Ken Lucci 0:30

And good afternoon. I would say to the studio audience, but we don't have a studio audience. Good afternoon everybody. This is the Ground Transportation Podcast. My name is Ken Lucci from Driving Transactions. Um, and I usually run this podcast with my lovely and talented, partner in crime, James Blaine from PAXs Training. Unfortunately, he is out. Training chauffeurs and CDL drivers somewhere around the industry. So I am blessed today to have a, guest, to interview and I am really pleased to, to introduce you to Natalie Bean from provide website is get provide.com, and they are an SBA lender. So Natalie Bean. Welcome, welcome, welcome. thanks for agreeing to do this. I, I think it'll be fun.

Natalie Beane 1:23

Me too. I'm happy to be here. Thanks for the invitation.

Ken Lucci 1:26

So you and I have spoken, I want to bring as many of my clients and many business owners information on how to get an SBA loan. And you've been so open in sharing information, with me. Give me an idea first, talk about your background and then tell us about provide,

Natalie Beane 1:47

sure. So, uh, I've been doing SBA lending for about 15 years, and, currently I'm working for Provide, which is the small business, arm or division of Fifth Third Bank. And. Among other things provide, does all of the SBA backed lending. our sort of history, uh, on the provide side was as a FinTech, out in San Francisco providing practice specialized loans and healthcare. And, fifth Third was a, was a funding partner of ours and they really liked the way we use technology to enable. Actually more human contact in the lending process. And so back in 2021, fifth Third acquired us. And since then it's just been shifting focus, um, within the small business piece of the bank over into the provide model. And so today, uh, providers responsible for doing all the SBA loans for entrepreneurs coast to coast, And my part of the process within the SBA space is on the front end, working with entrepreneurs to help them, uh, assess whether they're ready for an SBA loan to assess whether they're a good credit fit. Um, for the bank.

Ken Lucci 3:02

So Fifth Third is one of the largest banks out there, right?

Natalie Beane 3:07

Yeah, it is.

Ken Lucci 3:08

Pretty big.

Natalie Beane 3:09

It's. right now I think it's a 220 ish billion dollar bank. Uh, we recently announced, a merger or depending on how you look at it, an acquisition of Comerica Bank that's slated for Q1 next year, which will bump us up into, into the top 15, I think. So we'll be up to about a $300, $300 billion bank. Yeah.

Ken Lucci 3:30

Well, what intrigued me when you and I first spoke is Fifth Third Bot provide, but now you are really the tail that wags the dog, meaning you provide, does all of the SBA work. Primarily the SBA work within Fifth Third. They didn't absorb you and say, okay guys, we got this. They basically said, run with SBA, correct?

Natalie Beane 3:57

Yes, that is correct. Um, fifth, third had always done SVA, but in a sort of, uh, spread out, brick and mortar based type model. Yep. And so after seeing, the way provide process, loans for entrepreneurs in the healthcare space, they just decided that rather than try to absorb us like you might expect, uh, they wanted us to sort of take the lead and. Adapt our model to focus in the SPA space for the whole bank.

Ken Lucci 4:26

You know, I gotta give him credit because most, large acquirers. Don't take best practice from the companies they've purchased. They basically try to infuse the way they do business onto the acquired company. So that's kudos to the, to the executive team at Fifth Third. You know, they bought a great asset and they've expanded it. So talk to us about. The types of SBA loans and what they're used for. What are the different types of SBA loans that, you know, our audience is largely passenger transportation companies from non-emergency medical companies, chare limousine companies, and then we have large motor coach companies that listen as well. So talk to us about the different types of SBA loans that may be applicable.

Natalie Beane 5:17

Sure. well, I'd say there are three sort of buckets. Um, one is the SBA seven. A loan program, which has the broadest. Possible uses of proceeds and, and I would argue might be the most commonly applicable in, in your space. basically you any business purpose, is eligible use of funds under that program, with terms up to 25 years. So that's a seven a program. Um. the next sort of bucket would be an SBA 5 0 4 program, which is highly specialized for real estate acquisition and potentially heavy equipment with long, useful life. that program. Is not all funded through direct bank lending. In fact, uh, the way the seven a program is. Um, so it's, it's, it's a little more, it's a lot more specialized, you could say. Um, the, the third bucket would just be various lines of credit programs. Um, there is an express line of credit that in my experience, we will often use as a companion product to a term loan when it makes sense in a given industry. And there are some specialized for different. business verticals out there,

Ken Lucci 6:26

So give me an idea, if I'm an existing business, what do existing businesses use? SBA loans for most? If I'm going to use an SBA loan just to for expansion, what do you look for? You're looking for business plans. You're gonna be certainly looking for use of. An explanation of use of capital beyond I want to grow my business. What do you look for? If I wanna take an SBA loan out to expand my existing business?

