Apr 5, 2021
Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business with Josh Kim
The Small Business Administration (SBA) main loan program is the SBA 7(A) program. According to their website "The 7(a) loan program is the SBA's primary program for providing financial assistance to small businesses. The terms and conditions, like the guaranty percentage and loan amount, may vary by the type of loan."
Starting from nothing, Joshua Kim had a desire to purchase a small business, even at a young age. He discovered the world of SBA financing and after much trial and error, was able to finance his first business purchase with an SBA loan of $1.2M at 19 without family money, connections or an ‘insider’ at the bank approving the loan. Subsequently, he was able to get 2 more loans totaling another $1.3M+ to purchase 2 more businesses. He realized that many business owners either never apply for SBA financing because they hear commonly perpetuated myths, or just have bad experiences with unsuitable SBA lenders and started his latest business, 7a Accelerator, where he and his team help educate, consult with and assist small business owners in securing SBA financing. By cracking the credit matrix and demystifying the process, they save business owners time and money by making sure they get paired with the right bank for their business.
Full Transcript Below
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (00:02):
Hello, and welcome to another episode of the business of business podcast. This is your host, Roy, of course we are the podcast that brings a wide variety of guests to the table to talk about a bunch of diverse topics to help our business businesses out there do better. Maybe there's something that, uh, some product or service you weren't aware of, or maybe even you're having a little trouble and looking for somewhere to turn. Hopefully we can help you answer the question then, uh, today, uh, we're lucky we have, uh, a gentleman that stopped by to talk to us, Josh Kim. He is with seven, eight accelerator. And, uh, what I'll let Josh explain it a little bit more, but basically, uh, what they, he deals with is helping people get SBA loans through their seven, eight program. So without saying much more Josh, welcome to the show.
Yeah. Thanks Roy. For having me on, um, you know, it's, it's, it's great to be on and I'm really glad I'm here to share some information. You know, a lot of business owners, they they're so busy running their business, just trying to, trying to keep busy with every thing that's flooding them. You know, they're, they're not necessarily here and all the incentives are out there with the SBA and all these different business loans. And it's kind of why I started seven accelerator because I've got a, I've got a good breadth of knowledge in the space. And I just don't really think that people don't pursue what they don't know about. And so, you know, the more people have been educated about what incentives the government has in place for small business owners outside and above, you know, the ideal, the PPP, the other disaster relief stuff. Um, you know, the, the more businesses we can help, the better it is for everyone. Right?
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (01:39):
Exactly. Yeah. And that was what caught my eye. Uh, you know, when we first started talking is the, uh, number one, you've got an interesting background. I'm going to ask you to talk about, but also, uh, you know, being able to look for funds, a lot of places, we feel like we're coming out of this pandemic and businesses, uh, you know, I'm based in Texas. And so, you know, we are going to open up next week. And, uh, so anyway, there's some businesses going to be looking to see how they can get back on their feet, maybe grow a little bit, uh, you know, there may be even some entrepreneurs that have decided to not go back to work that maybe they want to buy a small business. So I think it's a very timely topic, but if you don't mind, before we get too deep into the, uh, the SBA, tell us a little bit about your story.
Yeah, so I, I've got a pretty interesting background with dealing with SBA loans. I actually purchased the business, my first business at 19 with an SBA loan. And, um, you know, I was really just frustrated with the lack of resources and information that were out there around how you go about getting an SBA loan either for, you know, not even necessarily for a business purchase, but just for business in general, you know, there's 3,500 plus lenders that work with the SBA, uh, you know, primarily banks. There's a couple of, there's a handful of non-bank lenders that do you know, the seven, eight and five before loans too. But, um, I was just really at how hard it was to just navigate, because it seemed like me every bank you talk to, they gave you a different answer. I just dealt with this situation today. I mean, I, I actually, you know, I had a situation where I was wrong.
I just had to double check with the SBA, but a banker who's been doing SBA loans for 10 years. You've need, you know, bad information about a client we were working with. Wow. Um, and so unfortunately, you know, that's what happens with a lot of business owners. They get a bad piece of information from a banker who, you know, they had better information or whatever the case might be. They throw up their hands and never want to pursue it again. So, you know, I knew for a fact that I was able to, you know, go buy a business with the seven, eight loan, but I really had to go talk to a lot of lenders before I figured out the ones that really understood, you know, how the program works. Cause you could go out there and you can call all 3,500 lenders, but the number of good lenders out there is probably less than a hundred.
Right. And so, um, you know, that's, that's kind of what struck me as really frustrating. So anyway, ran those businesses for a bit, you know, recent sold some off on and more focused on this full-time because I just realized that, you know, this is, this is my skillset, it's my wheelhouse. And you know, me being involved with the, with the business owner for only a couple hours, I can say the months of time and going through this process by right. Uh, you know, approaching the right lenders to the beginning of it. So, you know, back to more of my story, you know, like I said, I, I bought a business, I actually bought three businesses with SBA loans before I turned 21. And you know, what I found out was that every single bank out there has kind of a different David different criteria, different little credit marks.
