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Entrepreneur Joshua Kim on Cracking the Credit Matrix: The ROI Online Podcast Ep. 82

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Are you trying to grow your business but getting nowhere fast? Maybe an SBA Loan can be what you need to get to the next level.

On this Feature Friday episode of the ROI Online Podcast, Steve talks with entrepreneur Joshua Kim about SBA loans, what they are and why they can help you grow your business.

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Joshua is the founder of 7a Accelerator—where they consult and educate business owners on capital solutions through the Small Business Administration. Most business owners don't even know where to start for getting an SBA loan for their business, Joshua and his team provide education, resources, and concierge-style assistance to help you secure the right lender.

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An SBA loan is one of the greatest small business financing options available in the US. You can use it to purchase a small business—even if you don’t have a ton of collateral or personal cash. Banks like them because they carry very little risk with the guarantee. And they provide a small business owner with the capital they need to buy, start, or scale their small business.

 

Among other things, Joshua and Steve discussed:

    • What SBA Financing is
    • What you should know about SBA Loans 
    • The do’s and don'ts of applying for an SBA Loan
    • The characteristics of a successful SBA loan applicant
    • Biggest misconceptions about SBA financing
    • The main requirements every lender will ask



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You can learn more about Joshua here:

Follow Joshua on LinkedIn
Send Joshua an Email


Learn more about 7a Accelerator here:

https://7accelerator.com/


Read the books mentioned in this podcast:

The Golden Toilet by Steve Brown

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Topics: Podcast

Steve Brown 0:00
Joshua Kim, welcome to the ROI online podcast.

Joshua Kim 0:03
Hey, Steve, great to be here.

Steve Brown 0:07
So Joshua, I'm looking forward to this conversation because, you know, I believe that the entrepreneurs are the invisible heroes of the American economy. They provide us all these products and services that improve our lives, because they took this risks, they risk their future, their family's future, and yet they step out and do that, and they provide us these things and improve our lives. But they happen to also employ in aggregate almost half of the workforce. And yet, they have to do all of this on their personal credit. This, the cards are stacked against the the small entrepreneurs, these entrepreneurs that have less than 20 or less employees and, and yet, they have to go to bat with whatever credit score they have, and whatever with with their credit cards, or whatever they can scrape together to get financing to start this business. And usually, the SBA route is like this very mysterious thing that seems a little bit far off. The problem is this, you need to have a good banker, that's one of the the keys of success and and businesses like having a banker that understands what you do. But in my case, my maker has helped me and worked with me, but if I wanted a SBA loan, I have to go somewhere else. And usually like the big banks, no, no, I don't think I trust them, especially after this PPP stuff. Yeah. First of all, tell us, Joshua, how did you start planting your flag in the SBA loan space? And then what are some of the myths around SBA loans that we need to dispel?

Unknown Speaker 1:56
Yeah, so great, great, great questions and great assessment we'll I can, I can shed some light on why the big banks are usually the worst place to go for for SBA financing and share some stories. But my background is I actually I actually purchased my first business with an SBA loan at 19 years old, I got 1.2 million bucks from a local bank up in Chicago to go buy a health care services business up there. And, you know, I realized that through that process, that there was a lot of kind of bad information out there about SBA loans, there's a lot of bad information, and just a lot of differences and nuances with going through the application process of getting an SBA loan that most business owners just don't have time to deal with. I mean, I had to call at least 50 to 100 banks. And everyone, you know, it's one of those things, if you have you heard the phrase of us 10 lawyers their opinion, you'll get 40 different opinions. That's the same thing with bankers, you know, you ask 10 different bankers, what their opinion is, and I'm thinking get something done, I need 40 different answers. It's, it's ridiculous, even though all of the banks I approached was about the same SBA, you know, loan program. So, you know, I finally found a lender that was, you know, suitable, I found a couple of them actually was one of the one I went with ended up being, obviously the one that did it. And so I ended up purchasing two subsequent businesses and kind of the same niche healthcare services, before I was able to, you know, turn 21 recently kind of sold those businesses and moved on from it, because I see a greater opportunity in, you know, building businesses around helping other smaller companies access financing. So I've got a consulting business, we're building a FinTech platform, to help pair borrowers with lenders. But that's a little bit about me in kind of my background, I'm 23. Now, I bet this August, so 23 and a half, I guess, but, you know, I saw a big disparity in information out there for small business owners, and a lot of the bankers that talk with the, you know, the ones who actually do SBA, they agree, you know, the biggest barrier to people getting SBA financing, it's not, you know, themselves, it's, it's, they just don't have the right information. You know, if every borrower, every business owner out there really knew how to navigate SBA financing, you know, the, the borrowing volume would be 10 times what it is normally, you know, right now, it's about 25 or $30 billion a year 2020 was a little bit, you know, obviously down because all the banks were focused on PPP, and there was all this other craziness going on. But yeah, I mean, you know, just imagine, instead of it being a $30 billion year program is 300 billion. I mean, that's, that's really what a lot of the bankers think it could be. But the only issues that most people just don't hear about it, they don't understand it, they don't know where to start. And so that's kind of what that's kind of what I help with I you know, I help educate business owners on where to start, how to go that obviously, you know, consult with them and, you know, help them raise the money they need to either start the business by business or, you know, grow existing one that they have, so,