Natalie Beane 6:59

I think the number one thing you've already kind of touched on, and that is we're gonna ask more questions than just you wanna expand. We wanna understand how and so we do this. In large part to make sure it's a well thought out, thought out plan, but also, um, to decide which buckets of fund uses things fall into. So you can use it to buy equipment. inclusive of, uh, rolling stock, equipment necessary to support expansion. operating capital, working capital to support, say a marketing initiative or hiring. I will say within the working capital bucket. That is one area where SBA just doesn't want us sort of handing out big chunks of cash. You really, you've really gotta have sort of a well thought out plan. Uh, but you can also use, SBA funds to acquire real estate. So if you're, you know, looking to build a depot or expand a depot or something like that, you can use the money for that. Another reason we'll use money that kind of helps to expand is to consolidate debt. that exists already on the balance sheet. It's gotta make sense. If we can imp improve terms and therefore payments and free up some cash flow. sometimes just the act of doing that, as you've no doubt seen, can actually free people up to sort of expand organically without additional cash infusion. Mm-hmm.

Ken Lucci 8:14

right. And you know, this is a leading question because we do financial analysis and we sell a course that teaches people how to create, uh, cost of goods, financial statements, and monthly financial statements. How important is demonstrating. Uh, exceptional finance, financial performance. And how important are the financial reporting documents of the business to get a loan?

Natalie Beane 8:41

It couldn't be more important. I'd say the likelihood of approval and the speed with which you can receive an approval and the smoothness of the act of receiving an approval. All of these things are directly tied back to the quality of the financial package you're able to put together. know, in this space, most SBA lenders are accustomed to dealing with folks who are, let's say. Not your customers, so maybe not as ready. So we're used, we, you know, we are used to holding hands and helping people along, but the fact is it's not our primary focus. And so you may be a very bankable, uh, business, but if you can't show that you're bankable, it may not matter. You know, you may not get the yes. And if you do get the yes, uh, you may not get the best terms because you don't have the most compelling package. Um, uh, so I, I'd say it just could not be more important.

Ken Lucci 9:29

Well, it, it's, um, interesting to me. Let's, let's step back. One step. Let's, if I'm gonna be buying equipment, rolling stock. for the audience out there, it doesn't make sense to go to the SBA to buy SUVs or vans because of the, there's not enough useful life. But if I had a compelling case as a chauffeur company that's got a long track record in the region, I've been very profitable and I've got a great financial package. A, you know, we talked a little bit about motor coaches, 56 passenger motor coaches being typically a 10 year vehicle. Does that make sense for an SBA loan?

Natalie Beane 11:15

It can, uh, the only time I ever see that creating challenges is if folks are trying to buy those on, in a sec, a liquid secondary market, and they can't. They need to buy it quickly. They don't have time to line up all of the financial documents and get things in order to be able to fund in a timely fashion. But aside from that, yeah, as long as the useful life is in that 10 year range, it does make sense because that is, the maximum loan trend we can offer on a non-real estate loan. And, so yeah, it, it, it is a reasonable way to use an SBA loan.

Ken Lucci 11:51

We've worked with several large chauffeur companies. You know, the, the chauffeur space is much like the restaurant business and you, you go from like the local diner. To, to, uh, a fairly decent sized family owned restaurant to maybe a local regional chain. The average chare company out there, you know, can be between 3 million and, and, and 5 million is what our smaller clients are. But we've worked with several companies, the seven to 10 million range who've wanted to go out and buy motor coaches, and they wanted to get into that space and. Which, which to just describe it, it's almost like going from propeller planes to the jet plane, and to me it makes. I don't know how people buy. It's a 500, $600,000 asset, how you possibly buy that without a business plan. So I would encourage anybody in the audience who's thinking about pivoting into large equipment it's not for the faint of heart, and you have to be financially capable, uh, across the board. so the SBA seven A, uh, let's talk about it for buying real estate. I'm gonna set this up. I'm a small business chauffeur, uh, company and I've been leasing, from someone and paying sizable rent, but now I wanna buy a building. does provide think is a good investment in that kind of a circumstance? I'm gonna be my own landlord. I'm gonna be paying, my business is gonna be paying the mortgage. So talk about that as a, as a, a good use of the SBA.

Natalie Beane 13:29

Yeah, absolutely. Um, so the first thing we'll look at is. You know, has the business been around long enough for us to be able to assess on historical basis whether they could afford, could have afforded to pay the proposed loan? And I mean, a good gut check of course, is how much rent were you paying and what's the debt service on a 25 year term? Um, so, you know, that's just kind of table stakes. But, or, and we also. Wanna make sure that the location of the property is gonna make sense. You know, is it, is it near enough? By that, it doesn't require a fundamental reconsideration of the way the business is being run. Um, it that there's that. Um, and then beyond that, we're just looking at is the, is the property in good condition? Does it need a new roof? You know, does it, is it properly zoned? Will, are you buying an amount of land that is sensible for the business? Um. You know, this doesn't happen very often, but there are times when a seller owns a large plot of land and, and a prospective borrower for us is looking for a portion of it, but can't buy only a portion of it. And so, you know, with SBA, we have to think through, is that an investment in part or not? Um, that's not very frequent. It's just something we kind of have to keep our eyes on to make sure. Um, otherwise it's just doesn't make financial sense and, and. I guess related to that, if it's a company in growth mode, how much runway will someone have, in the new space? Is it big enough to absorb whatever that growth trajectory is?