And so, you know, it's not like going for an FHA mortgage where every lender you go to, they're going to have the same strict, exact guidelines, every bank, even though it's the same 17, same five Oh four programs, you know, they're going to have a little bit different approach in how they underrated things and how they approach things. So that the screws, a lot of people over because they, you know, like, like I said, they get better information from one place and just take it to heart and then just never try it. So, but, but yeah,
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (04:52):
Yeah. And these, uh, you know, that's the one thing it's a good and a bad about dealing with the government is they've got some good programs. That's usually just a lot of red tape wrapped around it. And if these lenders don't have somebody that's dedicated to that, full-time, then that produces that bad information and kinda sours people's, uh, uh, you know, from pursuing it more further or again, but also, you know, this is actually a pretty good deal for the bank. So you think that they would take a little more interest, but let's talk about for, for a lender. What are some of the, um, what are some of the good points about why you would want to go with SBA versus maybe going to a traditional lender?
Yeah. So I guess from the perspective of the lender, the reason lenders really like these SBA loans is that it minimizes their risk. The way that the SBA works is, you know, they're, they're guaranteeing a significant portion of the loan. So normally in normal times it's actually 75%. So if you go get a loan of a million dollars to, um, you know, to, to, to your business, the SBA is guaranteeing hundred 50 grand right now. And so October, and I, I guess we can talk to some of the specifics on this later. One of the unique things that they have right now is actually guaranteed percentages 90. So if a bank makes a loan for a million, they're actually, they're only really risking a hundred grand. Okay. And so for situations where there's a collateral shortfall for a smaller business, which is almost always the case, right.
Um, it's, it's a great option for the bank because they can look at it and say, okay, well, you know, the cashflow is here to cover the monthly payment on the loan, but we don't have the collateral to, you know, to fully cover, you know, the, the unsecured portion. And so for them to look at the SBA is a great option because it's okay, well, we can minimize our risk, you know, with, with these guarantees, um, you know, a fun fact is the SBA as, as a government division, you know, the way they work is they just charge a fee on every loan. Then, you know, between three and 4%, they charged alone of that to, to every new loan. Those are also getting to mainframe now, but, you know, they just accrue all this phase and they use the pay off the bad loans.
So it's actually a very, you know, for the banks who understand SBA and they, they do it well, it's a very profitable division for the bank. So the motivations for the bank go, it reduces their risk and allows them to, um, you know, help businesses grow. Because if that business grows that guy, the guy who owns the business, you know, he goes from making two, 300 K a year go, you know, 1 million, 2 million, $3 million a year. You know, he's going to be keeping all his money probably at that bank. So it's a great way for them to, um, you know, advance capital to business owners needed to grow so that person can, you know, build up more money with the institution by the banking products, but it also has minimal risk for them because it's predominantly guaranteed by the government. Right. Um, that's a great option, you know, on the flip side for borrowers, because a lot of times they, you know, if you want to go buy a business or you want to, uh, you know, get extra capital for your business, I mean, you know, most situations it's not going to be fully secured.
And so, you know, the terms on, on debt elsewhere, um, you know, if you go to some of those lenders online, you know, they're there sharks, you know, what, 1820 4% daily paybacks, you know, uh, hidden fees that can amount to tens of thousands of dollars on a, on a relatively small loan. Um, and the reason, you know, obviously the reason SBA loans are such low interest rates is because they're government guaranteed. You know, right now the maximum you'll pay is about 6%. Wow. So, you know, the prospect of getting over a million dollars in secured for under 6%, it's, you know, you can't beat it. So other than kind of what the motivations are, I guess, for the lenders and the borrowers, it's a, it's a great option for, for all parts.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (08:19):
Yeah. And I guess, as you mentioned with this, um, with online commerce and everything else that's going on, it's also, I think you can, as the borrower, you can probably rest a little easier with the SBA behind this, that you're not going to find yourself in a, in a bad situation once you sign the papers, you know, there's a lot more trust there as well. Yeah,
No, no. Yeah. That's, that's great.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (08:46):
Yep. So, um, you mentioned a couple things, you mentioned, uh, buying a business and you mentioned, you know, some work in capital, what are the, um, you know, what are some things that the, the seven eight program will cover? If you are a, uh, you know, business person or want to buy business, what, what can, what can you do with the money that they loan you?
Yeah. So yeah, that, that's actually one of the biggest questions that I hear from people is that like, you know, what can I do with it? I heard you can only buy real estate or do real estate improvements with it. Um, you know, for the seven, eight term loans. And, you know, I, I'd kind of lump them into two types of loans. You've got five Oh four loans. Those are just for real estate. So real estate purchases, real estate ground-up construction, renovation, you know, tenant improvement, fixed improvements, all that, the seven, eight loans. Those are the more general ones. You can use that to buy a business. You can use it to buy out a partner. You can use it for general working capital. You can refinance debt. Um, you know, you can obviously use it to buy real estate as well. Uh, the rates and five Oh four on seven eight are usually a little bit higher than five Oh four, but there are certain benefits and certain circumstances where seven eight that one's a little more expensive is preferable to for five Oh four.