Steve Brown 4:45
so, it's like, we're more familiar as, as a group now, with PPP, we've gone to a certain process and been exposed to that system, but it's still like, you know, isn't the SBA And good idea. Yeah, so

Unknown Speaker 5:02
what you were talking about earlier, with the cards being stacked against people, that's, that's really, you know, for the smaller instrument, that's the case, if you go to a regular bank, and you're just looking for conventional financing for your business, and it's just based on cash flow of the business, the profitability, you know, most banks aren't really gonna touch you until you're doing like $4 million a year of profit. So the question is, how do you get from zero, you know, or wherever you are today, to $4 million a year in profit, like, What? How do you get there. And so, you know, obviously, most businesses don't actually make it to that $4 million year of profit number, plenty of business owners, they build it up two to $3 million dollars a year profit, they're happy with it, they take the cash from that they invest in their properties, they do other things, diversifying their wealth. But, you know, the whole reason that the SP was actually created back in the 1950s, a post World War Two was, the government recognized that the chips were in fact stacked against the small business owner. And so when they formed the SBA, they did a few things they did, they, they put certain initiatives in place to make sure that a certain portion of government contracting dollars, would would go to, you know, other small businesses or veteran owned small businesses. So that was one of the big initiatives, but also they set up, you know, the, I guess, the beginning of what we know today is the 7504 loan programs. And so the way those work, and the reason that they're great for the smaller entrepreneur is the government through the SBA works with, you know, 1000s of banks across the country who participate in the program. And they guarantee a significant portion along very much like a government guaranteed mortgage or student loan, where you know, you have private lenders that are actually doing the loans, they retain a small portion of the risk, but the majority of it is guaranteed by the government. And when you have a government guarantee on 75 to 90% of a loan, obviously, the terms on that loan are going to be much better than if you just went to a lender who's going to give it to you, you know, 100% on their risk, because they're gonna charge you a much higher interest rate, and the terms are gonna be much more restrictive. So instead of paying 14% on a on a loan, and you know, you've got a three year payback, you've got a 10 year payback with a maximum interest rate of 6%. Right now, on an SBA loan. Yeah. So, but yeah, that's that's exactly what the SP was created, you know, chips are, in fact, stacked against small business owners. And the way the government decided to mitigate this was actually form a form of government agency that that helped with it. And, you know, that's, that's what they did. So

Steve Brown 7:23
you're listening, or you're watching, excellent conversation with Joshua, Joshua Kim is coming. He has seven accelerator.com. And we're learning about SBA loans today, why it's a good idea, or the myths about it. So so what what should we know about an SBA loan?

