April 18, 2024 • 20 mins
In this episode of the Apex Business Advisors podcast, Andy and Doug discuss the critical importance of honesty between lenders and borrowers when securing business loans. They examine a recent transaction failure resulting from undisclosed financial issues, highlighting the need for transparency.
The episode delves into potential pitfalls in filling out SBA loan forms and securing commercial financing, citing real-life scenarios such as bankruptcy cases and undisclosed felonies. They also explore how banks scrutinize loan information and interpret profitability matters.
Additionally, the discussion covers types of businesses ineligible for SBA funding and the risks associated with borrowing before closing. They emphasize the importance of viewing the bank as a business partner and fostering trustworthy relationships.
This episode serves as a valuable resource for anyone seeking to secure a business loan, emphasizing the importance of full financial disclosure. For more insights, visit our website at kcapex.com.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Music.
(00:08):
Buyer and the bank, they're partners. They are in partnership.
And I think it's one of those things where the bank is looking at it as like,
this is going to be our business partner.
And I need to make sure that my business partner is forthright and tells me everything.
And I don't think that people necessarily look at their bank like that. I think that...
(00:30):
Music.
Welcome back to the Apex Business Advisors podcast. I'm your host, Andy Kavanaugh.
Joined as always, because you've been here two weeks in a row,
the president of Apex, Doug Hubler.
(00:52):
It's like a slight, isn't it? What you just said to me.
As we're recording in March, it's obvious that March Madness is here because
you brought a highlighter. With papers.
With papers. I use a highlighter once a year and it's to highlight I like the
correct picks in my NCAA tournament brackets, which generally end up with more scratch outs.
(01:13):
I was going to say, how are you doing on that? Not good at all.
Nobody is. Nobody's ever doing good.
So, well, today's topic, before we get started on today's topic,
we had a closing this past week that we want to talk about.
So, I'll give you the floor and then I'll let you be sure the topic.
Yeah. Valerie had a nice closing on Monday. It's something that she'd worked
(01:35):
with, worked on for a few months, actually had a buyer on it right away,
had multiple letters of intent.
So fortunately, the buyer was able to pick a private group that they were happy to work with.
And Valerie said at the closing, it was a virtual closing.
So there were 17 people on the Zoom call.
(01:58):
A lot of people. A lot of attorneys. A lot of attorneys. And investors that were on the call.
And so six minutes later, everybody signed, everybody's good to go. So it was nice.
So it was basically an IT security type business outside of Kansas City, not local.
(02:19):
So yeah, it was a very nice closing. Well, congratulations, Valerie.
I know that it's a lot of work that went into that, especially with the number
of people involved on both sides.
She did say she got cleaned up for the closing on the video and quickly discovered
that she was the only one with the camera on. Well...
(02:40):
Got off of that. She tried hard. That's a true professional right there.
That's right. That is a true professional.
So that is, well, good for her. And congratulations again, Valerie.
Our topic today is what happens when we get last minute things that are found out.
(03:01):
Last minute things that are found out and happens to be the lender finding these
things out. And so I think, okay, I have to say we just had a deal collapse,
which is bringing up this topic.
And Debbie's been working on this particular deal for several months.
(03:21):
We were about a week and a half from closing.
And what happens is that's often when the bank goes through and does some final
checks, maybe does some background checks.
They look for any kind of liens that are outstanding.
(03:42):
And so happens that in this case, there had been some tax liens outstanding on the buyer side.
Well, let's stop right there.
Why do they do it right at the tail end? Well, there are.
I would say that's a great question. Sometimes we've, and this isn't the first
(04:02):
time this has happened, so it is frustrating to get this far into it before they do their checks.
There is a fair amount of expense they go through when they do these checks.
The applicant has filled out forms, which is probably what I was highlighting here.
Some things that they promised to tell the truth, that they've paid all their
(04:25):
taxes. They don't have anything outstanding.
They don't have any loans that are outstanding that haven't been disclosed. Right.
In this case, if the parties had disclosed that they had outstanding tax liens,
well, the bank can work with that.
They can say, okay, this is how we're going to handle it. We either need to
have you pay it off now, because the SBA is a government agency.
(04:49):
They're not going to loan you money if you owe the government money.
So if you're outstanding, if you've not paid a prior SBA loan,
if you defaulted, if you you are, passed you on your taxes, if you've defaulted
there, then they are not going to loan you money.
