business. They sell it 4 or 5 years from now, and they get a piece of the, you know, the another bite of the apple when they, when they sell the business. So that's how I do my little math here. So that 1.5 million those investors brought in was less than 20%, like 19, 17% of the the business. No, cause it, it, there's really not a correlation between the equity check and a percent dollar for dollar, right? You don't look at it and say, OK, the cap table's 100%. I'm putting in a million dollars. So, you know, of the total, and so I'm gonna get 70% of the business. It's just, it, it, it doesn't work that way. Right. Was that the pro uh the company you just uh talked about yesterday? No, no, that was, um, the one I talked about yesterday was, um, a searcher who I, who I had met, and he was out of the military, just happened to be, uh, when, when you say military, was he an operator? Was he, uh, uh, uh, officer, or was he uh You know, both. You know, worked his way up, right? Started out, worked his way up, became an officer, had been in the, you know, the military for 6 or 7 years, and then decided that he didn't want to pursue a career in the military, but, but wanted to, to go out, went back to school, got his MBA, and now came out. And we've just had a tremendous amount of success supporting our, our military, um, Our, our board of directors is just Really, um, they just love working with folks that come out of the military, that background, that, uh, mental fortitude that they bring to the table. It's, it's really worked out, and we've, we've supported it. I've done a number of veteran loans, for sure. Beautiful. I love that. I was, I'm a military veteran myself, so I love it. Thank you for your service, sir. Amen. Uh, I, I got a question on your website or LinkedIn actually said we seek and fund goodwill transactions. Yes. Yeah, can you tell me what, what you are referring to as goodwill transactions? So goodwill is that intangible value, um, you know, a tangible asset is something I can see, feel, touch, smell. That's a, yeah, it's on the balance sheet. I got that right, right, it's on the balance sheet. Yeah, that's kind of subjective. Why are you, yeah, so intangible is, is that, you know, the business name. You know, those kind of things, and he, you know, just the things that you can't touch, right? So, you get into a transaction where um the company is a distribution business. And they don't even control the product that they, it's drop shipped somewhere, right? And so they, they, they have very little inventory on their balance sheet cause everything is drop shipped. The company is doing 5 or 6 $7 million in revenue, throwing off a million dollars in IBEDA. Right, and there's really no tangible assets in that transaction, and yet that business sells for $5 million right? 5 multiple on a million dollars in Ibida. We, we just really love those kind of transactions, you know, not a lot of carpacks, not a lot of working capital, a ton of cash flow to service the loan, enough to buy, you know, enough for the investors, as well as the owner operator. Yeah, yeah, so you're, so let's take that business right there. It's a 5x multiple and it's got great cash flow, 1 million ebi. So you're gonna be able to loan, uh, is it 70% or 80% on our, you know, 4 million or or what? I mean, typically we like, well, with SBA requirements, you've got to put in 10% in equity into the deal 10% equity. We generally like to add a strip of 10% seller note. I, I get very hesitant when a seller is not willing to hold a note. I've got war stories on that up the. You know, you know what, I mean, I just get very hesitant if the seller is not willing to hold a note. And then we'll look at 80% financing. So on a $5 million transaction, buyer steps in with $500,000 in equity, seller holds $500,000 as in seller note, and we do a $4 million SBA loan. Yeah. And let me go back to that seller note. What if you were able to, how low can your SBA financing going if you get the seller note higher? Let's say if seller note goes, yeah, I, I love the business and I'll give you 50% seller note. Yeah, well, then it's pretty much right. I mean, that's, he's assuming as much as the debt as possible. So, you know, we're happy to do that, you know, of course. I mean, it lowers our risk, obviously, and it's a lower loan for us, but yeah, I mean, it's, it, that strengthens our, our deal, right? And his seller note is subordinate to the SBA loan. That's right. Seller notes are always subordinate to the SBA, yes. Right. And it's still not a deal unless Uh, let's say he's offering seller note at 3%, and it's pretty attractive, right? Or 3 to 6%, but the debt, uh, the cash flow has to cover the debt payments on the SBA loan and on the seller note. Yeah. So, a