Non SBA Deal Financing

Summary

In this video, David C Barnett discusses financing small business deals without the Small Business Administration (SBA) loans available in the US. He explores alternative financing options for Canadians, such as the Canada Small Business Financing Act and the British Business Bank's program. Barnett also outlines a general formula for structuring deals with or without bank involvement, emphasizing the importance of a solid equity position and manageable debt for sustainable business growth.

Takeaways

• 🌎 The discussion is focused on financing business deals without relying on the Small Business Administration (SBA) loans available only in the US.
• 🇨🇦 Canadian businesses can utilize the Canada Small Business Finance Act Loan program for financing, which is backed by the government and has a cap of $500,000 for most businesses, with special conditions for real estate involvement.
• 🏛 The British Business Bank offers a similar program to the Canadian one, providing guarantees on loans up to £2 million, supporting various types of financing including term loans and asset-based lending.
• 💼 David C Barnett emphasizes that business financing typically involves four key components: capital or fixed assets, operating capital, goodwill, and a combination of leases, mortgages, and loans.
• 🏦 Traditional bank financing often requires a 3:1 debt-to-equity ratio, meaning the business owner should have at least 25% equity in the business.
• 💵 Seller financing is crucial, especially for the intangible assets like goodwill, where the seller's agreement to finance a part of the deal is essential.
• 🏠 Personal guarantees and collateral are often required by banks to secure loans, which can be a deterrent for some business owners with substantial personal assets.
• 🚫 The script warns against over-reliance on alternative financing due to higher costs and shorter amortization periods, which can lead to cash flow issues.
• 📈 Barnett suggests that conventional financing can bring discipline to deal-making by requiring more equity investment, leading to better cash flow management.
• 📘 The video promotes Barnett's book 'Buying vs. Starting a Small Business' and his online training courses as resources for learning more about business acquisition and management.

Q & A

What is the main topic of the video?

The main topic of the video is financing business deals without the use of Small Business Administration (SBA) loans, specifically discussing alternatives available to Canadians and non-Americans.

Who is the host of the podcast, YouTube channel, and blog mentioned in the script?

The host is David C Barnett.

What is the name of the special playlist created by David C Barnett for his business videos?

The name of the special playlist is 'Get Into Business 101'.

What is the Canadian equivalent of the SBA loan program?

The Canadian equivalent of the SBA loan program is the Canada Small Business Finance Act Loan program, administered by Industry Canada.

What is the maximum loan guarantee provided by the Canada Small Business Finance Act Loan program?

The maximum loan guarantee provided by the Canada Small Business Finance Act Loan program is CAD 1 million, but the full amount is only available if real estate is involved in the business deal.

What is the role of the Business Development Bank of Canada (BDC) in financing business deals?

The BDC is a government-owned bank that provides financing, often focusing on cash flow lending. It may work together with other banks to finance business deals.

What is the typical debt-to-equity ratio preferred by banks when financing business deals?

Banks typically prefer a debt-to-equity ratio of 3:1, meaning they like to see the business owners have at least a 25% equity stake.

What does the term 'Goodwill' refer to in the context of business deals?

In the context of business deals, 'Goodwill' refers to the intangible value of a business that is greater than the value of its tangible assets.

What are the four components of financing a business deal as outlined in the script?

The four components of financing a business deal are leases and loans against capital or fixed assets, revolving credit related to operating capital, the business owner's cash contribution, and seller financing.

What is the significance of the 3:1 debt-to-equity ratio in business financing?

The 3:1 debt-to-equity ratio signifies that for every dollar of debt, there should be at least 25 cents of equity. This ratio provides a buffer for the lender and indicates the level of risk the business owner is willing to take on.

What is the potential downside of alternative financing methods mentioned in the script?

The potential downside of alternative financing methods is that they often come with higher costs, shorter amortization periods, and can lead to tight cash flow positions, which may result in the business failing to meet its financial obligations.

Outlines

00:00

🌎 Financing Deals Without SBA Loans

David C Barnett discusses alternative financing strategies for small and medium-sized businesses, particularly for non-Americans who don't have access to the Small Business Administration (SBA) loans available in the US. He introduces the video series and his focus on helping people understand how to buy, sell, finance, and manage businesses with risk control. He highlights that while the SBA provides significant benefits, it's not the only option and that many deals are structured without it. He also mentions that the availability of credit can inflate business prices and points out the existence of similar programs in Canada and the UK.