And they are going to, now let's say in this case, you say, okay,
(05:12):
this is the issue you've got.
If as long as you pay your taxes, we get some receipt, the taxes are paid, then we can proceed.
In this case, because when it gets close to closing and there are some things
outstanding outstanding that weren't disclosed in the application,
then the bank looks at that as a character issue.
(05:35):
So the bank feels? They think, okay, you've been hiding information from us.
So what else might there be?
So now one, say the business development officer might say, we think we can
get this handled. Let's go ahead.
But you've got credit committee behind them. You've got other folks,
(05:55):
not just one person with the bank, and the decision was that they were going
to deny the loan a week and a half before closing.
So it puts everybody in quite a bind.
We've got a title company. We've got property owners that were involved,
and obviously buyer and seller had worked on this for several months.
(06:19):
So it's a pretty painful thing to happen at the end.
And I think that's why we wanted to bring this up, is the paperwork.
When you're filling out an SBA loan, you are promising to tell the truth on,
and there's a good list of questions here, that you're promising that you don't have outstanding.
If you have outstanding debts, disclose what it is.
(06:42):
Disclose where you're getting funds to acquire the business,
the type of business you're buying.
And I had my highlighter out.
You did. And one of the businesses, they will not, I thought this was interesting,
they will not fund businesses with live performances of a purulent,
(07:03):
I don't know how to say that, sexual nature.
Strip clubs. Strip clubs. We'll not do that. They could have just said strip
clubs. Why can't we say strip clubs? Yeah.
There are certain businesses they will not fund. We kind of know going in which
ones to avoid. Anything of illegal nature.
(07:23):
So the forms that you're filling out, and you have to read this.
The font is not large, and they are going to stick to it.
So if you end up getting the loan they didn't find out ahead of time,
and you default later because maybe you lied on some one of these things one of these topics,
(07:45):
then you can be imprisoned for lying on an application.
We don't want that. We don't want our buyers or sellers going to jail.
Nobody wants to go to jail for an SBA loan.
It's not worth it. Not worth it. What are some of the things that they're asking
you to, what are some of the things they're asking you to ensure that you have?
(08:08):
Well, they want to make sure that you're, one of the things that's interesting
is they want to make sure that you are not behind on your child support.
So, you have to prove that you're up to date on child support,
that you are fully compliant with all state, federal, local taxes.
And so there aren't, like I said, there aren't any liens or outstanding judgments.
(08:32):
You're not a party to a lawsuit.
And people will think, well, I don't, would I have to tell them that?
What if I filed bankruptcy 10 years ago? It doesn't show up on my credit report.
Well, those are things that maybe the SBA actually has the ability to look back
further. I did run into that where it was a, we had a buyer that I think she
(08:54):
had a credit card write off or something.
She's in her mid thirties now. It's 32, 33 happened when she was 18 or 19.
She didn't disclose it. The bank felt like she was hiding something.
And she was like, I had completely forgotten about that because it was,
you know, 15 years ago. So long ago. Right.
So does ignorance play a part in this? Like where, where do,
(09:17):
where do we draw the line?
So like with my, with my particular buyer, I 100% believe her,
I believe her, her story when she's like, look, I was 18 or 19.
It was like a $5,000 credit card limit.
I didn't have the money. They wrote it off. It's been 15 years ago.
You know, like, I don't know that you believe, I don't know that you remember
(09:39):
every single thing. Right.
You remember big things, right? And it's kind of all relative.
So I think in one of the disclosures here, it says the applicant understands
that knowingly making false statements to obtain a loan can get you into trouble.
Well, in that case, what they didn't remember.
(10:00):
So we had a deal in a similar situation about a year and a half ago,
was very close to closing, fell apart at the last week, same situation, the bank ran,
credit report, and they felt like something came up on that credit report that
wasn't disclosed, thought it was a character issue again.
(10:23):
Now that deal fell apart, but we went straight to another bank who had the same
information and approved it.
So it was, in that case, knowing what that first bank looked at as an issue,
and the buyer, like what you're saying, is the buyer didn't realize that was
an issue or it wasn't a big thing.
(10:43):
One bank says it's a character issue. The other bank says, this is not a big deal.
And we've got it on a spreadsheet here. So let's do the deal.