lot of times, John, what I see is somebody will structure a transaction. They'll come to me with an LOI or they'll come to me, not with one executor, but one that they're thinking of submitting, right? They want to make sure it's bankable. And I've, I've got a little saying, congratulations, you've structured a deal that doesn't work. Because And, and unfortunately, I say, man, I'm gonna borrow that because I yeah within the last week. Thank you, man. Yeah, congratulations, you've structured a deal that doesn't work. And, and I unfortunately have to say it a lot, but that doesn't mean that ultimately that we don't get the deal done because then you have to go back and retrade. There's a lot of, I'm gonna come back to that cause like how does that happen? Oh, by the way, that doesn't work with the bank and I need to renegotiate with you. Yeah, so yeah, we'll we'll, we'll chat about it, you know, there's a lot of talk on Twitter as you. You know, LinkedIn, searchfunder.com, all, you know, the major, major spaces, M&A spaces. Like, what are the terms and conditions? You see it all the time. What are the terms and conditions of the Sua No. Does it have to be on standby? Does it have to be 10 years? Does it? You don't even need one. The SBA does not require a seller note in a transaction. So we want to get that out there first. There's nothing that says yes. What do you mean you don't even need one? What you're saying is, uh, because of the seller, I mean, because the SBA transaction, which is guaranteed percentage by the government, it's, there's less risk and they're involved, so he doesn't need a, yeah, so what the SBA says in their SOP 50106. Nowhere in there does it say, if you're making or you're in in an acquisition transaction, that the seller must hold a note. It does not say that. Now, so to be clear, Let's say you came in and you know 10% is equity. So, if a borrower comes in and says, I'm buying a business for $2 million and I want a 108 loan, that is eligible. It doesn't mean a bank is gonna do it. So there's a difference, but it's eligible under SBA guidelines, so that we're clear. Now let's use that, uh, other business $5 million because the numbers, we can stay consistent on the numbers. Right. Yeah. So, on that $5 million transaction, essentially, $4.5 million of that could be debt and $500,000 could be equity. Yeah. Right? So 1010 and 90. Now, a lot of times when they, the buyer comes in and says, well, I want a seller note cause I wanna make sure he stays engaged. I want to make sure he's in there through the transition plan. I wanna make sure that he introduces me to the new clients, all the different reasons that the buyer wants a seller note. The seller note And the repayment is determined by the cash flow of the business. If you're paying a 5.5 multiple, The seller note is probably gonna have to be really well structured, like a 10 year loan, very low payments, cause there's just not enough room for debt service. If you're paying a 3 multiple on that same business, Obviously, that seller note can be amortized over 4 years. Right? So, what I would love the audience to know is, whenever they're talking about a seller note, cash flow dictates the terms and the conditions of the seller note. There is no preconceived. You have to have one, and this is the terms and conditions it must be on. Cash flow dictates everything, including the seller note. Right. Makes sense? Yeah. Yeah, let's go back to that subject we were talking about, uh, and I can't even remember the part of it, but it was. I'm gonna have to edit this video cause normally I have to looks like remember the subject we were talking about? I said we need to go back to that, yeah, yeah. Oh, that's great. That's great. Um, I, I'm trying to, trying to understand that, uh, when I talk to a lot of entrepreneurs and they come to me for help, and I, and I say, look, you, you have to be, uh, creating relationships with bankers and capital at the same time you're looking for deal flow. Because as soon as you find a deal, and then it looks interesting and you get something where, well, you know the you know the requirements for the bank and the capital, you that that is create your structure for your LOI. It's not something out of, you know, thin air that you say, hey, I, I've got a deal that doesn't work. Right. Yeah. Right. Yeah, no, and, and a lot of times, borrowers will call me and say, hey, I wanna get pre-qualified. I wanna know that, you know, you're gonna support me, right? And so, we'll get their personal information, they'll send me their resume. They'll give me their background and why they're a good fit. But it really ultimately, Depends upon the business that they buy, right? You could take a a searcher who's got a great