05:03

🏦 Canadian and British Financing Options

The speaker elaborates on Canadian financing options, such as the Canada Small Business Finance Act Loan program, which provides government-backed loans for small businesses, with a cap of $500,000 for most businesses and $1,000,000 if real estate is involved. He also mentions the Business Development Bank of Canada (BDC), which focuses more on cash flow lending. He then draws a comparison with the British Business Bank's program, which offers guarantees up to £2 million per business group, and discusses the types of financing available, such as term loans and asset-based lending.

10:05

💼 The Formula for Business Financing

David outlines the typical formula for financing a business acquisition, emphasizing the need to consider capital or fixed assets, operating capital, and goodwill. He explains that financing typically involves a combination of leases, mortgages, loans, revolving credit, and owner's equity. He also stresses the importance of having a certain equity stake in the business to secure bank financing, often a 3 to 1 debt-to-equity ratio, and how seller financing can cover the goodwill portion of a deal.

15:06

💵 Seller Financing and Its Significance

The speaker discusses the role of seller financing in business deals, especially when traditional bank financing is not an option. He points out that seller financing often covers the goodwill portion of a business, which is the intangible value beyond its tangible assets. He also mentions that without bank involvement, the rules around debt-to-equity ratios and financing percentages no longer apply, allowing for more flexibility in deal structuring.

20:07

🚨 The Risks of Alternative Financing

David warns about the risks associated with alternative financing methods, which often come with higher costs and shorter amortization periods. He advises caution, as these deals can lead to tight cash flow situations and may not be sustainable. He also addresses the issue of survivorship bias in online content, noting that stories of failed deals are less frequently shared, and emphasizes the importance of having adequate equity and manageable debt for a successful business acquisition.

25:07

📘 Resources for Business Deal-making

In the concluding part, David invites viewers to engage with the content by commenting, sharing, and liking the video. He promotes his book 'Buying vs. Starting a Small Business' and encourages viewers to leave honest reviews. He also directs viewers to his website for more free content and mentions the sponsorship of the video by Mark Willis of Lak Growth Financial, who offers strategies for managing personal and business finances.

Keywords

💡SBA Deals

SBA Deals refer to transactions involving the Small Business Administration (SBA) in the United States. The SBA offers various loan programs to help small businesses grow and succeed. In the video, the speaker discusses how to finance business deals without relying on SBA loans, which are popular in the U.S., and explores alternative financing options for non-American businesses.

💡Financing

Financing refers to the process of providing the funds necessary for business operations or expansion. The video focuses on alternative methods of financing business deals, especially for those without access to SBA loans. Financing can include bank loans, seller financing, and other creative funding strategies.

💡Dealmaking

Dealmaking in the context of the video involves the strategies and processes used to buy, sell, or finance a business. The speaker, David C Barnett, hosts a podcast and YouTube channel dedicated to discussing dealmaking in small and medium-sized businesses, emphasizing risk control.

💡Canada Small Business Finance Act Loan Program

This is a Canadian government program that provides loan guarantees to small businesses, similar to the U.S. SBA loan program but with different terms and conditions. The video discusses how this program can be utilized for financing business deals in Canada, with certain caps and requirements.

💡BDC

BDC stands for Business Development Bank of Canada, a financial institution owned by the Canadian government that provides financing for Canadian businesses. The video mentions BDC as an alternative lender for business deals, focusing more on cash flow lending rather than collateral-based lending.

💡Goodwill

In the context of business deals, Goodwill represents the intangible assets of a company, such as its brand, reputation, and customer relationships, which contribute to the company's value beyond its tangible assets. The video explains that traditional lenders may not finance Goodwill, often requiring seller financing for this part of a deal.

💡Operating Capital

Operating Capital refers to the funds used in a company's day-to-day operations, including cash, accounts receivable, and inventory. The video discusses how banks may provide revolving credit or lines of credit based on the strength of a company's operating capital.