How can a buyer protect themselves from this? So if I have a tax lien,
for example, how would I know that?
If you open your mail, you will know.
The IRS is going to send you periodic statements, demand letters.
(11:08):
So if you have a tax lien, you're going to know.
That's not something that's going to slide. They're going to be following up with you consistently.
So I think, like I said, an old bankruptcy, for example, those are things that
you just need to talk to the banker about and say, okay, here's what happened
20 years ago at a bankruptcy.
What do I do about that? Do I disclose it? And they'll say, yes,
(11:31):
disclose it. say it was 20 years ago, as long as we know, we can move beyond that.
So it's just the fact, if you feel like that's a big thing.
So if you've hidden it, you don't disclose it because it doesn't say,
have you had bankruptcy in the last seven years?
It says, it asks if you've ever had a bankruptcy.
So just say yes. Is that asking about felonies and things like that on there as well? It does.
(11:56):
And so like on a felony, for example, let's say that somebody had, they had a,
A few too many one night. Right. And they had a meeting with their local law enforcement.
A roadside meeting. A roadside meeting. And they failed a pop quiz.
And they, essentially, they basically got a DWI and got a suspended sentence
(12:20):
that it expunged from their record.
You know, they went to, first time offender went to a program,
completed the steps, and now this is, they were on probation for X number of
years, and then it's expunged from their records.
If it's expunged, I would think it's not, but I would still probably say to
the banker, okay, this is what happened. It's expunged. What do I do?
(12:43):
Let the banker tell you what to do in that case. Because it's not going to be,
a DUI isn't necessarily going to keep you from buying a business.
Not telling somebody you had one will keep you from getting a business.
There are certain felonies that I said are okay when buying a business,
but if you have a DUI, you're not going to be able to get a liquor license to
(13:06):
buy a liquor store or a bar, right?
So, it kind of depends what kind of business you're buying.
If you are a sexual predator, you will not get a loan for anything.
So there are certain things that are just hard no's for getting an SBA loan.
And we don't know, it doesn't happen very often when we have somebody come and
(13:28):
says, oh yeah, I have a felony on my record and this is what it was.
When we've come across that, they've been what we consider kind of minor,
and they've been, you know, 10 years ago.
They've completed their sentence or their parole or whatever,
and the business that they're applying for had nothing to do with what they were charged with.
(13:51):
Yeah, it's generally not the guy that's committing the same crime while he's
out on bond that's applying for this.
And generally, a lot of these are common oversights. I think the message that
we're wanting to send today is, hey, make sure that you're error on the side
of disclosure to the bank.
(14:11):
Because this... You're not going to overshare with the banker, right?
Tell them everything like they're the doctor.
Just tell them everything. They'll decide what you can or need to disclose on
these forms. And I think the important thing here is these are,
there aren't a ton, it's not a ton of paperwork, but read it.
(14:35):
Yeah. Would you suggest sending that to an attorney?
You get those loans. I don't know if you really need to.
I think these are pretty common sense statements in here that you are promising
that you haven't done this or that in the use of the funds. And the other thing
is where are the funds coming from?
They're going to want to know where are you getting the money for the down payment?
(14:57):
And if you end up, this happened probably within the last year,
with somebody borrowed money right before closing to use for the down payment,
and that messed up the entire deal.
And I think we've done podcasts on that where we talked about clean months.
Some banks will want to see two clean months, meaning that, let's say that I'm
(15:20):
going to get my loan funded in June.
In April and May, I can't have a large deposit into my account.
Right, right. I could have it on March 31st, but I could not have it on April 1st.
So put it in April 1st. April 1st is now a dirty month.
So I can't close now until July because I have to have 60 days of clean months,
(15:44):
meaning two months of my statement showing that I don't have these large influences. Infusions of cash.
Yeah. External money, right? Right. So if I have a large infusion of cash from
a stock account that I own,
that's my portfolio or that I have a brokerage account that I'm moving money
(16:06):
into, that's totally fine.
But if Doug gives me a lot of money and then I put that in in the middle of
April, I can't close on that business until July. Yeah.
I think that's what we're talking about. And when it comes down to it.
If there's ever a question, just talk to the banker, talk to the lending source.
They'll work through it with you and help you with that strategy and getting
(16:31):
to closing because everybody's got the same interest.