background, strong MBA. Experience, and he wants to buy a business, and he wants to buy a restaurant business. Well, unless you have restaurant experience, you know, it's gonna be very difficult to get a lender. Even if you've got X amount of money, right? So they have like a 97% failure rate. Yeah, I mean, it, and, you know, a lot of times the way that I approach lending, especially as a goodwill lender, right? We talked about that, that intrinsic value going forward. I don't really look 3 years back. Like a lot of lenders will do, well, we gotta have prior debt service. I, I really don't care what it did 3 years ago. I care what it does a year from now. Because I didn't have a loan 3 years ago. I've got a loan. If I close the loan tomorrow, my only concern is, what's that business? Exactly. Exactly. And then people will say, well, but if you had $3 million in cash flow, isn't that a predictor of going forward? And I'd like to share this story because it really will resonate how, when you are lending and you're lending in the space, how it should look. Let's say tomorrow, John and I decide that we're not doing much, we're not doing a podcast. Business is slow, and we're gonna go to the horse races. And in the 3rd race, there's the Triple Crown winner, and we go, wow, this is gonna be a great bet. He's won the Triple Crown. But an hour before the race, they announced that the jockey is taken sick, and they're gonna put Bruce Marks in the saddle. So you turn to me and you go, hey, Bruce. You ever been in a saddle? Nope. Do you ever ridden a horse? Nope. Think you can get it out of the starting gate? I don't know, John, I wouldn't make that bet. You're not making that bet, right? So, no matter what the pedigree is of the horse, it's the jockey that matters. Cause he's the guy you're relying on to make that horse perform. It's the same thing. And I look at that the same way. I could lend to a business, John, that did $3 million.02 years ago in IEDA. And if I make the wrong bet on the wrong guy, Doesn't matter, cause 6 months from now that business is going under. So, when I look at prequalifying folks, I really dig deep into who I am lending to, their skill set, what they bring to the table, and the jockey riding the horse, and that's the most I, I would love to to make sure that the audience understands that, especially in this size transactions, that that's what, that's the right way to look at it, cause that's the bet that the bank is making, that you're the right guy to lend to. Yeah, like the, the debt's gonna get me repaid. Do you have any affinity for people that are independent or that Uh, our partners, like, say with a brother or another partner, or have a great board, uh, lined up. So, a lot of times, if I see a partnership, you know, now I've got a, OK, how much does each one of you have to take, right? So if each one of them is taking $150,000 300,000 dollars in cash flow is coming off right off the top, right? So, if I got a million dollar business, And let's say you and I decide to partnership to buy the business, and I say, John, how much do you want as a salary? You say $150 and I say, well, if you're taking $150 I want $150. Now we got $700,000 left to service debt, right? So now that's got to service the SBA loan. It may have to service the solo note, it may have to serve the solos pref. And then still have enough room that the noose is still not too tight around the neck, i.e. if the business has a hiccup or a sneeze, it's not going under. Makes it very difficult. And that coverage ratio is 1.25%, right? That's yeah, well, yeah, that, I mean, that's historically for last year, what we, I mean, if you open up the SOP, it really talks about you should have at least a 1.15% debt service coverage, if not with projections going forward, um. But you really want to make sure that the noose is, is not too tight around the searcher's neck, that the deal can't cash flow well and that they can't sleep at night, God forbid something happens. So, not that I, not that I don't do partnerships. I just did a loan. It's now in closing for, for two young searchers. I, I closed a great deal for two searchers, um, back in April. And, in fact, those were the guys that, uh, Introduce me to Twitter, and that's, you know, obviously how we met. Um, but yeah, as long as the business is strong, that it can support them. It, it will supply, you know, it will make sure that it covers their own personal living needs, then, then we're OK with it. I would say that probably 40% of my deals, maybe 30 to 40% of my deals are partnerships with, with two people, and then 60 to 70 years. Probably individual buyers. Yeah. And when do they come to you? Is it when they have a deal already and you're on the list of banks they