Ken Lucci 15:00

in our case, it's usually they need a par bigger parking lot, right? They need, uh, they need a garage for maintenance and to do in-house maintenance. So when we talk to our, most successful sellers, people, you know, of the, I don't know what the number is now. It's not over 40, but probably about 37 companies that we've sold. The most successful companies we've sold have been operating, they were operating entities for 15, 20 years, and they bought their own, they bought their real estate. They o, they were operating from a building they own, and my reasoning for really wanting to. Encourage operators that have got a good five year track record of profitability and a good track record of financial stability and, and great cash flow and great liquidity to buy is because it is creation, especially, you know, you're a private business owner. It's creation of, of additional wealth. Owning the real estate and being your own landlord there's quite a few benefits to it. So I encourage every operator out there to, In our case, we help try to help people get on that road to profitability. It should be part of your plan. I mean, unless you're in Manhattan, right? Tough to buy real estate in Manhattan. talk, talk to us because you know, we see, we see there's a lot of m and a going on in this space. We see a lot of listen in small business in general. I mean the generational turnover of the, the hundreds of thousands of small businesses that their owners are getting ready to retire. And I think over the next 10 years they said it's the most transfer of, of, of wealth, of small business transactions in the history of the country. So talk to us about using SBA loans to buy. you know, I'm an operator and I wanna buy another operator. Talk to us about that. Um, and what do you look for to fund.

Natalie Beane 17:04

Well, when we're looking at an acquisition, there are two for us to really. Key considerations and then a lot of sort of secondary ones. the first consideration is does the business have historical financial performance to suggest that it can support the value and the debt service for the loan? Naturally, we wanna see that the buyer is qualified and knows how to run the business. So, you know, that can be documented in a variety of ways if they're already operating a business. That's pretty straightforward. the other piece of it is the personal financial side of the equation. And I, I think that is an area where some entrepreneurs out there aren't really thinking about how that impacts things. even if the business is. Is a solid performing business and, you know, appears to be capable of supporting the proposed debt. If you have, a buyer whose personal budget is extensive and they don't have outside source of income, you know, that's gonna damage the ability of, you know, we're gonna have to look to the business, not just to support the debt, to acquire it, but also to support the personal budget of the buyer. So the interplay of the personal financial scenario with. The profitability of the business is really key. And then beyond that, it's just, a lot of the same things you would think of are there, is there deferred maintenance? is there accumulated capital expenditure required, that historical financials don't show? are they inflated in that way? So it, it's kind of digging into the numbers to make sure that. A buyer is going to be set up for success. We also wanna make sure we understand the working capital needs because especially depending on how well say a fleet has been maintained or how well you know a building has been maintained, we wanna make sure there's enough money to true that up when someone acquires. But also to be poised for growth and to be poised to cover fixed operating expenses. you know, while establishing themselves as new owners.

Ken Lucci 18:57

So let's put that in limo ease for the audience. If you are looking to, if first, and for first and foremost, is it, it, it's true that the buyer, the the buyer's financial performance of their, of, let's just say they're an operator now, the host bi, the host business, right? The buyer's foundational business has gotta be on a firm financial, profitable footing on its own.

Natalie Beane 19:23

Yes.

Ken Lucci 19:24

So you, so, so for everybody in the audience, don't go out to try to acquire a business to solve a problem that you have. In other words, if you are not profitable, just adding another business is not gonna help you, right? In many cases, I've seen it sink people because they're just not ready, right? So let's start with that. So the buyer's business financials need to be impeccable in an order with a great history of profitability. Cash flow and the business liquidity should be good. and what she's saying, what Natalie is saying is, your host fleet, your existing fleet, better not be on its last leg because I'm not gonna lend you money to buy another business because you, primary assets are already over their, useful life. At the same time, if you're going out to buy an operator's company. What she's saying is if that company has a disgustingly old fleet or an old fleet, right? I, I use that term, an old fleet, and it's at the end of its useful life, you better be stealing that business because the bank does not want you to have to buy the business and then next year go out and spend a million dollars on, on fleet. So all things being equal. The buyer's business, financial position, asset use, asset value, remaining useful. Life is critical as well as the sellers? Correct. Okay.

Natalie Beane 22:04

absolutely.

Ken Lucci 22:05

and the buyer's personal credit. The personal, balance sheet of the person buying the business. interesting. So how often would you say. Out of the a hundred SBA loans you, you write what percentage of them are for an existing business owner to acquire another business for expansion purposes.

Natalie Beane 22:29

I mean, that fluctuates a lot over time, but maybe somewhere between 25%, it could be up to 50% in any given window of time. It's, it, it. Fluctuates, but you're right, what you said before about there being a lot of turnover, from one generation to the next right now. And so there are a lot of folks who, uh, earlier today I was working on a project where someone started their own business six years ago, and now they're ready to expand and they're expanding through acquisition. So, I expect to see more of it honestly in, in the coming years.