💡Equity

Equity in a business context refers to the ownership interest or the value of an owner's investment in the company. The video emphasizes the importance of having a certain level of equity in a deal to secure financing, with a 3:1 debt-to-equity ratio often preferred by banks.

💡Leverage

Leverage in finance refers to using borrowed money to increase the potential return of an investment. The video discusses how SBA loans offer high leverage, which can increase returns but also risks if the business does not perform well.

💡Survivorship Bias

Survivorship Bias is the tendency to focus on the successful cases while ignoring those that failed. The video mentions this bias in online content, where successful SBA loan stories are often highlighted, potentially overlooking the risks and failures associated with such deals.

Highlights

Discussion on financing business deals without SBA loans

Introduction to David C Barnett's podcast and services

Overview of the summer video series on business financing

Funky bro's request for information on non-American business financing

Explanation of the Canada Small Business Finance Act Loan program

Availability of credit and its impact on business prices

Comparison of Canadian and American government loan programs

Role of the Business Development Bank of Canada (BDC) in financing

Introduction to the British Business Bank's financing program

General formula for financing a business deal without government programs

Importance of personal guarantees and collateral in conventional financing

The concept of a capital stack in business financing

Details on the four blocks of financing: leases, mortgages, loans, and revolving credit

Explanation of the role of owner's equity in financing

Seller financing as a component of the financing stack

The significance of a 3 to 1 debt to equity ratio in conventional financing

Alternative financing options when banks are not involved

Potential issues with alternative financing and high costs

The importance of considering 'day two' cash flow in deal making

Critique of the overemphasis on SBA loans in online content

The impact of survivorship bias on the perception of successful deals

Advice on maintaining discipline in deal making for long-term success

Information on David C Barnett's book and online training resources

Transcripts

people are tired about hearing about

these Americans and their SBA Deals they

want to know how to finance a deal

without the SBA that's what we're going

to be talking about today and if you are

an American don't turn it off uh there

is going to be lots of information for

you to take out of today's

video I'm David C Barnett and you're

tuned in to small business and

dealmaking the podcast YouTube channel

and blog where I talk about buying

selling financing and managing small and

mediumsized businesses while controlling

risk so if you're looking to take

control of your future through buying a

business one day or if you already own a

business and you're looking to grow or

exit you've come to the right place I

talk about interesting things I talk to

interesting people and I answer your

questions every week right here so be

sure to hit like and be sure to hit

subscribe and let's get to

it are you thinking of growing your

business or beginning a journey into

entrepreneurship take a shortcut to

success by buying an exist in and

profitable business the right way visit

business buer advantage.com and learn

more about my online training group

coaching and Consulting Services

designed to help you

win all right so over the course of the

summer of course I put out a whole video

series uh about uh get into business 101

is what it was called and we created a

special playlist for those videos in

we'll put a link to it in here one of

the videos that we put out number seven

was about

financing um and it was called get into

business episode get into business 101

episode 7 due diligence financing and

getting investors so uh somebody watched

that video let me scroll down here um

yeah it was funky bro 29 hey funky bro

thanks for tuning in says David can you

do a video on how Canadians or

non-americans structure deals without

the access to an SBA loan like they have

in the US a lot of research on deals is

usually done in the states where you

have access to the SBA loan yeah so true

a lot of the content being produced

about this small business space is all

about you know uh using the SBA loan

which is a great Tool uh that Americans

can take advantage of um for buying a

business in the US and and and that's

just one part of the SBA loan program

there's also uh all kinds of tools for

people that want to expand a business

buy buildings all that kind of stuff um

and so yeah lots of financing

flexibility um I I have also observed

directly that the availability of credit

also increases the prices of businesses

so we're not going to get into that

today so what we're going to get into

today is a conversation about how you do

deals without any kind of you know

government loan program now there there

is a government loan program for small

businesses in Canada and so it's called

the Canada small business finance act

Loan program uh it's administered by

industry Canada and basically what

happens is you go to a one of the large

Banks or a credit union in Canada even

some leasing companies are able to

access this program and the government

provides a back stop or guarantee to

those loans and so there's I I scroll

down the page here to the part that

talks about funding limits so basically

it allows a million

uh of loan guarantee opportunity but