want to cover, or do they come to you beforehand and go like, what, what do I need before I go out and talk to people? Yeah. Um, it's up to them. That's what I always say. I mean, I do a lot of, um, consultative roles, you know, I'm a certified M&A advisor, and having been through it myself and just the amount of experience I've had in the years I've been doing it, I say to the clients, Listen, you're running the ship. This is all about you. You want to come and talk to me pre LOL LOI, and you want me to look at the SIM, You want me to look at the tax returns, you want me to help structure the deal, you want to talk about it. I'm happy to do it. I really am. And Um, that's how you build relationships in this business. And as you all know, John, cause you've been doing this a long time and very involved in the M&A. By the time a searcher sees a deal, goes through it, and it falls apart, and then they're on to the next one, as you know, I, I, I can share story after story of, you know, I, I finally closed the loan and it was a year and a half later, after looking at 5 deals with the searcher, right? I mean, that's very, very common. That's very, very common where I start with a searcher and a year later, 23 months later, we're, we're closing the right one. Yeah, yeah. No, it's not. I mean, if it was easy, everyone would be doing it. It's not easy. Yeah, yeah, yeah, no. It takes a lot of time, but it's, it's just a great space to play in. I, I love doing what it is I do. I'm very fortunate that at this point in my career, I get to Get up in the morning and make that decision. I don't have to come to work anymore. I wanna come to work, um, when you, when you Somebody comes to you, let's say, that looks like, you know, that that was in the military, went back to school, came out, uh, is a searcher, is looking for a business, and he goes, well, I'd like this $5 million business, uh, but I only have $50,000. What do you advise him to do? I need you to go find some investors, equity investors, and then come back to me or how do you help there? Yeah, so a lot of times, um, That, that happens a lot. So let me, let me just as you would imagine, right? So. I'll say to them, I'll just say, listen, this is the way it works. You're gonna have to come up with 10% equity, right? So if you're buying this distribution company, it's throwing off a million dollars, you want to buy for 5, you're gonna have to raise $500,000 right? You've got 50, that means you need $450. Does he need to have 50, or can an investor spot in 50? Each bank is different, and each bank's requirement is different. So, that's a real key point because a lot of people will call me and say, well, I heard the SBA requires this. Well, that may be true, it may not be true, that may be the bank requiring it, not the SBA, right? And the SOP standard operating procedures manual is really like anything else. It's a Bible. But it, it's left up to interpretation, right? So, it's one what it means to me. Yeah, right. Exactly. So, as one lender friend to me, one lender friend said to me once, Bruce, we interpret the SOP a little bit differently than you do. That's when I realized, OK, yeah, they're playing by a different set of rules. Doesn't mean they're wrong, doesn't mean they're right. They want to take that chance. God, God love them, right? So, the way that at least First Bank of the lake goes to market is, is we want the searcher to have some skin in the game. We want them to have a little bit of money into the deal. Does every bank out there require that? Mm, I don't think so. I'm not sure, but I, I have heard that there are some banks out there that may not require that. We do. So if we're doing a $5 million deal and the, and the equity raise is $500,000 we want $50,000 from the searcher on that deal. You know, there's a terminology called straw borrow. We've all heard it in the mortgage industry, right? And, you know, when you're dealing with the SBA, It's a government, right? And we get audited just like any other industry. And so, in order to keep our guarantee intact, which is obviously, we're here to make loans, but we're doing these loans because there's a risk and we want to make sure we get the SBA guarantee, we are definitely on top of mind to make sure that our guarantee sticks, God forbid in the event of default. One of the ways of doing that is to say, hey, You know, the searchers got a little skin in the game. It wasn't a straw borrower we're we're OK with it, cause I will get deals where they'll say. My sweat equity, my 2 years into the looking for this, my working with the Outside community, me seeing 250 SIMs in the past, whatever, that's all sweat equity, and that's what I'm putting into the deal. For us, for our, I, I, I'll be honest with