Ken Lucci 23:00

Yeah, we, we see a ton of it in this space. Um, we would like to prepare the next generation of operators, you know, that are much younger than me. The guy, the guys in Galveston, there's tons of 'em that are 35 and 30 to 40 that just love the business, but we want them to be financially prepared, right? We're not interested in. They come up to me and they talk about, oh my, you know, my revenue growth, I've already exceeded my last year numbers in the first six months. And I say, okay, great. What's your gross profit margin? How's your cash flow? How's your net operating income? And they look at me like, what are you talking about? Right? So, so the financial, you know, you, you've said, what really we preach is the financial performance and financial documentation If you want to have a lending relationship, A bank like yours is critically important.

Natalie Beane 23:52

It absolutely is, and I think something to keep in mind as well is most, most lenders lend into a variety of industries, and so we are in fact relying on the buyers we work with to be capable of presenting a compelling case and help us understand, we know how to read financial statements. We know how to evaluate projections, but we maybe don't know your business model as well as you do, and we want to be able to rely on you to help us understand, not in general, but in specific. How is this new, motor coach going to improve your profit margins? Or how is acquiring this new business going to improve things? And if you can't credibly understand or explain how you're achieving performance in your existing operation, you know, that just reduces credibility. And it ma it makes it harder on the lender to approve even if the target company is performing and appears profitable. So. goes beyond just proving that you're gonna be good at running the business. It's also setting your lender up for success, getting an approval from their credit partners. Um

Ken Lucci 24:59

so the business case. So if I'm, if I wanna buy, if I'm a, an operator or existing company that wants to expand in part through acquisition, uh, you know, it's always, it's, it's a, it's one leg of the stool. I mean, organic sales growth is critically important. But number one, the financial performance of, of the, of the primary business has to be pristine, and it has to be demonstrated on accurate financial records. If you are going to go out and buy a business, it's important that you build the business case as to why this is a good investment for you, and what you can do with it afterwards. so the, the buy side financials and the sell side financials are critically important, and then it's building the package or the business case of why this is so good for you. why this is the best way for you to grow your business. So talk to me. Let's talk about the nitty gritty of the process, right? People think getting an SBA loan is an arduous process. Let me just dispel some myths. I've seen, I've seen some SBA deals go through exceedingly quickly, but it's all the pre-work, it's the creation of the package, it's the business plan, it's the buyer, has had a great demonstrated, history of his own profitability, and I've seen 'em sail through what's the average time for, for getting an approval and then funding alone.

Natalie Beane 26:31

The first one's a little easier, but it. I will say that it, the variance is pretty great. Among different applicants, and then the reason you already just highlighted is key. Are you ready when you come to me? If, if you're not ready and you don't have a package and I have to coach you through it and you have to go spend time, it's gonna take a long time. But if I assume I have prepared, prepared applicants, then you know, maybe it takes a week to pre-qualify a deal, two to three weeks to underwrite it, and then depending on if there's real estate or not. 60 to 90 days to close a deal. So, and if there's some kind of construction or renovation or project oriented work going on that, that elongates the process because then you're talking about plans, specs, permits and that kind of thing. So that's kind of its own whole category. But, um, you know, anywhere from 60 to 120 days depending on the, the loan profile. Now to your point, I've seen folks sail through in 40 days or

Ken Lucci 27:29

Right, if they're prepared.

Natalie Beane 27:31

If they're prepared. And it's one of the reasons why I think beyond just having your financial, uh, statements and just your financial documents organized and, and in order as a, as a general rule, it's important to know what we're going to ask for. So you know what, what to have ready. And that's why I think it's really smart and reasonable for prospective buyers to consult with a lender. Ahead of time before they're ready, before you sign an LOI, so that you know what questions we're going to ask so that you know which things jump out to us as Hmm. Confusing or we want more information. That way you're not flying blind, uh, and you're not under the clock. You know, once you sign an LOI, with a, with a seller, you know, they're, they're already counting the money or depositing it, so there's.

Ken Lucci 28:21

The money before we even give a value.

Natalie Beane 28:24

That's fair, true story. so yeah, you know, before you start that clock, consult with someone who can make sure you are set up and it, and sometimes that's someone is me, it's the bank. you know, we, we do this all the time. Uh, look at an existing business owner. Look at their per personal financial situation and provide feedback and say, Hey, yeah, you, you are sort of pre-qualified to look for a business or. Before you come back with a business to buy, take care of these couple of things. Um,

Ken Lucci 28:52

You know, what you just said. There is a, is a, is what I call the golden nugget, right?

Natalie Beane 28:57

mm-hmm.

Ken Lucci 28:58

my dad was a very successful entrepreneur. He was from his bootstraps, kind of a guy, and started in the grocery business with a corner store and ended up owning, you know, a couple of shopping centers. Three or four, three or four commercial buildings he built. And he was a character, and he said to me, your most important relationship is with your mate. The second is with your mother, with your family, and the third is with your banker. And he said, if you're a business guy and you don't have a banker, and I think he said the fourth was a lawyer. I have a tough time with that one, but that's okay. if, if you don't have a relationship with a banker, a local banker. I, I find it difficult to understand why, because you're not able to take on opportunities that come your way. You're not able to act quickly enough. So what you're talking about is have pre-conversations get your ducks in a row.