Unknown Speaker 7:45
Yeah, so what I would say the most important things to know are, there's this, there's really kind of two or three categories of loans, you have what are known as the seven eight loans, and that can be either just a regular seven, eight or seven Express. And then you also have 504, loans, section 504 loans, those are, those are purely for real estate. And, you know, it's purchase construction, renovation, you know, anything for anything for real estate that's exclusively for your business, you can't use it to flip houses or anything. But the great thing about SB the seven eight ones is you can pretty much use them in any kind of for profit business in the US there's there's a few restrictions, like you can't use it for, you know, like I said, buying rental properties you can't use it for if you have like, you know, a cap, you know a medical marijuana dispensary. There's there's certain restrictions on industries. But you know, 99% of the businesses out there are going to be eligible for SBA financing, especially businesses that are online. I'm actually working with someone right now. He's got a software company, he works with it, his software is the backend software for several online Amazon e commerce, sell businesses. And so we're actually partnering with him because a lot of business owners that work online, either through e commerce marketing, they they're not used to the concept, they can go get bank financing for their business, I have a friend of mine, he makes about three $400,000 a year on a couple of Amazon stores. And he had no idea you know, he's always complaining about you know, he's got great credit and $100,000 credit cards, but he's like, he sometimes maxes them out to go buy inventory. And so, you know, I'm helping him get at, you know, a more permanent long term working capital solution through through an SBA line of credit so that he can draw down on it, buy more inventory, and go forth. So But yeah, I mean, you know, breaking down what can you do with it, you can, you know, you can use it for pretty much any legitimate business need that you have, whether it's just to grow, buy inventory, refinance debt, you can actually use it for partner buyouts, too. So if you want to buy out a partner, you can use it for purchasing real estate, construction, real estate. There's a lot of different purposes that you can use for it. But you know, what I tell people is, you know, if you have a for profit business in the US, and you need to borrow money at any time to grow your business, you should really look at SBA because you're not going to be able to find any terms that are even close to it, you know, from any private lender, whether it's a credit card line of credit or anything else, they're just not gonna be able to match it because SBA loans come with a government guarantee. So

Steve Brown 10:12
well, let's revisit that. So our government, SBA loans government backed, what does that mean specifically?

Unknown Speaker 10:20
Yeah. So what that means is, so when you go to a bank, let's say you go to, you know, ABC bank, we'll just use a known a bank, for example, and you go get an SBA loan from them for a million dollars, the way it works, and I'll get into it specifically, right now, the guaranteed percentage is actually 90%. Normally, it's 75. But let's just say it's 75. So you would go to the Miss, Okay, I'm gonna go get a loan from $1. So I needed to buy a building or buy a bunch of trucks, let's even, you know, commercial contracting business of some sort, electrical contracting, you buy a bunch of trucks, you know, buy a bunch of trucks, equipment, whatever. So you'd go to them, you'd say, hey, I need a million dollars. Okay, cool. And right along to give you $1,000,000.07 150 grand of it would be guaranteed by the government that case. So in the event that the loan defaults and goes bad, let's say, you know, your time gets hit by a tornado, your insurance denies payment on all the trucks and you know, you have to, you know, the business is destroyed, whatever, you know, worst case scenario, the way that the bank looks at is like, Okay, well, we're really risking $250,000. And it's actually less than that, because what they do is, most banks, they will take the government guaranteed portion, and they will actually sell it at a premium to an investor, like a pension fund or whatever. So their downside risk is actually a lot less than 250k. The mechanics of that are probably more complicated than anyone cares to know. But that's usually what happens. So the banks, they just look at it and say, Okay, well, you know, we're gonna get a premium on selling this portion, we're only going to be risking, I guess, in circumstances described, they would probably only really risking like 160 170 grand of money instead of 250 grand. So on a million dollar loan, where they're only really risking 170 grand, it's not a bad deal for them. So it's just obviously a numbers game, you know, as long as they have a certain, above a certain percentage of the loans that paid and go fine, they're good. But that's, that's what it means by it's got a government guarantee. So in the event that the loan is bad, they would file a guarantee request with the SBA and the SBA, cut them a check for that 75% of a lot. Right now, because of the incentives available through the December stimulus package. The guarantee percentage is actually temporarily increased to 90%. encourages lenders to make loans that they might otherwise not make. Because they know right now, there's a lot of uncertainty. There's a lot of, you know, kind of economic distress. And basically, they through through doing that they want they want to encourage lenders to take more risks, more capital out there, you know, they know they're obviously going to have, you know, more defaults and losses from from this period of time, but to them, like you said, it's about, you know, backing the, you know, the invisible superheroes of the economy, the small business owners.