you. I'll share you something like. I spent probably over $100,000.05 years ago searching for a business. Yeah, yeah, because I was doing it kind of full time. I mean, I did have some other work, but it, it, it required a lot of money. Yeah, it does. It does. And the self-funded, you know, and a lot of times. What that comes into play when they are looking, because as they start to get down the path, farther and farther, more money that it's taken them to be a self-funded, the more urgency it becomes to get the deal to the closing table, right? Yeah, because their funds are running out and they've got to find something. So, you know, if you're a new searcher out there and you're looking, you know, you gotta have at least a year and a half worth of your living expenses set aside because to your point, you spent a lot of money doing it, right? And if you don't have it, that's when you're forced to make a decision because you're going, holy cow, I, I, I've got to find something here cause I'm, I'm getting close to the end. Yeah, yeah, so. So, tell me about the uh the investor and the uh sales preference on, you know, what they, what that means to the loan and what that means to you. From, from the way that the investors are looking at the, yeah. So we get it because if, if you, if a searcher came to you and said, hey, you know, I don't have $500,000 so they gotta go back and start. Uh, searching for investors, and the pitch is going to sound like what? and usually what they get to comply with SBA loans for the other 80% or 70%. Yeah. So a majority of them put together an investment thesis or an investment deck. They'll share that with me, and they'll have stages of completion, like, OK, I've entered into an LOI and now I want to make sure that I can get bank financing. So they'll come to me and say, OK. This is going to be the structure we're buying this business for 5 million. I've got $50 I'm gonna raise up $450 from investors. The seller is gonna hold a $500,000 note. We would like a $4 million SBA loan. Does that work? So, we'll look at the numbers, we'll go through the tax returns, we'll structure the deal, and then I'll say yes. So we will give them a term sheet at that point that says, we would like to proceed forward under these terms and conditions. Then generally what they'll do is They will use that to start to go to market and say, we have a bank that we're working with. This is Bruce at First Bank of the Lake. You can look him up, look at his reputation. We're working with him to get the SBA loan. Now we have to go out and get soft commitments to raise up this additional $450,000. And as you know, there's a ton of professional investors that do this. There's groups out there that do this, um. Yeah, it's like a huge list on, uh, search funder that'll do that. Huge, huge list. And then there's some other firms out there that do it. There's a couple of firms in California, there's a couple of firms in Texas. There's a couple of firms in Boston that will lend to searchers, right? And they, they know the model, they understand the model, they know the investors behind it, and they can do it. And it's interesting because I've never had a deal where I've worked with a searcher and they have not been able to raise the money. They've never come back to me and say, oh, Bruce, we can't move forward because we were unsuccessful raising the fun. You've never had anybody say we couldn't come up with the $450,000. Wow, OK. Yeah, because it's just, you know, the bet is in the individual, right? And then usually that individual that you're making a bet on is like. Uh, I mean, I, I could see him, he's gonna get it done. Yeah, he's gonna get it done. And so from our standpoint as a bank, not only does he have to sell us, but he's got to sell the other 567, quote unquote, investors that he's the right one, right? Cause they're investing real dollars into this as is, as is we. So that gives us more comfort that, yes, he is. A good bet. He is a good jockey, and 6 other people agree with me that he is. That gives us a lot of comfort to be truthful with you. Then, obviously, they're bored. Um, I just recently approved, uh, well, we recently approved a pretty large transaction in California. And it was a $6.5 million dollar deal. And, you know, the buyer is going out to raise money, and I know the investors behind the deal, they were the ones who actually told the searcher, hey, you should speak with Bruce. He'll really like this deal and he can get it done. But I'm so confident with the people that are behind him. Their industry focus, what they bring to the table to help him. It just makes it really easy for me to get the deal approved when I'm making the presentation to our executive loan committee, because we know