Um, but you know, I, I tell people like it, as long as you have a legitimate business need for extra capital to grow, whether it's to buy, you know, buy equipment, like I'm working with a guy right now, he's got a software company and the software he deals with is, uh, managing it. He sells a software to companies who need to manage remote employees. So with COVID everything, the demand for their stuff has gone through the roof. It needs to buy a few million dollars worth of servers to actually accompany the, you know, the increased demand and, you know, bandwidth on their infrastructure. They don't have enough bandwidth on their servers to keep up. So he's basically just gonna go and take all this SBA money and just go buy more servers. Um, I've also seen situations where partnering buyouts business acquisitions. There's a lot of different things you can do with it, but you know what?
I generally tell people, I said, you know, as long as you're not going to take money and buy a boat for yourself to go, uh, you know, vacation with it, it's, it's probably, you know, concerted and eligible use, you know, obviously you read the fine print brand, make sure, uh, make sure it works. But yeah, I mean, it, it's a great option for just, you know, I got off a call with a guy earlier, we're going to be working with about, uh, two to 300 e-commerce businesses, but are all doing about a hundred thousand dollars a month or more in sales, you know, that they're trying to grow their credit lines. And, uh, you know, a lot, a lot of business owners, they, you know, they just try to bootstrap their business growth with credit cards and it's like, it's great. But after a certain point, American express is limited 50, a hundred thousand dollars.
It's only gonna take you so far. Um, you know, and I, you know, it doesn't matter what your business is when you're a contractor, whether you've got an e-commerce business, you know, a doctor, a lawyer, like, you know, you need outside capital. And so that's really, what's great about these SBA loans. And, and it's not, I will tell people if you need capital in, you know, in a week, it's not the fastest option in the world, but it's, it's, it's by far objectively the best long-term permanent countable solution for small business. Right. Cheapest rates, best terms. But yeah, I mean, you can pretty much do anything with it.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (11:34):
Yeah. And here again, that's another, uh, another, uh, good point to reach out to an expert like yourself before, you know, you Wade off into this and get too far down the road and make sure that, you know, this is something, uh, number one, that they'll, you can use the funds that they give you for what you need to, and, uh, you know, get some advice up on the front end before. Cause I know, uh, anytime you deal with the government, there's going to be a lot of paperwork that goes along with that. Uh, well, I
I'll jump in there. It's actually, that's, that's probably one that's one of the other big misconceptions about SBA loans is that require a ton of paperwork. Um, you know, they, if you go for a regular seven, eight loan, there's actually two forms that are SBA specific. You gotta fill out. One of them is a personal financial statement. So whether you were applying for a mortgage with the government guarantee or not, you're going to have to fill out a personal financial statement. They just like being on the SBS form. And then the other form they have is, is what they call, um, it's just a borrower information form. So just basic information about yourself, like, you know, your ethnicity, your nationality, all that, no jobs, the loan will support. And that's how the SBA would think like they gauge their success is they, you know, they take all that data.
Like how many lungs were made to this ethnicity, how many jobs are saved and just, it's basically data mine VSPs we can keep track of, you know, how much of an impact they're having in helping it's important jobs. Okay. So, but you know, I, I tell people it's one of the biggest misconceptions too. If you have a full loan package ready to go, you know, you've got all three years of your business and personal financials together, you've got your budget, you've got your two, three page business plan, narrative one, you know what? You need the money for it a little bit about business. You can get an approval within two weeks. And if you have all your ducks in a row, you can close in three to four weeks. Usually what takes a lot of time is, you know, again, I hate to keep beating a dead horse, but working with the wrong bank, like you said earlier, the bank said it's not their specialty.
So they've got a bunch of, you know, they've got a bunch of knuckleheads working on it, who, you know, they're also trying to say credit cards and traditional mortgage. That's not their core expertise. Right. So, you know, you're going to be kind of stumbling around in the dark and, uh, you know, the other issue, it's usually, uh, a lot of times it closing delays, a lot of times fall in the borrower. They don't have their, they can't find their, their LLC formation documents. They can't find a tax return. They can't find a copy of their lease or an insurance document. So as long as you don't want your stuff generally available, and that's kind of where working with someone like NIS is helpful for a business owner, I kind of tell them all up front, like, here's everything you need to be working on now, so that it's not holding you up later. If you have all your ducks in a row, I've seen loans closing less days from application to approval, but it's, it's usually, it's usually, it's usually a combination of, you know, either a lender who's not on the ball or, you know, a borrower who doesn't have all their stuff together. Yeah. But yeah, it, it, it really doesn't take as much paperwork as you like.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (14:14):
Oh yeah. Okay. No, that's awesome. Cause that was actually, I was fixing lead into the, uh, you know, what are some of the other misconceptions about the SBA loans, but I think you covered it unless you had any more points you wanted to make there.