So they're going to tell you if there's going to be an issue and hopefully early on.
And we're not waiting till the last week to find out some disaster.
Yeah, from a structure standpoint, I think this kind of goes overlooked a lot.
The buyer and the bank, they're partners. Mm-hmm. They are in partnership. Yeah.
(16:53):
And, you know, I think it's one of those things where the bank is looking at
is like, this is going to be our business partner.
Mm-hmm. And I need to make sure that my business partner is forthright and,
you know, tells me everything.
Right. And I don't think that people necessarily look at their,
I don't think that people look at their bank like that.
I think that one of the biggest mistakes that we see buyers make in their relationship
(17:15):
with their bank is that they view their bank like they would view their mortgage lender.
I'm going to go in here, fill out a few pieces of paper. You're going to give
me money to buy this house. I'm going to buy the house. And then I'm going to
send you a monthly check. And that's it.
It's as we talk about a lot, it's much more in depth when you're buying a business. Yeah.
There's a lot more like that bank is going to want to see financial statements,
(17:38):
some semi-annually, some annually, some even quarterly.
They want to see that. So you're going to be reporting back to them.
So realistically, you should be viewing your bank as your business partner. It is true.
And when you need to have some cash down the road because,
you know, cash is tight, you've got a line of credit and you call that banker
(17:59):
and say, I need 50 grand to get me through this next month because my receivables
are slow for some reason. reason.
Well, if you've got a good relationship with that banker and you've been honest
and open all along, you're going to have a much better time getting that cash.
They're going to want you to succeed. Like you said, they're a partner in this.
(18:21):
They don't want to see anybody fail.
But going into it, if they feel like there's a character issue,
they're looking at that partner and saying, do I want to be in business with this person?
Yeah. It's no different than if you and I decide that we're going to go into
business and into a venture together, we want to know, do I know this person? Do I trust this person?
(18:44):
How's it going to go down the road? And so I think that's the main thing that
you have to consider when you're, because let's be honest, the bank is bringing
80% to 90% of the money to these deals.
So you're going to buy a million-dollar business. They're ponying up $800,000 to $900,000.
Your banker is your friend. Right? So they need to be your partner.
(19:10):
Well, speaking of partners, if you need a partner to help you either in your
quest to buy or sell a business.
There's only one place that you should go, and that is KCAPEX.com.
You should be reaching out to Doug or myself, really me, then Doug.
All Doug does is podcasts, so he does podcasts and looks at the website.
(19:35):
KCAPEX.com, that's your one-stop shop for everything buying or selling a business.
There's tons of information out there for buyer resources and seller resources.
There's plenty of information out there for both buyers and sellers,
just general good business practices.
One thing we don't say enough is general good business practices are one of
(19:59):
the biggest things to selling a business.
And it is one of the biggest things to buying a business. So there's tons of
tips and tricks out there, both for if you're looking at selling your business
or if you're buying a business, something to,
as you look towards the end game of your entrepreneurship entrepreneurship and
your exit out of that particular business, that there's tons of stuff out there.
(20:19):
So of course our current listings are out there, podcasts, valuation tools,
all of that is out there. So go check that out, kcapex.com.
If you're looking at buying or selling a business.
Music.
Music.
(00:08):
Buyer and the bank, they're partners. They are in partnership.
And I think it's one of those things where the bank is looking at it as like,
this is going to be our business partner.
And I need to make sure that my business partner is forthright and tells me everything.
And I don't think that people necessarily look at their bank like that. I think that...
(00:30):
Music.
Welcome back to the Apex Business Advisors podcast. I'm your host, Andy Kavanaugh.
Joined as always, because you've been here two weeks in a row,
the president of Apex, Doug Hubler.
(00:52):
It's like a slight, isn't it? What you just said to me.
As we're recording in March, it's obvious that March Madness is here because
you brought a highlighter. With papers.
With papers. I use a highlighter once a year and it's to highlight I like the
correct picks in my NCAA tournament brackets, which generally end up with more scratch outs.
(01:13):
I was going to say, how are you doing on that? Not good at all.
Nobody is. Nobody's ever doing good.
So, well, today's topic, before we get started on today's topic,
we had a closing this past week that we want to talk about.
So, I'll give you the floor and then I'll let you be sure the topic.