the people, we know the investors. We have a track record with them. They've been right. They bring a lot to the table. That's super helpful, you know. So it's, it is important who the searcher brings on his team. It is important who's investors. And I've, I've shared this with uh several searchers, John. If you're only looking to raise $500,000 and your and your thesis is, I want to get 10 guys that got $50 right? So it's $500,000. You gotta be able to know that those guys, God forbid, if you need a capital call. Can do it. Right? They're gonna be there for you to support it. Not every time does a business just, you know, we get the projections, they just show this upward trend, right? You never see, well, I got a learning curve. The business might go down. I may need some additional work, right? You know, you only see this month after month after month, you know, increases, like, I own my own business for 13 years. You own your own business. Has that happened in all your years in business? Just straight up? No, I wish it did but no. Yeah, right, right. And I laugh and I share with them that I go, let's, let's talk about reality. I like lumpy. It'll go like, yeah, exactly. Yeah, exactly. Exactly. So it's important, right? It's important that God forbid you need to go back to your investors that they've got the pockets to put in more money. Because to think that that's not gonna happen is naive. Right? So, you know, it, to your point, we do look at the investors, we, we do look at who's making that equity contribution. We do look at what they bring to the table in terms of their skill set, how they're gonna help the searcher. Yeah, it's all super helpful when we're making a decision. Yeah. When you look at the business that they're acquiring, um, what are the red flags? Let's say if it was losing money out of a 3-year average. I mean, I'll give you an example. I, I'm looking at a business that did, I'll tell you the exact numbers on it. Give me a second, like, uh, I love it. Uh, can I, am I gonna possibly get this deal done? Oh. I like, I, I'd like to look at it and go like, Hey man, if I can get a 100% seller finding because he's just like, he hates paying taxes, he hates paying taxes, yeah. Like, I did the average on this, like, uh, And You know, it did, uh, 244 net income. I, I have in 2019, uh. 2020. Did. 65,000. 65 and 20, yeah, and 20 expected. Is 71,000. Um, 22 is just like, is, is rocking. Uh, they are at. Uh, 305,000 in August 8, as of August 8th. So that's like an average, I did 3 years. I took 4 months from 2019. I added them to uh 2022 and did a 3 year, 12 month average, and they're doing 124, excuse me, total was 373,000, uh, divided by 3 is 124,000 over three years. Yeah, so I don't, I, I don't do averages. I don't look at that. I would, I would go back and look at, I understand obviously 20 because of COVID, right? That's what they're, they're gonna tell. But 21, we had COVID as well, right? It wasn't fully, it wasn't fully there, but it wasn't fully gone away. So. You know, I would get a little bit granular and want to understand what happened between 20 and 21, and then obviously what's happened in 21 to 22, like, how did they get to 305? Is that sustainable? Yeah, I asked him about that, and he said all that contracts and the government gets like they, they have to spend it, uh, but it's a, it's an interesting industry because we're, it's, uh, can't really talk about it. I'll talk about later, what it does, but it, the business should continue to grow because we're becoming more conscious of needing this product. Yeah. And I think, you know, when, when I look at it, and they have a unique vote because there's nobody else in town does it. Yeah. So, so that's, you know, when I look at it, I, I look at each year. I, I look at the balance sheet, I look at the income statement, but I really want to get granular with the business and the business model itself, so I can understand it. Right? So, I, I get that 20 years, was gonna be down, you know, we see a lot of those type of scenarios. Um, but to me it's, it's the go forward. So if the case can be, hey, you know, in 21, they only made 71. And they made 244 in 19. What, what happened from 19 to 21? I get 20, but why did it drop from 244? To 71, and then all of a sudden now, it's, it, it's rocking and rolling. And what are the factors that will continue? What's happening in that industry? What does the seller know that you don't know? You know, let's do our homework and make sure. And so, I, I like to get really granular about the business, the business model, how they make money, why they make money, while they'll continue to make money, why is it sustainable? Yeah, that's a, that's always a red flag with me because you don't, you know, you