Natalie Beane 29:57

Yeah.

Ken Lucci 29:57

far as financial reporting, I, I always advocate, you know, if you are gonna run this marathon of buying another business or you are going to undertake this, we first need to look at your business to make sure things are going well, but. involve a banker, involve a lender, and these discussions, even if you said, 'cause I heard you say even before you found a business, I would encourage the audience to identify three or four targets. Identify, you know, who these companies are if you, and you know what your strategy is. I have a great, client that has built their business based on what I call the hub and spoke model, where they have their hub, they do all of their bus mechanics work, and they do their refurbishment at this hub in New Jersey, and then they have satellite offices around that don't require the mechanics because they just. Send a driver back with the Motor coach. I have other people that acquire in what I call a chess game approach, where I'm from DC and now I'm gonna open up in Philadelphia and I'm gonna open up, up in Newark. So, I mean, finding a lender upfront to me, you know, you don't charge for your advice.

Natalie Beane 31:14

No.

Ken Lucci 31:14

the way to the audience I do. So, sorry. Um,

Natalie Beane 31:19

It's worth it though guys. It's an investment.

Ken Lucci 31:22

you know, it's, it is an investment and we always say this, we give a money back guarantee because I don't want you on unhappy. I see you at a conference and you are not happy with our work. Now, you may not like the valuation we come up with, but I'm gonna, I'm gonna point to four or five comps. I'm gonna, I'm gonna always invite you to, to get a second opinion, but we offer a money back guarantee of what we do when we find profit link leaks like crazy. When we do a valuation, we will find issues that come up and I'll say, listen. Before you sell this company, this is gonna come up through the process. So I think we ought to fix this first and let's, let's give ourselves a runway to see that it's fixed. So talk to us about, you are the seller of a business. How would you advise a seller to prepare? Because, you know, making the business, or excuse me, positioning the business as being able to get financing through the SBA. Of a sales, uh, tool. So talk to us about that.

Natalie Beane 32:32

It is, you know that there's something I say frequently, which is. If you want to expand the perspective pool of buyers as a seller, then make sure that your, business is gonna be SBA eligible, and not just SBA eligible, but well suited, right? You can be eligible, but still not a very good credit. So to sellers out there, I would recommend consulting with lenders, um, at least one lender to know, what is a lender going to say about how much can be financed on. On this kind of acquisition. And so, you know, if you think the value is here, but a bank thinks you can only lend this much money, well then, you know you need somebody with that much cash. if you get insight into the types of questions that we're gonna ask. Now, if the seller's already working with someone like you can, and they've already identified leaks, you know, they're probably gonna have ready answers for all those questions. But a lot of times sellers, if they come to me first, uh, they may be hearing feedback for the first time. They may not have been working with someone like you, so. It's the same advice I give to buyers. Talk to a bank first. Let a bank tell you what kind of structure they feel they could offer a qualified buyer for the acquisition of your business. Um, and let that lender also then counsel, and this, this goes to advice that's sort of the flip side for a buyer, but. If a seller is aware of how a bank might value a seller note as part of the capital stack on an acquisition, and if a seller can understand and have meaningful conversations upfront to understand this is going to expand your pool of buyers, it's going to strengthen the value. That a bank is willing to finance, if you're able to offer a seller note in this form or this fashion. and here's why you might need to, here's why a bank might want you to, even if you don't need to. socializing those ideas earlier in the process I think really makes for a smoother future process. And I, I, you know, there are folks out there that don't like to face. Tougher conversations and maybe, you know, some advisors don't wanna tell a seller, they might need to have a, a note involved in a

Ken Lucci 34:38

Oh, this is, you're not having a conversation with one of those advisors.

Natalie Beane 34:44

Yeah. That

Ken Lucci 34:44

I, we, we prepare them and I say, would you rather me tell you the ugly truth of something that's uncomfortable? Or do you wanna wait for, you know, it's to hurt the process. So what you just talked about, talk about the seller node piece for a second. Talk about why that's important. The seller of a business, taking back, a note, taking back paper, a promissory note.

Natalie Beane 35:12

Yeah, so I see this as a way to. Do a couple different things. And one of those things is if you have a really qualified buyer from an experience background or an experience perspective, but maybe they're slightly lighter on liquidity, um, but you wanna be able to sell to an operator that you feel confident in. one way to bridge the gap and reduce the down payment requirement on that prospective buyer is to be willing to offer, A note in the amount of 5% of the total project costs, uh, on full standby for the life of the loan. Now, that causes some people to faint if they haven't heard of that idea first. But if you think if I carry 5% of a total project cost and defer receipt of payment on that for, for the life of an SBA loan, which by the way on average only ends up being six or seven years, not 10. But that means I can get 95% cash upfront. I mean. That's huge. So that's one way is to help reduce the down payment burden on a prospective buyer that you may be motivated to sell to. Uh, another way is if there is some perceived weakness or softness in seller performance. Sometimes we see businesses being sold under duress, right? Maybe someone's ill or has a family who's been ill, a family member who's been ill. So there's a little softness in revenue or profit margins. one way to mitigate that is to ask the seller to carry a note. And in the, in that case, it doesn't necessarily need to be. With deferred payments, it's just a way of allowing the seller to share in the risk of acquisition. A risk that you might argue is increased by something about the financials or something about the, about the transaction. Um, other times it might just be to fit within the credit box of a prospective lender. They may say, well, we, we like this kind of, we like this kind of. Debt, but we don't wanna go beyond X. So we've gotta find a way to, to bridge this gap. Even though the SBA says, Hey, a 10% down payment is, is acceptable, you may need 22% to get the deal done, and if the borrower brings 10, there's 12, you gotta figure out. So I think in general, it's a really good tool to basically bridge the gap on purchase price and available funds. And then also just to demonstrate, uh, a little shared risk for the seller.