I, you know, I, I think some other misconceptions, you know, a lot of people think, you know, my business isn't eligible. I'm not, you know, I either I'm too big or too small, you know, the size thresholds for, for SBA. I mean, if, if you need to borrow anywhere between 25 grand and 5 million, you know, you can, you can take advantage of SB. I have a situation friend of mine, he's actually getting more than that. He's actually getting 5 million from an SBA credit facility and 3 million of a financing from the same bank together. So, you know, he didn't actually think, you know, before I very, I guess before, you know, it kind of came to it. He didn't think that SBA financing was going to be suitable or his business and the growth and kind of what they needed, but, you know, he found out, well, Hey, this is, this is actually an option.
And he'd been running his business for 20 years. Unfortunately he knows a lot of situations like that. People just don't realize like it's a suitable thing. Um, you know, another big misconception I think is that, you know, you need to have a ton of collateral. It actually says explicitly into the SBAs SOP for the seven, eight program, a lender cannot decline a borrower's request for a loan solely based on inadequacy of collaborative. And so obviously I got $1.2 million at 19 years old with 20 grand in my name. Um, because the business that we were purchasing was a good underlying asset, right. They didn't, they weren't looking at how much equity I had my house and this and that. And you know, again, a lot of that comes back to the bank. If you go to Wells Fargo, they're going to tell you, you need X amount of collateral coverage on this lump.
That's not the SBA policy. That's just Wells Fargo policy. Okay. So you know that unfortunately, lenders to disservice to a lot of borrowers by reinforcing some of those myths and misconceptions, because it's they tell them, Oh, this is SBS policy. And most borrowers, they're not going to go and take the time to read through 300 pages of an SBA SOP. Like, so, um, but yeah, I mean, that's another big misconception. You need a lot of collateral or cash to go get an SBA loan. Um, you know, really I'd say that those are the two biggest ones that need a lot of cash collateral to get one. And it takes a long, long time and it takes a lot of paperwork. And in both of those are not, they're not true if you work with the wrong banks, obviously all the misconceptions become true. But if you work with owners, really know what they're doing, a lot of those problems.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (16:31):
Okay. Are there some, uh, are there some instant red flags that if somebody, you know, was out shopping for the SBA lender, are there things that can be picked up on, in a phone, quick phone call that lets you know, that you're not at the right place?
Yeah, I would say so there are a couple of things that are hard stops that, that make it really difficult to get SBA financing. Um, so actually I'm actually kind of dealing with the situation right now. So, uh, I'm dealing with a bar where she was actually a co-signer for somebody else's student loan. Um, and so we're having to navigate it. Luckily it's not a big deal. You know, her business, she's making about 300 grand a year off of it. And it was an old student loan that was supposed to get it. She was supposed to be absolved of liability, but through a couple of things, but long story short five, six years ago, default did charged off there's like a $9,000 liability out there. And because it was a federally guaranteed student loan, if you've ever defaulted on or had a loss on a prior, you know, federally guaranteed finance instrument of any kind business loan, personal loan, you know, FHA mortgage, student loan, whatever you're going to have to get that current before your SBA financing goes to.
So we already told them dang about like, Hey, this is kind of what happened. So they're actually having to run a check to see if it still shows up on her record or if she was actually taken off of it before, you know, when new default or, or, or charged off. But, um, in her case it's easy because she can come up with the $9,000 just to pay it off that wishes, you know, she's clear, free and clear, right. Um, also tell people, you know, like if you've got a, if your business is, is, is a technology-based startup that has a burn rate, you don't have a clear path to being cashflow positive. As feelings are really not going to be a suitable mechanism for, you know, that's kinda more where the venture capital one comes in, you know, it's, it's, it's innovating and it's, it's betting on a new product in the market adoption for that, as feelings are really meant for, you know, fundamentally some businesses that have a product or service that have already been proven and you know, our, our cash deposit now not to say they obviously they do startups, but it has to be a startup where there's a very clear path to within the next three to six months, we're going to get this thing open.
We're going to be cashflow positive. SBA is great for franchise startups. If you count Prince to start a franchise, SB financing is a great way to do that. Um, but yeah, I mean, it's, you know, if your business is fundamentally never cashflow positive or has not gotten there yet, you know, you're going to want to wait until you've had some positive cashflow point and then take SBA financing. Um, and then, you know, obviously credit is, is, is, is usually a big thing. I mean, they don't have a huge requirement. As long as your credit is above six 50, you should do most lenders. Okay. But if you do have credit issues, it doesn't necessarily preclude you from getting an SBA loan. It's just something you're gonna have to go engage a credit expert, I'll prepare your credit, you know, for, you know, call it 30 to 90 days before you go get the loan.