Steve Brown 12:58
Yeah. So, then this PPP experience that I went through, I realized I really needed someone to help me to make sure that my application was correct that my numbers were right, you know, I wanted what I filled out to be forgiven. Yep. You know, if you make a mistake, or you calculate wrong, you're at significant risk. So how how to apply for an SBA loan is like a big barrier. Yeah. So they're like, they would go to you. And they're, you're going to make sure that all their i's are dotted and their T's are crossed in there reducing that risk of just making a mistake on an application?

Unknown Speaker 13:42
Well, yeah, I mean, here's here's what I'll tell you. The the PTP application is it, the whole component of PPP is different than typical seven, eight. I mean, if you actually look it up, I guess we can kind of talk about it later, you know, some of the big myths about SBA financing and stuff. Because I know we wanted to talk on that. But one of the biggest myths that people have is like no, like, you know, you go to the bank, and they give you this mountain of paperwork, if it's actually the only there's only two SBA forms for a regular seven, eight loan, it's actually two forms. One of them is a personal financial statement. So it's a very simple form, I mean, you got to fill out how much cash you have, how much you have in your real estate, you know, life insurance, stocks, equities, whatever, very simple form. So you just fill that out. And then the other form you got to fill out is the borrower information sheet. So you just list out personal information, you know, obviously, your social security number, your date of birth.

Unknown Speaker 14:35
just basic information about you that when the way the SBA gauges, how well that they're doing from a diversity quotient standpoint, is actually this form. So like, you know, you put your ethnicity down, and then that way the BSP is able to track Okay, well, you know, we were able to lend, you know, this many dollars to this many loans to you know, minorities, like that's, that's, you know, that's, that's a big that's a big thing of what they want to do is they want to make capital available to, you know, to to communities that are was kind of blocked out of the typical banking world. So I, you know, I'd say, you know, realistically, and the reason I know this is because I've had correspondence. Yeah, I'm kind of uncovered something really shady with, with the business that I purchased. And there was a whole, there was a whole like package of stuff I sent over. And they've looked into the guy who did some of the funky stuff. You know, what I would tell people, you know, as long as you're, you're not like blatantly dishonest and your forms, you don't lie about, you know, your personal financial situation, you don't put a fake social security number or anything, you'll be fine. I mean, if you have a minor mistake here, they're there, they're not gonna care. Now, if you, you know, if you if you forge a bunch of paperwork and get fake tax returns, you use it to go get a million bucks, and then you go, you know, you move to Bali? Yeah, they'll they'll come after you for that. But as long as you're using the money for like, a legitimate business purpose, you know, a mistake here, there's not gonna be a big issue. Back to your point about, you know, how do you apply technically, and this is, this is kind of, you know, the premise of what I do, how I help people, there are 3500 plus lenders in the US that do SBA loans, you're free to go to any single one of them, ask them, you know, Hey, can I get application paperwork, can I go apply, but where people stumble with getting SBA financing, it's kind of a two fold thing, one, they don't know where to start, kind of like what we were talking about earlier, they don't know where to start off. And so they just they never try. And you know, or they've heard myths about how hard it is, it takes a lot of paperwork takes a lot of times, they just they never go out and do it. So what we do with seven accelerator is we help a business owner by evaluating initially what kind of business they have. And so you know, what business they have what their capital needs are. And so by doing that, first, we're able to help help really figure out where to best put them. And and what I mean by that is like, you know, what, Leonard, apparently, I'll share a story. And this is this is, this is kind of a funny one, because it's the most oblivious example, just lenders being ridiculous with this program. The biggest misconception that I had, when I first got my first thought was that all lenders are created equal. Meaning if you go to one bank, well, it's the same SBA government program, they're all going to have the same underwriting guidelines. And I found this was very much not the case. So just as an example, I was talking to a medical professional, he has six locations, you know, six clinics locations, guys clearing about two and a half to $2.8 million here. 800 credit, perfect situation, strong financials. He went to the bank, and he wanted, you know, a loan of about 1.2 $1.3 million to go purchase a building for one of his locations. You know, he wanted to buy the building that he was in, because it would be cheaper to have the mortgage than to lease it. Right. The bank actually turned down. And the problem that he that the mistake that he the only mistake that he made was that he went to bank of america bb&t and Chase, all all these big banks. And here's the thing, the problem with this big banks that they just don't care. The guys are perfectly creditworthy borrower. He should have been able to get the loan, but they declined it for like completely dumb reasons that made no sense. They're like, Oh, we want 30% down. It's like, I don't have to put 30% down, I only have to put 10% down. Why are you asking me to put down 30. And so that's kind of where I help people. So I'm actually helping him because I'm like, Oh, this is easy. I mean, you he had one of the easiest deals in the world that should have been able to get approved, but because he went to three big banks to meet at heart. So I'm in process of just helping him I referred him to another lender, that will probably be able to do the deal without any cash down. Because he you know, he's got so many locations, everything's so strong, they're gonna find stability for him 100% in certain circumstances, and with SBU, you can actually do that. But that's, that's just typical situation, what happens with a lot of borrowers, they they go plot the wrong banks, and they get declined. And then they have this misconception that okay, well, SBA is hard, you can't get an SBA loan, because this the other, it's not that you can't get an SBA loan, it's just you can't get an SBA loan at that bank, because that bank has a really dumb and backwards system on doing SBA loans. So that's really the biggest key of kind of like, how, you know, like to do your initial question, how do people apply? Well, you know, it's really good to work with someone such as myself, I say that self seeking Lee obviously, because this, you know, this is what I do full time. But, you know, if you were to go out there on your own, you're a business owner, and you really need that loan to go buy that building or whatever, you might waste three to four months of your of your life calling around and all these different things, just saying hey, do you do SBA loans? And of course, all we're gonna say, Yeah, we do SBA loans. But until you really dig down into the hard questions with the lenders, like how many deals like this do you do annually? What kind of credit score requirements you guys have? What kind of industries you lend to? Until you know what questions to really ask them you're not gonna be able to filter out so you know, it'd be like shopping for shopping for a house but you know, you just tell your brother, I need a house and you just give them a price range, you're not giving them well, I need a pool or I want this style or this or that. And so that's that's really where a lot of barbers place time. They just, they just, they talked to the wrong lenders. And a lot of time, the lenders will string them along. For months, you know, and then just at the last second sorry, we can't do it the client, you know, and I tell I tell people, your best getting to know from a bank within a week or two of talking to them, just to save your time. So you know, not to waste your time dealing with them, just go work with someone else. So, anyway, that's, that's what I would say, you know, how do you apply, you can technically apply to any lender, just, you know, call them talk to an SBA lender, have them send you the checklist and the forms you're going to fill out, you know, but usually, it's best to make sure that you're working with someone who can make sure you get set up with the right lender to begin with, because if you get set up with the right lender to begin with, and you know, we all know for a fact that can get your deal done, you'll save countless hours and you know, months of your life wasting going back and forth.