really you can only get the full million

dollars if your deal involves real

estate so there has to be a piece of

property uh involved in the operating

business to take advantage of the

million dooll uh cap if there's no real

estate then effectively the program caps

out at 300 or sorry $500,000 is sort of

the cap and within that uh cap up to

150,000 can be used to finance in

tangible assets and working capital

costs so these would be Goodwill uh you

might also cover franchise fees in there

if you were using one of these loan

programs for uh a buying a franchise or

you know transfer fees for a franchise

or something like that um or it says

operating Capital working capital so um

there are uh banks that will issue uh

lines of credit for example they'll use

this program to back stop or guarantee

the line of credit so um and those

changes with the intangibles are fairly

recent just in the last couple of years

so so in Canada when people are doing

these deals a lot of the times when you

go to one of the major Banks and you

know there are six big banks in Canada

and a whole bunch of credit unions um

they will do a small business loan

they'll use this program to for an added

layer of guarantee now they also have to

undertake their normal underwriting

process and they have to try to secure

the loan as best they can so expect to

sign personal guarantees except expect

that they will put a lean on fixed

assets and various collateral Etc in

order to do this and

so in Canada you can buy a business you

can use this loan program the other big

financing Avenue that we have in Canada

is a special bank owned by the

government called the BDC and the BDC is

more of a cash flow lender uh they will

also do loans against like buildings and

stuff like that but they are the ones

who are going to consider sort of the

cash flow aspect and I have seen many

many many deals done in Canada where the

BDC and one of the big six Charter banks

are both doing some aspect of financing

the deal and they're actually working

together to divide up the financing for

the deal so we're going to get into a a

broader more general formula here for

financing but I just wanted to make sure

that you understood that U there are

these options available now now in my

research I also uh poked around some

other some other places and guess what

uh the British Business Bank is also

come on the scene with a program that

reads a lot like the Canada small

business finance act Loan program um and

there this is something that has just

literally come into force in July of

2024 and uh basically they're offering

guarantees through other British banks

that are going to be actually making the

loans and

they are saying that it's up to 2

million pounds per business group so

that's actually quite a higher limit

than the Canadian program uh considering

that a pound is worth more than a dollar

um and then it also says here um there's

sort of a variance here I guess for

Northern Northern Ireland but the

there's personal guarantees required

decision- making is delegated to the

lender um and they are going to support

term loans overdrafts asset Finance

invoice Finance asset-based Lending

facilities Etc so it sounds very similar

in that you know a lot of this is going

to be geared towards financing stuff

rather than financing you know Goodwill

or intangible value so what is then the

normal formula for putting together

financing when you're going to buy

buying a business and and you want to

kind of ignore all of these loan

guarantee programs we're going to kind

of take this in Broad strokes and and

here is where uh American you're also

going to want to listen because there

are all kinds of deals that are done in

the United States without SBA Loans and

people will offer often refer to them as

conventional financing uh setups for for

deal making and why would somebody want

to do that well the SBA loan program has

a couple of pretty specific requirements

in that you know there has to be

personal guarantees uh from the the

business person and if there is not

enough collateral in the business to

cover the entire loan then the you know

the SBA lender the bank doing the loan

has to put a lean on your home residence

your personal residence as well and so

if somebody um you know has a net worth

of 100 Grand and they want to borrow a

million bucks uh they usually don't care

that the personal guarantee and these

leans are applied to them because

they're they're they're getting so much

value out of that SBA loan program that

they you know they really are just

willing to sign everything up and and do

the deal for the opportunity of

acquiring the business but if you have a

net worth of $3 million and you have a

million dollars of equity in your home

free and clear and you're trying to do

an SBA loan for a million bucks you may

not want to sign all the personal

guarantees and let them put a lean on

your house especially because the SBA

loan is because it's a government

guaranteed loan program is at a certain

interest rate plus several points um

I've worked with many clients in the

states who've said hey if I just borrow

conventionally like instead of doing the

SBA loan if I just got a line of credit

on my house for example uh I can borrow

cheaper and all my same assets are at

risk or maybe it's it's even more secure

because they just have to pledge that

one asset their house so so if you are

looking at expanding your deal making

tool chest pay attention because we're

going to be talking about this so I dug

through some of my past trainings and