Cause they, they do, they do a hard credit pull and a lot of times, as much as they like to make the loan to you, there are hard lines in the sand that are SBA policy on, on minimum credit score. So, but, but yeah, I mean, I'd say as long as you have a cashflow positive business, you've got decent credit and you know, you don't have any outstanding liabilities to the government, um, student loan or FHA mortgage or other business loans. It should be fine. Um, you know, most, most people, most people would, would be able to qualify and it's, and it's, it's kind of interesting. I'll, I'll tell you the reason that I'm talking to guys like you and, you know, trying to talk a lot about a lot of audiences is I think that really only maybe five to 10% of business owners in the country really know, you know, enough about SB to really take advantage of it.
You've got, you've got a large portion of them. You know, they hear one bad thing from a friend or a banker or somebody about, Oh, they had a bad experience with an SBA loan cements that in their head, they never try it. Right. And so, you know, that's, that's, that's, that's one of those things that, you know, a lot of people, they never try. You know, we're sitting here talking about what are the barriers I think the biggest barrier to, to also add is people never, ever pick up the phone. They never, they never try it. They don't, they don't, you know, they don't think it's suitable for them. And so they never, they never applied. Yeah. But, uh, but yeah, most, most businesses would apply as long as you're cashflow positive and you've got these credit, you can get SBA financing.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (20:29):
What about capsule in the program? Do they, uh, is it pretty much open they'll take anybody that comes through or do they have like X number of dollars that we lend that they lend per year and then cut it off?
Yeah. So they've, to my understanding, they've never had issues with like going the allocated dollars federally, um, you know, basically the funding that the government puts in place for the seven eight program. Well, I guess first of all, the seven, eight and five Oh four program as a whole, like they're designed to actually be a breakeven, right? Cause they're charging guaranteed fees that goes into a pool of DSP and the users to pay a losses now. So in most years, obviously 2020 was a big exception for a lot of reasons, but most of the, actually the SBA opposite, um, they operate at a budget surplus. They actually make money, which is kind of crazy. It's a government agency that makes money, you know, between then in the patent office, you know, maybe one or two other things that the only divisions of government to actually make money.
Um, but yeah, you know, there's, there's very rarely an issue with them doing that. I will say there are borrower camps. So the way it normally works is it's, you know, normally through 70, the max you can borrow is fine because the maximum amount of federally guaranteed dollars that, you know, they determined to be assigned to any one person it's 3.7, 5 million. So 75% of five minutes, is that okay, the way five or four of our loans work or a little bit different, uh, on a five Oh four loan, the government's really only guaranteeing about 40% of those because they're primarily for commercial real estate. Um, so I guess you just got to do the reverse math. It's like 9.4 million or something like that is how much you can borrow if you get funneled for. Okay. But, um, but yeah, I mean most, most people there'll be able to, you know, they, they shouldn't have any issues with him taking advantage, even if they do. I mean, there are a lot of lenders who will, I wouldn't say a lot, there's a handful of lenders will do 5 million on SBA and then they'll do 3 million conventional provider. The deal is strong enough and like the business, they understand it and all that.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (22:19):
Yep. So let's speak to some businesses that are out there today, uh, may maybe struggling. Well, you know, we could take a restaurant, you know, there's two situations, I guess number one is there's an owner it's kinda struggling. Things are opening up, looking better, you know, what is, uh, what is their situation going to be? Are they going to have a good chance, but then also let's take the, uh, you know, the guy that wants to buy a business that may be in trouble. Uh, you know, I'm sure not terrible trouble, but let's just say borderline, will they loan on situations like that?
Yeah. Um, you know, they're obviously gonna want, you know, the, the real during normal times, the way that banks are looking at it is they're looking at three years, historical cash flow, just they can share everything covers. Yeah. Um, obviously coronavirus has been something that has just thrown everything for a loop. And so most of the lenders nowadays, they put like 95% of their underwriting weight on how the business with one for, you know, for 2020. Okay. So, um, you know, in any event that you've got a business owner, who's wanting to try to buy another business that didn't do well through 2020, they're really, really going to have to have a clear reason as to why them taking it over. Just kind of make sense. Um, you know, it could be something as simple as, Hey, the owner of this business was essential to the operations. They caught COVID themselves and have been incapacitated now and not able to do it. And, you know, the person wanting to buy the was one of the managers of the company. Like that's an easy situation, but I would generally say more of the situations that are more common to finance with SBA, a business that's looking to grow a business that needs capital to invest in, you know, real estate or assets that, you know, the it company that was looking to get in the servers, um,
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (24:04):
Or even like a transfer of ownership from a parent to, to sit
Buyout partner buyouts. Yeah. Partner by business acquisitions. You know, most of the deals that they're financing are not like turn around situations and problematic stuff. It's, it's other business needs capital to scale or someone, you know, needs capital to, to take over a business that you know, was doing okay. That's those are most the situations. Ah, I mean, obviously there's, there's real estate purchases, real estate renovations, the special projects. But, um, I would say like if you're, if you're looking at a business that, you know, went from a positive to a big negative in 2020, uh, you might be better off just negotiating something directly with the seller, just having seller finance it versus getting outside bank financing, because a lot, a lot of banks right now, even though that there's 90% government guarantees and all these other things, they still have to have a reasonable, you know, credit request in the loan file showing like, Hey, you know, the projected cashflow here is enough to cover, to cover the debt service. So, yeah.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (25:04):
Okay. So, uh, you talked about the, uh, that typically the, um, the, they covered about 75% and now that's up to 90. Are there other, some advantages or incentives that are happening right now versus in normal times?