Yeah. Valerie had a nice closing on Monday. It's something that she'd worked
(01:35):
with, worked on for a few months, actually had a buyer on it right away,
had multiple letters of intent.
So fortunately, the buyer was able to pick a private group that they were happy to work with.
And Valerie said at the closing, it was a virtual closing.
So there were 17 people on the Zoom call.
(01:58):
A lot of people. A lot of attorneys. A lot of attorneys. And investors that were on the call.
And so six minutes later, everybody signed, everybody's good to go. So it was nice.
So it was basically an IT security type business outside of Kansas City, not local.
(02:19):
So yeah, it was a very nice closing. Well, congratulations, Valerie.
I know that it's a lot of work that went into that, especially with the number
of people involved on both sides.
She did say she got cleaned up for the closing on the video and quickly discovered
that she was the only one with the camera on. Well...
(02:40):
Got off of that. She tried hard. That's a true professional right there.
That's right. That is a true professional.
So that is, well, good for her. And congratulations again, Valerie.
Our topic today is what happens when we get last minute things that are found out.
(03:01):
Last minute things that are found out and happens to be the lender finding these
things out. And so I think, okay, I have to say we just had a deal collapse,
which is bringing up this topic.
And Debbie's been working on this particular deal for several months.
(03:21):
We were about a week and a half from closing.
And what happens is that's often when the bank goes through and does some final
checks, maybe does some background checks.
They look for any kind of liens that are outstanding.
(03:42):
And so happens that in this case, there had been some tax liens outstanding on the buyer side.
Well, let's stop right there.
Why do they do it right at the tail end? Well, there are.
I would say that's a great question. Sometimes we've, and this isn't the first
(04:02):
time this has happened, so it is frustrating to get this far into it before they do their checks.
There is a fair amount of expense they go through when they do these checks.
The applicant has filled out forms, which is probably what I was highlighting here.
Some things that they promised to tell the truth, that they've paid all their
(04:25):
taxes. They don't have anything outstanding.
They don't have any loans that are outstanding that haven't been disclosed. Right.
In this case, if the parties had disclosed that they had outstanding tax liens,
well, the bank can work with that.
They can say, okay, this is how we're going to handle it. We either need to
have you pay it off now, because the SBA is a government agency.
(04:49):
They're not going to loan you money if you owe the government money.
So if you're outstanding, if you've not paid a prior SBA loan,
if you defaulted, if you you are, passed you on your taxes, if you've defaulted
there, then they are not going to loan you money.
And they are going to, now let's say in this case, you say, okay,
(05:12):
this is the issue you've got.
If as long as you pay your taxes, we get some receipt, the taxes are paid, then we can proceed.
In this case, because when it gets close to closing and there are some things
outstanding outstanding that weren't disclosed in the application,
then the bank looks at that as a character issue.
(05:35):
So the bank feels? They think, okay, you've been hiding information from us.
So what else might there be?
So now one, say the business development officer might say, we think we can
get this handled. Let's go ahead.
But you've got credit committee behind them. You've got other folks,
(05:55):
not just one person with the bank, and the decision was that they were going
to deny the loan a week and a half before closing.
So it puts everybody in quite a bind.
We've got a title company. We've got property owners that were involved,
and obviously buyer and seller had worked on this for several months.
(06:19):
So it's a pretty painful thing to happen at the end.
And I think that's why we wanted to bring this up, is the paperwork.
When you're filling out an SBA loan, you are promising to tell the truth on,
and there's a good list of questions here, that you're promising that you don't have outstanding.
If you have outstanding debts, disclose what it is.
(06:42):
Disclose where you're getting funds to acquire the business,
the type of business you're buying.
And I had my highlighter out.
You did. And one of the businesses, they will not, I thought this was interesting,
they will not fund businesses with live performances of a purulent,
(07:03):
I don't know how to say that, sexual nature.
Strip clubs. Strip clubs. We'll not do that. They could have just said strip
clubs. Why can't we say strip clubs? Yeah.
There are certain businesses they will not fund. We kind of know going in which
ones to avoid. Anything of illegal nature.
(07:23):
So the forms that you're filling out, and you have to read this.
The font is not large, and they are going to stick to it.
So if you end up getting the loan they didn't find out ahead of time,
and you default later because maybe you lied on some one of these things one of these topics,
(07:45):
then you can be imprisoned for lying on an application.