don't get to talk to what the customers are doing. And, you know, where they're going, and are they gonna keep buying? So, I'm in a deal right now. And I can't tell you the type of deal, but I'll just tell you the numbers. In 2020, the company did 225,000. Pause one second. Um, yeah. So, wanted to share this and and how this is relative to what you were talking about. So, We're in credit right now on a deal. It's a $7 million purchase price. In 2020, the company did $225,000 in revenue. Ouch! So on a $7 million dollar business, like, yeah. In 21, the company did $4.7 million in revenue with $1.4 million in IBEDA. Yeah. So there was no EEA in 20, obviously, cause they only did 225. They did 4.7. In 21, with a million 4 Ibida. How are we getting this deal done, right? We've got just one year's debt service coverage in 20 the business really didn't even exist. Here, here, here's the factors why. It's a synergistic acquisition. So, it's a gentleman who's got an existing business. That business is throwing off. A fair amount of cash flow. He has been for the last several years. He's absolutely the right borrower. And this is a competitor that he is buying. So he knows the business he's buying. It's synergistic. He's getting it on the rise. Right? He's structured a deal where we're looking at 90% financing. He's putting in 5% equity. The seller is holding a 5% note on full standby, full subordination, of course, and we're doing a 90% deal for him. And when you look at it, you say, he's absolutely the right buyer. It's synergistic. The company is doing well. It's growing. The space he is buying in, and what he's doing is growing like wildfire. There's a lot of looking forward reasons to do the deal. And when he, when he called me, he said, I've shown this to a number of banks, they've all said no right away. But I've heard you're a little bit different because of your philosophy. Did they say no, because the uh one that one bad year? Yeah. Nope, not even a bad year, just no year, basically, you know what I mean? There was a very compelling reason why the company went up. The the company brought in a couple of people that really were able to scale it and take it to the next level. Yeah, that's the market is those people, yeah, finding people that could do take it from $220,000 in revenue to 1.5 million in Ibida. Yes, where are those people? Yeah, right, exactly. So this, but this borrower is just. Very worthy of getting this, this kind of financing. So, It's a $7 million deal with deal cost. We've got like $350,000 in by the buyer, $350 by the seller, and we're doing not only a $5 million loan, but 1.5 million. Conventional perry pursue loan. Which is our bank, behind the $5 million SBA loan. So we're giving them a junior strip of 1.5 million behind the $5 million SBA loan to get the deal done. And that's the kind of transactions that we do and what we look for, rather than going, OK, well, it did 3 million 3 years ago. Right, so. You know, we put our money where our where our most are, right? I mean that's how much, uh, when you say look forward, how much, um, like due diligence did you do on the industry say, hey, it's, it's not a dying industry like say Berkshire Hathaway with textiles. It is a cybersecurity industry growing at 20% per year, right. So obviously there's Ibis world and there's a bunch of industry. Analytics out there that talk about what's happening in that industry, the growth of that industry, what's expected over the next 3 to 5 years. And then you look at The market share that he might have compared to the whole market, cause it's not being created, it's there. But why buyers or why, cause this is a business to business type of product, why those small businesses will utilize these services and why does it make sense? So, so like for us, we're a bank. We're not a huge bank, so we have outsourcing IT services. We have outside, we have some HR but we have some outside HR help, right? So, there's a ton of small businesses that don't have the manpower and that are gonna use services of outside companies to help them facilitate their growth until they get ultimately big enough, right? I mean, that's the bet. But when you look at this, the industry that he's in, in the vertical that he's in, this is a very good existing strong, growing sector that's not going away. It's not. It's absolutely not going away. So, the fact that he can catch it on the rise, and I, I did a deal similar for a company in Texas, and we got their deal approved, and it was very similar. In fact, We had this, we got the deal approved. We didn't have debt service for 19, we didn't have debt service for 20. And we got the deal approved on 21 QV numbers for the 10 months ending October 2021. So, I didn't even have a year's tax