Yeah. So the three man incentives they have there right now, so obviously the 90% guarantee something is something that is going to be more of a bank facing benefit. And, you know, indirectly benefits the borrower because if the bank has a 90% guarantee, they're going to be more likely to approve a deal that at a 75% guarantee, they would not. I actually have heard that verbatim from some of the lenders I talked to, they straight up said, this is a deal we're only going to be looking at these kinds of deals because of the fact that we have a 90% guarantee, we did not have the 90% guarantee. Um, you know, if, if it was normal times, we didn't have, COVID a 75% guarantee would do, but there's still a lot of uncertainty on, you know, how long it's going to take to get the vaccine rolled out how long it's going to take for some of these States to fully reopen how long it's going to take for consumer behaviors with traveling.
And, you know, whether it's interstate intrastate, or just general travel, how long that's going to change. So that's one of the big benefits. There's 90% guarantee on this. So the other two things are, and I think I touched on this earlier, but right now with the, with the STEMIs package, they passed in December. All they did is really extend the initial cares package. The initial cares package, um, did a lot of these things too, but the December students package added it or extended it, any new loan that is made gets six months of free payments. I'll qualify that as of today, as I speak it's three, because they're sure if the amount of money that they initially did it for six months and then the money that they had concerns with the budget was numerical neat. But the $1.9 trillion stimulus bill is any more money for the SB plots.
It's why they expected anticipated that all the new lungs will go back to them. What gets six months, but new loans will be able to get six months of free payments, um, towards your loan up to $9,000 a month. So that's $54,000 up to have free payments that are subsidizing your loan. And they're also waiving the guarantee fee. And, you know, even though it's only 3.5 to 3.7, 5% give or take on a few million dollars that adds up, you know, 2 million bucks, that's, you know, that's, that's almost one 75, 80 grand. Yeah. So those, those are the two big benefits. And so I actually break down the math for people on, um, you know, on potential clients we're working for. But generally speaking it's about, it's actually about 10% of the total loan amount and you're saving between the subsidized payments and the waiver of all the guarantee fees.
So if you have, if you have a loan of $500,000, if you're getting between the guarantee fee waiver and the free payments that they would be covering, you'd be saving $50,000, which is 10% of your lung. It's it's, it's, uh, it's pretty crazy. So when I tell people the government is actually paying you to borrow money, that's, that's crazy. That's not right. And then I show them the math. I said, no, they're actually paying you. You could technically take a loan and have the pay six months. And, you know, the balancing habit of the principal would be less than you started and all the things came from the government. Yeah. So obviously I don't think that's usually worthwhile for people to do. There's a lot of headache and pulling all your stuff together just to save a few grand, but, you know, technically you could do that. Yeah. So,
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (28:18):
Okay. Yeah. And so, uh, you know, we've talked about a lot of, um, um, a lot of things that make the, the SBA more, um, it looks like it's, it looks like a better option to go through. So what, or have we touched on all the, uh, con the comparison between all the financing options? Is there anything else you'd like to touch on that?
Yeah, I, I I'd really say, I mean, you've got SBA seven 80 that encompasses the regular seven, eight loans, the SBA seven, a small loans, basically anything under it, really, anything under call it 350 K you also have the SBA express loans. Um, you know, SBA express loans are great too, for, for most people that can be structured as lines of credit. Uh, you've got the SBA five Oh four loans as a more real estate SBA does also have some other unique programs that, you know, they have cap lines, community advantage, international trade export wouldn't happen. All those ones are a lot less, you know, um, leveraged I think because, you know, the terms on those are, are basically the same for most of the SBA stuff. So, I mean, an SBA, the only difference between your international trade and a, you know, a regular seven, eight loan is, you know, the use of proceeds is a little bit more limited, but you're getting the same interest rate, you know, same guarantee fees, the same maximum loan amounts.