presentations and I dug out this slide

that I put together and modified a

little bit for a presentation that I did

last year uh in charlott town Prince

Edward Island so on the screen for those

that are listening I've got two

different columns one on the left one on

the right and the column on the left if

you want to imagine sort of Lego bricks

stacked on top of each other it gives

basically describes the stuff you need

for a business when you are acquired ing

a business so we can divide what is

required to make a business function

into three broad categories so there's

capital or fixed assets so these are

Vehicles Machinery real estate shelving

cash registers all that stuff that you

need to make your business function so

that's one big block and this is these

are the tangible assets above that we

have a category called operating Capital

so this is Cash accounts receivable

inventory that you may require to make

the business go and then on top of that

we've got something called Goodwill uh

which is simply the difference between

the price you're willing to pay for a

business and those tangible things that

you can put your hands on so when you

make a deal for a business you are going

to end up with a a business entity

whether you do a share or an asset sale

you're going to end up with an entity

that is ready to function that will

include all three of these things your

deal specifically with the seller may

not include all those things so you

might just be getting the capital and

fixed assets and the inventory and the

Goodwill you may not be getting the cash

and the accounts receivable it doesn't

matter you're still going to have to

inject extra Capital into the deal so it

doesn't matter who you give the money to

it doesn't matter if you give the money

to the seller or you put the money into

your own new entity this is all the

investment okay the investment for

getting into business so then the next

question is how do you fund the

investment and that is what is described

on the right hand side of the screen

here so similarly we've got another

stack of blocks but there are four

blocks and you will notice that the

bottom block says leases mortgages and

loans and that block if you look

directly opposite on the Le hand side is

related to the capital and fixed asset

block so usually if you're going to buy

Machinery equipment real EST State Etc

Bankers are going to look at those

assets and they're going to express an

opinion usually as a percentage of the

value of those assets that they're

willing to lend so a banker might say

we're willing to lend 90% of a

building's value or we're willing to

lend 75% of equipment value or or

whatever their rule happens to be

whether or not they're using any of

these government guarantee programs that

I've just mentioned um even you know I

talked at length the guy with a lot of

experience in business in Peru and he

was telling me that he knew what his

Banker would do in Peru and so there was

a certain percentage of the value of

these tangible assets that the bank

would lend against uh just because of

the bank's you know security risk uh

understanding Etc so we had a good

profitable business but they still

wouldn't lend him for example more than

75% of what a a vehicle or a truck might

be worth so so that leases mortgages and

Loans block is the first block and it's

related to these capital or fixed assets

and so that's the first part of building

your stack of financing this is you know

people talk about Capital stacks and how

your balance sheet is organized that's

what we're doing right here this is

directly related to that so the first

block leases mortgages and Loans things

you can get from bank this is the

cheapest form of capital the cheapest

form of Leverage and you are going to

get this from you know institutional

lenders or leasing companies and it's

going to be related to the value of

those fixed assets the next block above

that is skinnier it says revolving

credit and so this would be credit cards

lines of credit you know that kind of

thing and it is related to the second

block on the left which is the operating

Capital block so remember operating

capital is made up of cash you might

have in the bank accounts receivable and

inventory well if the business is solid

enough and has a good enough track

record and if uh certain conditions are

met like if your accounts receivable is

all fairly good it's all within 30 days

uh or U your inventory meets certain

tests like it is what we call fungible

inventory uh meaning that it's not going

to go bad it's not going to go out of

style it's not going to rot uh and that

it is pretty you know consistent in the

industry so I I always like to use the

the example of 2x4s at a lumber yard

versus ladies dresses right so a 2x4 is

a 2X four and if you ever went out of

business those 2x4s would be bought by

any other lumber yard and put on their

lot uh and they're they're just as good

as any other 2x4 versus the ladies dress

where you've got a variety of sizes the

most popular sizes are going to sell

first and then at the end of the season

they're no longer in style or or what

have you and so that's a poor example of

a kind of inventory someone who's going

to lend money against uh a bank anyway

right so so we have this revolving

credit block which is the small thin

block so depending on what the operating

Capital needs of your business are going

to be you may qualify for some of these

operating uh or revolving credit

facilities the third block above that uh

says your Cal right so this is the money