Steve Brown 20:45
So what are the characteristics of a successful SBA loan applicant?

Unknown Speaker 20:51
Yep. So, the great thing about this is that, you know, the good thing about the SBA application process is that bucket can be actually pretty wide. Obviously, the ideal borrower makes, you know, three $4 million a year and their business has very little debt and an 800 credit score. Obviously, that's not the case for everybody. You know, in most, in most situations, folks in that position don't have much of a need for SBA financing.

Unknown Speaker 21:20
But

Unknown Speaker 21:21
what I would say like an ideal borrower is going to have at least a 650 credit score, and they're going to be in a position where they have a legitimate need of capital for their business. And either the business like if it's a startup, they've got a very clear path of getting to being cashflow positive, or the business as it already is, has has enough cash flow to cover the loan, the main requirement that every lender is going to be looking for is they want to make sure that the cash flow of your business is sufficient to cover the service of the debt just like any rental property, right, if you're going to go get a mortgage on a rental property, and you know, your let's say your your expected lease monthly net on it is 18 $100, you know, you're going to want to make sure your mortgage is below 18 $100 with a comfortable margin. So you know, probably 1415 $100 is kind of what you want to see, the general rule of thumb with SV is they want to see at least 1.25 to 1.5 times. So if you're if your bank, your bank payment monthly is $10,000 a month, the bank is going to want to see generally at least probably 12 and a half to $15,000 a month in profit on average over the last, you know, 12 to 24 months. So that's how I would describe it, you know, they have decent credit, they will legitimate need of capital in the business. And, you know, obviously there has to be cash flow that's sufficient to cover the amount that they want to borrow.