So what most borrowers is, it's not too much of a difference. However, I will say, if you did compare it to what conventional financing options are out there, you know, uh, everything is going to look inferior next to SBA. And obviously the reason for that is, you know, no private lender is going to be able to compete with a 75 to 90% guaranteed from the federal government, right. On, on a business loan, you know, so, uh, you know, that's, that's what I would tell any business owner is, you know, you can go out there and, you know, there's probably other financing options, but you're going to, you're going to be paying 12 to 25% interest. You know, your loan term is going to be three to four years, not 10 years. And, uh, you know, you're going to get hit with all these fees and all these restrictions and covenants SBA, as long as you pay the loan, they don't have any commitments, just pay the loan and send them your tax returns at the end of the year. And that's all they care about. So, you know, it's, it's, it's really, you know, when it comes to apples to apples comparison over the financing options are out there. Nothing can compete with us today.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (30:31):
Yeah. Well, that's good. And I appreciate you coming on the show to educate people. I think that's a, you know, a lot of things we've talked about have probably just, uh, you know, kept people away, um, for probably a good deal. And so this will be a nice little wake up call for the listeners out there. Anybody that's wanting to either purchase a business or maybe get some, uh, capital for growth. Uh, this should be a great option. Uh, when I ask you, you know, a couple things in a minute, but before we get to that, um, so what is a tool that you use in your daily life? Like, uh, uh, it could be a tool. It could be a habit, a ritual, just something that you do every day that you feel like really, uh, uh, adds value.
Could that include like a, uh, a browser extension that saves me a lot of time. Certainly. Yeah. Um, yeah, so I actually found this recent, um, recently I found an extension called motion. I'll send you a link on it, but, um, it, it allows me, it's basically kind of like a, uh, you know, like Facebook messenger. They've got that little circle, that'll, you know, hover on your, on your, um, why does they don't do it anymore, but you know what hover on your screen and you'd be able to pop it up there. Now, a motion is like that, but with my calendar, my contacts, you know, tab manager, they have a distraction blocker for, for what I'm trying to work on my, you know, on various stuff. But, you know, it allows me to pull my calendar, allows me through this little thing to quickly pull up what tabs I have open.
Um, you know, that the distraction Blackboard blocker is pretty nice for when I really want to focus in on stuff. So I only found it recently, so I'm still getting settled in with it. Okay. But I would definitely think that it's, it's, it's something that's, you know, been able to save me, you know, save me enough time that we know where I felt fine paying a hundred and some bucks a year for, for the, for the subscription. Uh, you know, other tools I think I have, um, I have a great one called loom. Uh, loom is a great software that allows you to collaborate quickly with your team. It allows you to basically take quick videos of your screen with you narrating and talking. So like, if we have a tech problem with our website, or we're trying to figure out how to, you know, how to get a client, they're logging in, they're having issues with it, we can actually just record a quick thing.
It'll clip it to the cloud and give me a link and I can take the link and drop it into Slack. And that's a much quicker way for me to show my team, like what I'm working on, what the problem is instead of having to type it out, narrate it, it's a quick video. So both are great tools. Like I've definitely been using them a lot longer than motion, uh, the Southern motion now, but, um, you know, both of them have saved me countless hours in, or they're working with my team managing my schedule. Um, just everything.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (33:07):
So, uh, loom, L O O M or L U M.
Yeah. At loom L O m.com like fruity.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (33:14):
Okay. Oh, okay. Okay, great. All right. Well, yeah, check those tools out. We're always looking for, uh, you know, time-saving devices or things to make our life easier. So that's great. Um, so now I know who your client is, your client, somebody that wants to borrow money or looking at buying a business, uh, capital, but kind of give us a brief overview, you know, who do you work with? How can you help them? And then also just, you know, kind of in the midst of all that, why does it make sense to go through a consultant like yourself instead of just trying to do this on your own?
Yeah, so I, I guess I'll, I'll characterize, you know, the ideal business owner of someone I would work with is ideally someone who needs between a hundred thousand and $5 million in assistance through SBA financing. You know, ideally they have a company that's netting them, you know, between a hundred thousand to $2 million a year. So there's more, um, and you know, they need help trying to find what the most efficient capital solution is for their business. Um, you know, and I can cover a broad range of things because I have clients we're working with, they need $200,000, so they can go buy, you know, right. Like they're a trucker and they're like, I'm leasing my truck right now. I'd rather just fly it. I would go from making what I'm making now to, you know, making an extra 60, 70 K a year. If I just owned the truck, I don't need that much money.
I just need a hundred, you know, a hundred, 150 K to buy the truck out. You know? So we're with guys like that, those are super easy to finance because they're, you know, relatively straightforward loan requests. Um, and you know, the SBA has stuff in place for expedited approval and underwriting. You know, if you need a loan under $350,000, you can do it through an express or 70 small, and that can get closed and finance most three weeks from, from application to funding. So, you know, we, we do a lot of those, you know, smaller under three 50 care requests. Cause those are simple. And in a lot of those people, you know, they're, they're not finance experts, they're not experts in banking. And I guess that kind of gets to the other question is why does it make sense to work with a consultant?
Well, I tell people there's theaters, there's 3,500 plus lenders out there that do SBA loans. Do you want to go call all of them yourself and figure out who's going to be the best for your project? Or, you know, do you want to work with somebody who's been dealing with it for five years? And, you know, instead of you taking three, four months of your time and talking through all these lenders, trying to figure out who's giving you good info, who's giving you bad info, just have me look at their request. And you know, I already know everyone out there. It's going to take me an hour of my time to go and set up a call, prescreen it, talk to them about what your financing request is, match it up the media term sheet. A few days, you get finance closed a couple of days later.