Ken Lucci 37:30

Well, it, it, you, you've said a mouthful there. I mean, let's, let's put it in real world perspective. You have, you have someone that's been with you in the business, operating the business with you for years. Maybe your operations team wants to buy the business and you wanna retire. What, what Natalie is saying is the seller taking back a seller note. On a buyer or a couple of buy a group of buyers that they have a great amount of respect and confidence in shows the bank that this is a good deal.

Natalie Beane 38:11

Yeah.

Ken Lucci 38:11

In part. because, you know, we, we all have situations. We work with situations all the time where a key person wants to buy the business. They could, they have, you know, family, friend and family money for the down payment. Um, and this the reason for the seller promissory note of the seller note, it's multifaceted, right? It takes some of the risk off the deal. Right for the bank. it puts the loan more in a criteria for, for an approval, and then it demonstrates to the bank that the seller has confidence in the buyer.

Natalie Beane 38:47

Yep.

Ken Lucci 38:48

Critically important, critically important. so there is, talk to us about the sellers that are out there. You might not have these, these, uh, these cats out there, but talk to me about the sellers who say, I want a hundred percent of my cash at closing. How often does that

Natalie Beane 39:09

Well, I'd say it probably happens a lot. however, I think there's a lot of folks who want a hundred percent of cash at closing. To that, I say, okay, but a hundred percent of cash at a closing that's never happened is still zero. What about 95%? What about 95% of the cash at a closing date? I can name

Ken Lucci 39:31

I, I should have teed it up better. I want a hundred percent of my cash at closing and I want my price. You, your price not, might not be reality.

Natalie Beane 39:42

That's, that's right. That's right. I mean, that is an interesting and good point. I think that is when seller notes can sometimes come into play, it's a way to thread the needle between a per a, a gap in. Value determination. A seller thinks their business is worth this. A bank and say, a buyer think it's worth this. And so it's like, well, this is what's financeable. If you, if you still wanna talk about that number, then you're gonna have to carry that note. It's gonna have to be subordinate and, you know, we'll see.

Ken Lucci 40:11

Right. Subordinate, meaning the SBA has to be paid off first and your, the seller note is behind the SBA.

Natalie Beane 40:21

Yep.

Ken Lucci 40:22

Okay. I mean, and, and the funny thing is where I never, there's few things when I get into this. I got into this on a whim. I did this part-time, 2018. I sold my limo company in 15, I think I told you that, or 12. And I got my final payment in 15. I never imagined it was gonna just explode the way it has. Few things that have been shocking to me, or surprise number one, the number of companies that operate without financial reporting on a monthly basis. That has truly been a shock. I come from a background and I told you where my dad was in business and he used to so long ago. He, he used to teach me, remember the accounting green sheets? The accounting green sheets that were literally the ledger sheets that it's manual Excel reports,

Natalie Beane 41:10

Mm-hmm.

Ken Lucci 41:11

right? And he would show me the green sheets and we go into the store every Sunday and he would show me, okay, this is how Dry goods did, this is how produce did. And Ken, here's the profit that we made at the end of the month. It's amazing to me how business owners don't. Have monthly financial reporting? Is it just my industry? Do you see

Natalie Beane 41:33

No, no, I see the same thing. And I think sort of re related to that, if you're not looking at monthly financials, then how can you tell when you take on a big new client at what I see so frequently is the thing that's putting a business under stress is they took on the dream client, but it's not profitable

Ken Lucci 41:56

With 90 day terms and low

Natalie Beane 41:58

Yes, yes. 90 day terms if they want, you know, where there's not really any recourse. And if you're not getting regular financial statements and looking at that dry goods level to your father's, you know, uh, example then how do you know if a given customer or route or whatever is going is going to actually do your business? Good. Top line revenue for the sake of top line revenue. that could be a ticket to killing your business or putting it under extreme

Ken Lucci 42:27

wait a minute, John, you better have grabbed that because that was the snippet we're gonna use. Um, because so many, uh, so many people, it's, it's like the restaurateur who on a Friday night laments, he looks and says every table is full. And I've got a waiting list of people. Then on Monday he can't pay for the food 'cause he doesn't have he, he has to pay his payroll, he has to pay his rent. He has to pay his insurance. He doesn't understand that that's not a measure of success or how many meals come out of that kitchen is not a measure of success. when we work with operators on a retained basis, or we do their monthly financial reporting, first thing they said to me is, well, wait a minute. My, I guess my accountant does that. Okay, well, your accountant might do it, but you're obviously not looking at it. And if you are, you're just looking at the bottom line, which is good, but. Monthly financial reporting. Ideally, you want to pull out what you just talked about. You want to pull out key financial metrics by revenue silo, by, you know, looking at your cost of goods. You may just have go signed a fantastic client that does airport transfers with you 50 a week, but they've demanded you match the pricing of someone who just didn't know. How to price things and it's, it's putting stress on your business. Segue into cash flow. Talk about how free cash flow and cash liquidity is something that, that you look at when we should be looking at, when we're examined buying a business.