Steve Brown 22:41
So we're listening to or watching Joshua Kim, his company is seven accelerator.com. He helps entrepreneurs and business owners with the SBA loan process. So Joshua, I always ask on this program is like, what's one question that no one ever asked that you wish they would ask?

Unknown Speaker 23:05
Hmm, about SBA loans? That's a good one.

Steve Brown 23:09
Or about you?

Unknown Speaker 23:10
Oh, about me? Um, what is a question that that's a good one that I wish they would ask. Um, I think as it relates to doing SBA financing, I think one question I wish people would ask, you know, more of themselves, like, you know, I guess what is their, you know, that's, that's like, you know, like, I guess one of the biggest ones would be like, you know, what are the biggest misconceptions about SBA financing? Like, if you had to, if you had, if you only had 120 seconds to educate a business owner about SBA loans, what would you say? And, you know, what I would tell them is, you know, like I said, kind of earlier, not all banks are created equal, getting SBA financing doesn't require a ton of cash or collateral. SBA financing, you know, it doesn't require perfect credit doesn't require, you know, all these things. I think, just something I think people, you know, should ask more of themselves is, you know, if you really need capital for your business, why aren't you looking more, you know, and I think that's, that's what people go online, they fill out a couple forms, they get a phone call, they get the client here, and they're like, Oh, I guess I just can't get it. It's like, if you if you're trying to grow your business, you're gonna have to put more effort into it than that. I think a lot of people just haphazardly do that. So

Steve Brown 24:21
good. So what, what I want to do here now is we're gonna we're gonna wrap this up, but we're going to, we're going to exclusive have some exclusive content on our YouTube channel, and we're going to discuss Can I buy a business with an SBA loan and go deeper into the myths around that, that exist around SBA mystery financing? So Joshua, you've been an excellent guest on the ROI, online podcast. How can folks reach out to you should they want you to help them shining light on this mystery process?

Unknown Speaker 24:59
Yeah. So I can help definitely shed some light on the on the process and, you know, save people a lot of time. That's kind of the whole premise of why I started this business, I saw that there was a need for, you know, not only educating business owners about what exists but obviously making sure that they have someone to guide them through what what is otherwise a very confusing and frustrating process. I think well we'll probably put a link to the website in the in the description but they can always reach me on my direct emails, Josh at seven accelerator comm You know, my emails always open. So feel free to reach out, just tell me, you know, you heard about me from the ROI podcast, you know, be more than willing to get an idea of what kind of businesses you have. And, you know, see see if there's a way that I can help you raise capital. I mean, obviously, I can't, you know, not every business owner that approaches me it's a it's a suitable SBA needs some it's too big, some it's too small. But, you know, what I tell people is like, Look, if you need anywhere between 50 grand and 5 million, SV is a great option. So I'm sure we'll put a link in the description if they want to go click on the website, read more content, but you have to if they want to directly reach out by email, it's just Josh at seven accelerator Comm.

Steve Brown 26:07
All right, Joshua, you, Joshua Kim, you've been an excellent guest on the ROI. Online podcast.

Unknown Speaker 26:15
Yeah, thanks.

Steve Brown 26:17
That's a wrap. All right. So let's, let's produce a little content for YouTube here. So Joshua Kim, yes. Seven accelerator.com. We're talking about SBA loans. This is an exclusive conversation from the ROI online podcast. So you know, what I'm curious about is can I buy a business with an SBA loan?