Um, you know, the, the time saving for, for people is often a big thing. Yeah. The other thing too is by, by working with a consultant like me, when I refer a deal to a bank, they generally know that it's been shown at least one or two other banks. So they're not automatically going to come out and charge the highest interest rate they can. They're going to try to be competitive. And, you know, if I tell the bank like, Hey, listen, you know, the borrower is interest rate sensitive on this. You know, they know they're not just gonna slap on them. You know? Cause most of the time most people, they go, they go to the bank, whatever the first terms are from the first bank that gives him approval to go with it. They don't think about, well, Hey, maybe we should think about a fixed, you know, a fixed interest rate instead of a floating one, ma maybe we should try to go shooting a rate down half a percent of interest on a, you know, on a million dollars.
It's still five grand a year, right? So, you know, all those are just little things that, you know, over the life of your loan, you can end up spending, you know, tens of thousands of dollars in extra costs just because he didn't negotiate correctly on the front end. So right. It's a two-fold thing, you know, I'm there, I'm going to help save you guys a lot of time as, as a prospective borrower, by making sure you're set up lenders that are actually going to finance your type of business and your size or ProQuest off the bat. Uh, but also generally speaking with lenders work with the junior media areas, such as myself who handles a high point with these kind of loans. Like they know that anytime I'm sending them a loan, someone else is looking at it. So they're not going to just quote you the highest rate out that they're going to give you a competitive price and you know, make sure you get the best deal that you possibly can.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (37:04):
Yeah. Yeah. And I'm sure they also understand, uh, it's less work for them. So they're, it's kinda sh you, you kind of streamline it for the bank. They're not having to, you know, continue to go back to the client for this and this. You, you can generally make sure everything is in order before you present that to them.
Yeah. That's the other thing too. I do bring a lot of value to the lenders because if you ask any SBA banker, you know, they make great money for, for, for all the loans that, you know, if they do a lot of loans, then they have great money, but you know, 90% of their time is going back and forth on email chains with borrowers, Hey, where's this document? Did you send me this already? Oh, you sent me the unsigned copy. Send me the signed copy that you missed a signature here. It's like all this back and forth. And so, you know, when I tell them, I say, listen, you know, the banker's going to have a lot easier time dealing with you. You get this all done upfront, right. I give them the checklist of what they needed to fund. I let them go take a week, putting it all together, put it in a Google drive.
I go through it, make sure it's 95% completed and mostly there. And then when we get set up with the banker, everything goes to one quarter. Yeah. So that's the only thing. The bankers like working with someone like me who is educating the buyer, know the borrower and helping them make sure they get everything together before going, because you know, you know, 90% of the time that bankers spend working on these deals, it's just, you know, chasing documents and documents going through email chains and following up with people. And it's, uh, not, not a very efficient process. I've got a longterm project that I'm working on software wise that I'm hoping will help automate a lot of that for a lot more borrowers than just outside the people I work with. But, uh, yeah, that's, that's, that's a big headache documents, the team bankers.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (38:36):
Exactly. All right. Josh will tell people how they can reach out and get a hold of y'all there at seven a
Yeah. So I'm sure we'll put a link down in the description below for the podcast. You can reach us at 7accelerator.com. Um, we're putting a lot more information up on the website, you know, other interviews, other blog posts that I'm doing and just talking about incentives and stuff. Um, you know, obviously as, as, as we get, you know, every case study, we can get, we're putting it up Thursday, kind of see the people we work with, the types of deals we're going to want to get done for our clients. Um, but yeah, 7accelerator.com. It's not, there's not two ways. It's just 7accelerator.com and then make it a bit easier, both fine. Um, I think if you type in 7accelerator next week redirects to our site, we got both domains, but you can find us there. Um, and we've got a ton of content resources on the site learn more, you know, you're interested in reaching out further about possibly, you know, having us consult for you to help you find the loan, um, that that's best suited for your business. You always book a call with, uh, with us, you know, let us know that he found us through, uh, Roy here and, you know, we'll definitely be able to hook you up, but, uh, but yeah, uh, w w you know, 7accelerator.com and we'll put, we'll put a link in the description for the podcast insurance. Yep.
Roy - The Business of Business Podcast - Needing Capital to Kickstart 2021? See If The SBA 7A Program Is A Good Fit For Your Business (39:49):
Yeah, certainly. All right, Josh. Well, thanks a lot. Y'all reach out to Josh, uh, see if he can help y'all with your next a business loan there. That's going to do it for another episode of the business of business podcast. Uh, you know, you can find us on all the major podcast platforms, iTunes, Google, Stitcher, Spotify. Also check us out on our website www.thebusinessofbusinesspodcast.com also on all the major social media and a video of this interview will go up on YouTube when the episode goes live. So until next time, take care of yourself and take care of your business.