Natalie Beane 44:08

Well, it's a great example and a great point. I think if, if you take on a customer that demands margin de demands pricing that. To, to match someone else who's not making good choices. Your margins end up being so thin that you're having to invest a lot more upfront to make less. And not only that, there's opportunity cost of that. So in the time you are delegating resources to earn those tiny margins, you are foregoing, smaller, maybe less glamorous clients or prospective clients who would afford you. Better margins. And at the end of the day when we are looking at, hey, can this business afford to expand and pay for another business? If you don't have any leftover cash flow after you pay the overhead to service the customers that you have, even if you're looking at a profitable business, we're gonna look at that and think this is not a good indicator that you're going to be able to manage to healthy profit margins. It doesn't inspire confidence when we are evaluating whether or not a given operator should be approved for an expansion. But also it's, it's like to your other example about buying, you know, investing in other $500,000, in a new piece of equipment, it's if you can't show us how that will affect the bottom line in a positive way, That's not really gonna make a good case for us giving you a loan to make that acquisition. So just because you can bring in a really big client that would give you 95% utilization of a new piece of equipment. If you can't also show me that after you pay for the debt, after you pay for the all of the costs of, you know, doing the business. If you guys show me there's leftover money there. Then that is not going to be a recipe before approval or success for the business in, in my view. Um.

Ken Lucci 45:58

Yeah, to a hundred percent. And we, we actually, we actually have several use cases where we worked with clients who wanted to sell their businesses. And their primary reason for selling it is 'cause they're not making any money, right? So they, they have a business partner and they want to be bought out. And when we look at the business, to your point, we are seeing, oh, I have all these contracts, these shuttle contracts. Well, first of all, there's a little bit of a misnomer there because it's a, it's basically they can fire you anytime. What you have is a piece of paper. You don't have a legally binding contract where the person has to pay you for a di for a term, right? You have a pricing term sheet. So we actually have a couple of situations where. They have had municipal contracts and they've said, this business is worth money because I have these municipal contracts. When we've done the analysis and we've said, all right, here's the revenue that contract brings in. This is the equipment that's dedicated to it, doesn't do anything else but that municipal contract. Here's the insurance, here's the driver, here's the fuel. Here's all of these things. Wear and tear, repair, maintenance, et cetera, and depreciation of the equipment. You're making 18% gross margin. You might as well leave that piece of equipment in the garage. Because all you need to happen is somebody sideswipes a poll and now you've totally lost money. So the misnomer that all revenue is good revenue, you know, you have to know what your definition of good business is. and again, you know, when we talk about buying a company, one of the key indicators is what does their pricing look like compared to yours? If you've identified that you are running a profitable business. You just want to take a competitor out. In certain cases, if their prices are that low, all you have to do is sit and wait because at some point they're gonna go. you shouldn't take on another business with low margins to expand your revenue because it could kill the host, it could kill the host. how important in your estimation. is the human capital of the business. If I'm gonna try to, uh, expand through acquisition, how important is it to you to see that the team. Of the host company is, has got great experience besides the owner, right? Because the owner, frankly, I always say this, you're, you are one heartbeat away from that, from that loan defaulting, right? Because you do everything in the business. So talk about that. Talk about the team and what we should be preparing a buyer for and, and demonstrating that they've got a good team.

Natalie Beane 48:36

Great question. I think we look at, we'll look at both the host and the target to say, alright, number one, is there a good team? What's the longevity? So it doesn't mean people need to have been there for a long time, but that's usually a good signifier. Um. So we, we wanna know the background and experience of the, of the folks at the host, but also what does the target look like and what is the combined entity going to look like? Um, related to that, we also want to know about the systems in place, especially for the target. Um, do the folks. Are there systems in place or is every position one heartbeat away from a problem? You know, it's like if you don't have systems, even if you have the world's best employees in each different role, if you don't have good systems, if you don't have, if necessary, a good recruiting, uh, program or plan, then it doesn't really matter. Even if you have great if, if you have all the greatest people. So we kind of look at the human capital piece along with the systems and. Um, try to make sure that our buyers understand how it's gonna look post acquisition. And I think this is something I see a lot of people, you know, sellers will say, well, I'm not telling anyone we're selling so nobody can know, so I can't, I won't tell you. And they don't want to disclose information about their staffing. and while I can understand some of those fears, it's like, how can a buyer really make informed decisions or do an informed analysis about how their existing team. Is going to be capable of supporting the addition of what's coming or not, you know, depending on what people are coming with. So I think that's key as well.