Unknown Speaker 26:47
Yes, the answer is very much emphatically, uh, yes. It's actually funny, I have lenders that I know who that's all they do. Like stare some SBA lenders out there, they are exclusively m&a shops. So, you know, they work with primarily, they work with Business Brokers to, you know, send them referrals and whatnot. But there are some lenders, that's exclusively what they do. And the reason for it, it's very simple. When you start a business, you have a lot of, you have a lot of hurdles to get over, you have to establish product market fit, whether it's for goods or services, give to find your first customers, you have to bootstrap A lot of it, you have to, you know, hire staff, you have to do all these things. And when you buy a business, a lot of that is already figured out, the wheel is already spinning. And that's what I kind of realized, when I bought my first business, I said, Well, I don't want to have to go start something from scratch. Like, that's not really, you know, my expertise, I don't want to have to go, you know, spend years, you know, getting from zero to 100 grand in revenue. I want to do that. And so what I realized was like clickers there, well, you know, what if I just buy this, and sorry, they're already making money. And you know, just just basically do a leveraged buyout on a small business. So, reason lenders, like business acquisitions is because there's a lot of risk. If you have someone who's qualified or knows how to run that kind of business, the business already makes money. If the business makes enough money to pay off the loan monthly, it's a good deal for them. It's a good option. So yeah, I mean, generally speaking, you know, as long as your business purchases is at a number, where the total amount of money you need to borrow from the bank is less than three times the net earnings you're getting. So in the case of my first business, it was actually the total total debt to earnings was about two. So the business made about $600,000 a year, and the amount of money that we borrowed to, to buy the business was 1.2 million. So it was a very easy math equation for the lenders because they were like, Okay, well, you $50,000 a month in profit, and your bank loan came up bank loan came up to about 14,000. So there's plenty of margin there for reinvesting in the business having positive cash flow, as well as obviously, to cover up for the bank loan. So that's what I would say, you know, for people, it's actually far easier to get one to purchase a business and to start a business is as backwards as that sounds. And so, you know, with with the courses, you know, with the course that I have on SBA loans, and some of the content that we're putting out there online, we'll definitely get more into that over time. Because I think that it's, it's it's definitely a misunderstood area and a lot a lot, not a lot of people think about that as an option. Instead of, you know, starting you know, like, Oh, I got to start a business, well, why don't I take your 50 grand of savings and just go buy one, you can go buy a business that, you know, is making 250 300 grand a year for five $600,000 you put down your 50k you've made it back five, six months. So it's a much, much simpler business model, I think to me, but But yeah, you definitely can't.

Steve Brown 29:55
There's a book that argues that point really well. It's called buy, don't build I believe is the name of that I forget who the author is. But it, you know, it really helped me understand the significant risk that businesses are facing, when you start a business is like one out of 40 businesses will ever. So one out of 40 is one out of 400 that will ever make a million dollars in revenue. So you think about the odds of just staying in business and then then the gauntlet, you have to run if you make it, you're in business for eight years. But then you have, you know, what do you have to show for after this long fight, and to actually buy a business? We'll help you shortcut a lot of traps and ditches that you have to navigate if you're starting a business.

Unknown Speaker 30:51
Yep. Yeah, I actually looked up the book, I forgot who wrote it, but I had heard of it. I haven't read it. Walker, debelle. And, you know, the title on it is how acquisition entrepreneurs out smart, the startup game. And it's, it's really the case, there are a couple of people out there who do some education, they teach a little bit about, you know, kind of the acquisition, the acquisition business model, but you know, the crazy thing about it is, you know, there's plenty of people out there on a day to day basis, that's, that's all they do. They, you know, they purchased this, and I know, people who they've purchased, you know, they purchase, they have 14 different companies, you know, they're doing over $100 million in sales. And, you know, as far as I'm not gonna say it's a shortcut to building wealth. But it is, you know, if you're able to buy a business that is already making 600 grand a year, I mean, how many other 19 year olds would, you know, are in a position where they're, they have a business that's profitable, and is doing $3 million a year in sales, like, like that, that was my position at 19. But that's because I figured out why not just buy something versus starting it started something like you said, you know, the chances of getting to a million plus revenue are only one out of so many. And you know, a lot of businesses, they fail because they're trying to offer a product or service that just nobody wants, or they're offering it at a price just that, you know, it doesn't work. So go figure out what's already working, and you've solved half the battle, you know, and that's, that's the whole premise of people on why they buy businesses. But yeah, if you talk to business workers, people are always buying, you know, people are buying and selling businesses all the time. But you know, not a lot of people hear about it, because it's just, it's not as sexy as, you know, hey, I want to go start a tech startup or a software online company. And it's not it's like, Okay, well, forget sexy what, you know, well, but you know, what buys lake house money? And so, yeah, that's, that's, that's why I think the acquisition model is is definitely superior. So I do i do i do have content that goes into that with kind of like our resources, and can I like my course. But, but yeah, it's it's a much easier business model.

Steve Brown 32:49
So quickly, what are the top three myths that surround SBA financing?