that you are bringing to the table and

um this is your skin in the game this is

literally the equity right so if you

think about your balance sheet this is

owner's contribution now own

contribution doesn't necessarily mean

the entrepreneurs contribution so don't

get all in a knot and say I'm going to

get investers or whatever like that

would be in there in your cash so

whether it's you or you and your buddies

or you and your dad or you and your

investors it is the business owners cash

that is being put in and this is what

you know gives the bankers confidence

that you are committed to this deal and

that you're going to make this work the

last block at the very top is the seller

financing now I want you to observe that

the seller financing block is just a

little bit bigger than the block it

corresponds with over on the left which

is the Goodwill block okay so

because Bankers are only going to want

to lend a certain percentage of fixed

assets the the leases and Loans block is

going to be shorter than the fixed asset

block because they'll only ever lend you

a percentage of account receivable in a

percentage of inventory the revolving

credit block is always going to be

smaller than the operating Capital block

and your cash is sort of the the the

mortar that fits between these blocks

that helps them add up but the seller if

they've got a profitable business that

they've delivered and they've convinced

you that the business is worth more than

the value of the tangible assets within

the business basically they've said look

my thing is worth more than just the

stuff because it's awesome and it

produces the cash flow and if you buy

this business it's going to do the same

thing for you well that Goodwill

component the

intangible aspect of this business uh we

want the seller to finance that and

probably even a little bit more than

what that number is right so that's kind

of a a bare minimum so this deal that is

being portrayed here um this is sort of

a deal that describes a business that

has a bunch of equipment and inventory

and a little bit of Goodwill if we were

looking at a service business like if we

were looking at a made service that

owned a couple of little cars and some

vacuum cleaners and we would want that

Goodwill uh or sorry rather the Goodwill

block would be a much larger proportion

on the leftand side and so we would want

the seller financing to be much much

bigger than what we see here uh and and

just because we can't get the financing

from traditional lenders uh because

they're just aren't these tangible

things to put their hands on

so in the on the right hand side there

um you know I kind of tried to make the

your cash part be about a quarter of

what is there because what I've learned

over the course of my career is that in

a lot of different places and a lot of

different countries I've talked to

people all over the world um when there

are no government guarantees involved

Bankers seem to default to a certain

threshold of risk appetite and that

certain threshold seems to be a three

to1 de equity ratio which means that

they like to see the entrepreneur or the

owners of the business have about a

minimum of 25% of their own Equity now

if you're buying real estate as part of

your deal that could change because some

of them will go further with credit

against Real Estate than they will with

other assets but in the overall picture

they often like to see about a 25%

Equity position uh which means 3 to1

debt to equity ratio um and so so that's

it like that's the formula now if

there's no Bank involved right let me

hide this for a second I want to go back

to full screen so if there is no Bank

involved like all the rules that you

just saw on that slide were based upon

what Bankers are willing to do and if

you are not using a bank all of those

rules I just said to you about debt to

equity ratio and how you know certain

things or a certain percentage of the

other block on the other side all that

kind of thing all that just goes out the

window right if if there's no Bank

involved there's nobody then dictating

what you can and can't do and what the

balance sheet of the company has to look

like and so what does that mean well you

know if you could for example say to a

seller I'm put 10% down and you finance

the other 90% like if the seller is

agreeable to that then yeah you can go

ahead and do the deal um and and Deals

do happen like that uh usually not for

the best businesses right because if

somebody's got a really good solid cash

flowing business there are usually other

people willing to make offers that are

more palatable to that seller right so

um if you're more curious about uh about

these non-bank deals I would suggest you

check out my 20 22 summer of alternative

financing playlist because I basically

did a whole summer series about

alternative financing and uh the the

danger of course with those is that

alternative financing opportunities tend

to have higher costs attached to them

and so I have seen people successfully

do acquisition deals where they've

patched together a whole network of

these different alternative financings u

in in a in a Band-Aid or tape solution

to do the deal and a lot of these

Solutions tend to be shorter

amortization periods and higher costs

and the issue that they run into of

course is that they just end up in this

really tight cash flow position if their

deal cash flows at all and I've seen

people do deals that didn't cash flow

because they were so eager to get the

deal done that they they didn't take