Ken Lucci 50:17

And, and you know, part of that is also having a decent advisor, um, that can say this is information that absolutely is, is needed to get to the point of a letter of intent. And then we have to do full disclosure during due diligence. Talk to me about one, about owner consideration. You know, we deal all the time with small businesses, I'm sure you do, where the owner doesn't take a W2, they take a year-end distribution, and that year-end distribution is a balance sheet item. It never hits the p and l. So how important when someone is selling a business. To be able to demonstrate that they've taken a really, really good salary and they've taken, they're doing a great job. They're, they're seven, they're in the business, but they're taking out demonstrably more than their replacement labor would be. How important is, is W2 income and consistent income come?

Natalie Beane 51:14

It depends if it's clear to explain, if it's logical and makes sense, and you can show me what you were doing and you have a credible plan for how it will be done, which goes in some part to the buyer as well. Um. Then it's not that important. It certainly simplifies things if it's really straightforward and you've been taking W2 and you're just replacing one with another. but as, as long as the story and the documents and the numbers all match, that's the problem. We frequently have the story and the numbers don't match. And it it, you know, for folks who don't look at their financial statements, they're like, who cares? I'm making all this money. But for us, we're like, I hear what you're saying. And when I look at the financial statement, what I see is. Fill in the blank. Help me understand this. what am I missing? How is this working? And

Ken Lucci 52:03

We, we call those, we call those financials, Prego Financials. Oh, don't worry. It's in there. It's in there. Okay. Where is your compensation exactly? Oh, wait a minute. Your wife gets paid. Where is her compensation?

Natalie Beane 52:17

Like which line item? Where would point it out?

Ken Lucci 52:21

Right, Point it out. It, it is like nobody is going to approve a loan because you say this is what you've been doing. listen, I could literally talk the subject with you and, and to you specifically. I could talk to you about this for a couple of hours, but tell me, tell us how, um, if someone was serious about looking into an SBA loan, tell us about the process with provider and how they find you.

Natalie Beane 52:48

Sure. Um. I'm on LinkedIn, uh, I'm, I'm easy to find. I'm Natalie Bean. but the process with provide is really pretty straightforward. Um. Everything starts with a conversation for me. I just like to talk to human people. We do have a really slick sort of application portal, which lets us pre-qualify individual buyers in five minutes or less. and then a really sort of easy upload thing, but it's really a three phase process. There's pre-qualifying, that's everything from making sure you're sort of generally bankable to me, analyzing the financial information, coming back to you and saying, Hey, here are some terms. That I'm comfortable sending to underwriting. This is what the rate will look like. Uh, that's part one. Part two is formal underwriting. The end of that is a decision. There's your commitment letter. That's where you sign something, make a deposit. And then part three is all the due diligence that we need to do. It's ordering reports. It's getting into formation documents, getting all the sort of i's dotted t's cross at the end of that we fund. so for us it's like a lot of technology to try to smooth it out and address some of that onerous, Stuff that SBA gets a bad reputation about, but it's leaning into that technology to make sure there's a human person available to talk to you. So I, I work with a partner and the two of us are available all the time talking to people, answering questions, and trying to remove obstacles ahead of time so that they don't derail the process so that they don't slow things down.

Ken Lucci 54:10

All right, so we can find Natalie Bean from Provide on LinkedIn

Natalie Beane 54:14

Yep, yep.

Ken Lucci 54:15

give out the website?

Natalie Beane 54:17

Uh, yeah, for sure. It's get provide.com.

Ken Lucci 54:20

But always ask for Natalie Bean. Always.

Natalie Beane 54:23

always,

Ken Lucci 54:24

And, and I will tell you, I will attest to how accessible you are because again, I've reached out to banks and and said, listen, you know, we've reviewed 280 of these companies. We do work with banks now, and we just want to blaze the trail and kind of pre pave the trail a little bit for some of these transactions, and I can't believe how even small lenders are so difficult to deal with, and I was so happy to find you. Um, and, and you make the process, you really explain the process. And I will say the SBA. I don't find the process any more difficult than a typical commercial lender. I, I just a regular commercial lender. I just don't, and I like, I like the SBA loans because for the bank, it, it does share your risk with the government. The government. It's this program is the government investing in the small business engine of America. So I like it.

Natalie Beane 55:22

Yep, me too. I love it. 15 years in. I love it.

Ken Lucci 55:25

Well, you, you've seriously made, you've been very successful at it, so I appreciate your time. Natalie Beam from Provi provide, again, it's get provide.com, but find her on LinkedIn. And everybody, thank you very much for listening to another exciting episode. We hope you get some value out of it Thanks a lot and have a great day.

55:46

Thank you for listening to the ground transportation podcast. If you enjoyed this episode, please remember to subscribe to the show on apple, Spotify, YouTube, or wherever you get your podcasts. For more information about PAX training and to contact James, go to PAX training.com. And for more information about driving transactions and to contact Ken, Go to driving transactions.com. We'll see you next time on the ground transportation podcast.