Unknown Speaker 32:57
I think the biggest one is kind of what we touched on, it's kind of a bit of a two in one, it's that, you know, not all lenders are created equal. And SBA financing is getting harder, you know, getting SBA financing, it's hard. A lot of people think SBA financing is is hard, but it's because they're talking with rock banks. So they're kind of an inner woven, you know, reason there. So why people have issues doing it. And we touched on that a bit before. I think some of the other ones are that you need a lot of cash or you need a lot of collateral. That's the biggest one I hear from people. And a lot of times it's because they go talk to like, again, they go talk to a big bank, the big banks like, Well, you know, you want one, you need a million dollars for your business. You know, that million dollars that we would give you would be would be 75%. Government guaranteed, but we want to see a million dollars of equity and cash between your house and your you know, your personal other finances. You know, it doesn't make any sense at all. I mean, the whole point of the SBA loan program is to be able to provide loans for people who don't have full collateral coverage for for something like that. And it actually says explicitly in the SPSS op, a lender should not decline a loan solely on the basis of lack of collateral, if it has cash flow, if it has managerial experience, and you know, the borrower's otherwise credit worthy you can't decline a loan because there's a shortfall in collateral and so that's one of the that's one of the big things that people really miss out on life just to show but that's that's one of the big things that people will just totally Eclipse over is this Don't think about niche something about that because they they talked to a wrong in the wrong deck. I think what you know, as far as like, you know, what's what's the third big myth? You know, you need a ton of cash collateral. You know, it's a good one, you know, what's it What's another What's another big myth?

Steve Brown 34:50
Biggest you have to be big and successful.

Unknown Speaker 34:53
Yeah, you know, it's just there's so many just generalized sections.

Steve Brown 34:58
I've got a I've got a piece Up loan and I've got a I've got another credit line with the bank. And, you know, I'm gonna get declined, because that's a lot of a lot of potential debt.

Unknown Speaker 35:11
Yeah, yeah. So I mean issues like that. Well, the thing is tech. Yeah, that's that's one of the tricky things with TV. It's It's, it's, it's a loan until it's not right until it's forgiven. They have to underwrite it as if it's not going to get forgiven. So that that kind of can screw you up to some degree. But I mean, as long as it's in prosecuting forgiven, it's not a big issue. But yeah, I mean, I think the other big misconception I hear is that it takes a long time, and it takes a lot of paperwork to close an SBA loan. I have a friend of mine, he's, I'm helping him actually get like a, he's getting a large SBA financing to do a partner buyout, the total financing amount is actually 8 million. So five of its coming from SBA, three of it's coming from conventional. And he recently just bought it, you know, before getting the extra visa just bought a house for like nine bucks or something. And he told me, the amount of work that you put in for the mortgage was like 10 times that of the loan application, the paperwork for the bank for the business.

Steve Brown 36:07
Yeah. And so,

Unknown Speaker 36:08
you know, that's, that's one of the things that I think a lot of people have misconceptions about, as well as that it takes a lot of work. And, you know, how long does it take to close an SBA loan and average probably at 45 to 60 days, you know, the reason that it usually takes longer, though is it's usually on the borrower. It's the bank's goal is to turn an approval around and within, you know, three, four weeks Max, if you give them the full application, they should be able to get all the questions back answered. And that approved within three weeks. But the reason that closings take time is usually it's the borrower doesn't have their ducks in a row, you know, they're missing, they're missing a tax turn, they're missing a lease, takes them too long to go fix their insurance things for the business, whatever the case might be. So that's, that's what I would also say for people like that's another big misconception, I think, should continually be broken. It doesn't take a long time to do it doesn't take a lot of paperwork. You know, just make sure you have a good lawyer and a good accountant. How can you get it all done? I can get that pretty quickly.

Steve Brown 36:58
So all right. You've been listening or watching Joshua Kim, his company has seven accelerator Comm. He helps folks navigate the SBA loan world. So be sure to reach out to him at seven accelerator COMM And check out his course, Joshua. Thanks again for being an excellent guest on the ROI online podcast.

Unknown Speaker 37:22
Yeah, great being here. Thanks. Thanks so much for it safe.

Steve Brown 37:25
Alright, that's a wrap.

Transcribed by https://otter.ai