care of what I call the day two problem

so I hope that uh that this answers your

question uh funky bro

and I hope that uh everyone else got to

take something valuable out of this

because uh deals are done like this all

the time and uh I will you know I

understand fully about the the whole

attitude or the the comment that funky

bro said about how all he seems to hear

about is these SBA deals um just

remember when you're listening to Social

Media there is a couple of things going

on uh number one there are people that

make their living doing SBA Loans

and so they're out there like trying to

create conversations about it because it

it's how they promote themselves they're

trying to drum up business I mean I've

had guests on my own channel here uh in

live streams who are SBA uh funding

people and and that's their job is to is

to get people into that Loan program the

the other thing that is alluring about

it is because they offer such high uh

loan to value amounts such high degrees

of

Leverage without a changing cost right

and talked about this before where

nowhere else in the world would you be

able to finance a b a deal 50% at a

certain price and then Finance it at 90%

at the same cost of Interest right so

there there's an inherent subsidy there

which really causes the return on Equity

to get jacked up and that makes for

exciting and interesting deal stories

right so so yes you can hear a lot of

really great stories about people that

do these deals the successes they have

the the other thing I want to point out

is that there's a serious issue of

survivorship bias in online content

meaning that people that do deals and

then fail miserably usually don't then

appear on podcast to talk about their

story right and and but I get to meet

them because they reach out to me and

they ask me for help sometimes about you

know how do I navigate this terrible

situation I'm in so

so be careful with your deal making I

mean one of the things that I like about

sort of conventional or this sort of

normal deal structure uh is that it does

bring discipline it forces you to have

more Equity that usually means that you

are in a better cash flow position uh

because your debts are more manageable

you've got less leverage on the business

and that's why the banks are willing to

do them right is because the Bank's

number one concern there are there are

three levels of assurance when a bank

makes a loan the first level of

assurance is just that the business is a

profitable business that cash flows that

can afford to make the debt payments

right and so the bank wants to make sure

that that is going to be a successful

path to repayment the second degree of

assurance is your personal guarantee

which oftentimes is linked to the

business too because if the business

can't make enough money to pay you a

reasonable salary then you're going to

stop paying yourself a salary and you're

going to get into more debt personally

which is going to erode the value of a

personal guarantee and the third level

of insurance is the collateral right and

and the banks don't want to come and

take your used delivery truck and try to

auction it off and repay part of the

loan because they know that that's a

losing proposition every time that's

their like last line of defense what

they want is they want to make sure that

they're setting you up for Success so

that they can then have a successful

performing loan that they get to earn

interest on and make money on right

without ever having to sue you for your

personal guarantee or go collect

collateral so so I've I I like to say

that uh you know and I'll put another

caveat on this if the bank is one that

holds its loans then a bank being uh

willing to finance your deal is often a

sign that they see it as a as a good

deal a bank that sells its loans they

just originate uh you know they may not

have the same interests anyway I I hope

that was an informative video If you

think I'm not sir you think I'm crazy or

you got a different point of view please

in the comments down below uh put

something uh if you want to help the

show and uh you know show the algorithm

that's great content put a comment down

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is more about training the algorithm

about what to show you in the future if

you really want to help promote the show

put a comment because it it demonstrates

engagement and it really helps me out

and if you haven't already of course

get the new book buying versus starting

a small business it's available now I

would appreciate it if you if you bought

the book and read the book and left a

great review on Amazon whether you like

it or not leave an honest review uh

because it helps everyone down the road

uh understand if it's a good uh good

opportunity and if you want to learn

more about putting these deals together

you know the Big Mama Jama the big

solution the the way to improve your

skills is of course to head over to

business buy advantage.com and do the

online training there uh newly expanded

this year with a couple of modules and

another one on the way um and uh anyone

who signs up at any point always gets

access to any future modules that are

added so with that I'll say thank you

very much and uh we'll see you next

time there so how can you learn more

about buying selling financing and

managing small and medium-sized

businesses easy go over to my blog site

davidc barnet.com where you can learn

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love for you to be my guest special

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