returns to say that I had cash flow. I did it on cash flow on a QVV based upon 10 months. We, you need the tax returns on the business uh uh before you see the uh Yeah, so what happened was is we made the loan subject to the company finishing out the 21 year filing the tax returns and showing that number or a little bit above what the QVV says. They were able to do that, and we closed the loan in February of 2022, but we got the deal approved on 10 months numbers on a QAV of October 2021. And it's, and, you know, when I speak to the searchers and I, I stay very close with my clients, they're killing it. They're just, you know, I, I went down to Texas, I met with them, and they said, we thought the market was here. No, the market's like this. It's not even like this, Bruce, it's like this. He said we're, we're killing it. We're gonna be, we're on track to do a 6 and this year. Wow, um, he said in The, the, he said, we, we, we had to move the, the lease location already because they've outgrown it. They've added additional trucks, they've added additional crews. They just, you know, they were the right guys and we knew it. And we were comfortable with a go-forward look to say, this deal makes sense. They raised up enough money from equity investors. They put in a good amount of money, each one of them, there were two guys, partners, so to speak. They each put in a good amount, but super solid backgrounds. Super bright guys, no question that they were gonna be able to do it and they're doing it. Yeah. That's cool. So a lot of great stories, a lot of um You know, when you, you've been in this business as long as I have, that's what you have a lot of stories, right? Yeah. You do a lot of deals and you got a lot of stories. And it's, it's fun to see the success. Um, I can tell you that since, you know, in the last 8 years that I've been strictly focused on this market size and, and the kind of clients that I'm working with, 11 searcher reached out to me, he said, hey, Bruce, you know, we, we know that nothing is perfect. What happens when an SP when, when a client doesn't perform and what, what happens with the SPA guarantee? Everyone wants to know that and I go, I'm thrilled that I cannot answer that question. So you never had it default on a SB, yeah, so far, um, I think that, uh, yeah, I mean. I look back at the, you know, my prior institution, this institution, we've been making the right bets on the right guys. And that, that's what, you know, you're making the, you know, our go to market strategies is we lend to good people, finding good businesses with good strong cash flow, right? And the stronger the cash flow and the looser that noose is around the neck, the more That that business can have some hiccups or sneezes or colds and still not affect the cash flow. When I see the deal getting really tight, John. That's when I say, yeah, I don't know if this is the one for me. Yeah, that's a 7 year SBA 7-year loan, right? Or is it 5 or 7? 1010 year loan, 10 year loan, 10. Yeah, that's the benefit of it, right? I mean, that is the benefit because if the guy wants seller financing, that has to be a shorter term for them because they don't want to stick around, especially if they're 65 7. Yeah, and generally, but again, that's where, that's where the negotiation comes into play, right? And the strategy behind structuring that, and making sure, because it's a good deal when the buyer, the seller, the lender, the broker get up and walk away. table, shake hands and go, this was a good deal, right? It can't be one, it can't be one-sided. It can't be a great deal for the searcher. It can't be a great deal for the seller, right? It's, it, it's got to be a, a combination of all of those going, this is a good transaction and this is one that will stick. Right. So, let's do this as an exercise. I'll send you this deal here. Um, uh, what, what do you need? The, uh, income statements, balance sheet, uh, cash flow statements? Yeah, whatever, whatever you got, and I'll be happy to give you my opinion, you know this would be a great exercise and uh we're already up on the hour, so I wanna thank you for very much being on my show. And uh how do you say that again? Congratulations. Congratulations, you've structured a deal that doesn't work. There you go. Now, now, now what you have to do 2 to 3 times like like so like I am trying to buy this $20 million construction company. Great. Did you try SBA? No, I'm outside the country. Do I know any investors? No, I don't. you know, this has been great, John. I, I, I greatly appreciate you having me on the show and um letting me be a part of it and looking forward to, uh, you know, having that conversation and seeing what I can do to, to help you. Thanks very much. OK, great. Thanks.