We don't want that. We don't want our buyers or sellers going to jail.
Nobody wants to go to jail for an SBA loan.
It's not worth it. Not worth it. What are some of the things that they're asking
you to, what are some of the things they're asking you to ensure that you have?
(08:08):
Well, they want to make sure that you're, one of the things that's interesting
is they want to make sure that you are not behind on your child support.
So, you have to prove that you're up to date on child support,
that you are fully compliant with all state, federal, local taxes.
And so there aren't, like I said, there aren't any liens or outstanding judgments.
(08:32):
You're not a party to a lawsuit.
And people will think, well, I don't, would I have to tell them that?
What if I filed bankruptcy 10 years ago? It doesn't show up on my credit report.
Well, those are things that maybe the SBA actually has the ability to look back
further. I did run into that where it was a, we had a buyer that I think she
(08:54):
had a credit card write off or something.
She's in her mid thirties now. It's 32, 33 happened when she was 18 or 19.
She didn't disclose it. The bank felt like she was hiding something.
And she was like, I had completely forgotten about that because it was,
you know, 15 years ago. So long ago. Right.
So does ignorance play a part in this? Like where, where do,
(09:17):
where do we draw the line?
So like with my, with my particular buyer, I 100% believe her,
I believe her, her story when she's like, look, I was 18 or 19.
It was like a $5,000 credit card limit.
I didn't have the money. They wrote it off. It's been 15 years ago.
You know, like, I don't know that you believe, I don't know that you remember
(09:39):
every single thing. Right.
You remember big things, right? And it's kind of all relative.
So I think in one of the disclosures here, it says the applicant understands
that knowingly making false statements to obtain a loan can get you into trouble.
Well, in that case, what they didn't remember.
(10:00):
So we had a deal in a similar situation about a year and a half ago,
was very close to closing, fell apart at the last week, same situation, the bank ran,
credit report, and they felt like something came up on that credit report that
wasn't disclosed, thought it was a character issue again.
(10:23):
Now that deal fell apart, but we went straight to another bank who had the same
information and approved it.
So it was, in that case, knowing what that first bank looked at as an issue,
and the buyer, like what you're saying, is the buyer didn't realize that was
an issue or it wasn't a big thing.
(10:43):
One bank says it's a character issue. The other bank says, this is not a big deal.
And we've got it on a spreadsheet here. So let's do the deal.
How can a buyer protect themselves from this? So if I have a tax lien,
for example, how would I know that?
If you open your mail, you will know.
The IRS is going to send you periodic statements, demand letters.
(11:08):
So if you have a tax lien, you're going to know.
That's not something that's going to slide. They're going to be following up with you consistently.
So I think, like I said, an old bankruptcy, for example, those are things that
you just need to talk to the banker about and say, okay, here's what happened
20 years ago at a bankruptcy.
What do I do about that? Do I disclose it? And they'll say, yes,
(11:31):
disclose it. say it was 20 years ago, as long as we know, we can move beyond that.
So it's just the fact, if you feel like that's a big thing.
So if you've hidden it, you don't disclose it because it doesn't say,
have you had bankruptcy in the last seven years?
It says, it asks if you've ever had a bankruptcy.
So just say yes. Is that asking about felonies and things like that on there as well? It does.
(11:56):
And so like on a felony, for example, let's say that somebody had, they had a,
A few too many one night. Right. And they had a meeting with their local law enforcement.
A roadside meeting. A roadside meeting. And they failed a pop quiz.
And they, essentially, they basically got a DWI and got a suspended sentence
(12:20):
that it expunged from their record.
You know, they went to, first time offender went to a program,
completed the steps, and now this is, they were on probation for X number of
years, and then it's expunged from their records.
If it's expunged, I would think it's not, but I would still probably say to
the banker, okay, this is what happened. It's expunged. What do I do?
(12:43):
Let the banker tell you what to do in that case. Because it's not going to be,
a DUI isn't necessarily going to keep you from buying a business.
Not telling somebody you had one will keep you from getting a business.
There are certain felonies that I said are okay when buying a business,
but if you have a DUI, you're not going to be able to get a liquor license to
(13:06):
buy a liquor store or a bar, right?
So, it kind of depends what kind of business you're buying.
If you are a sexual predator, you will not get a loan for anything.
So there are certain things that are just hard no's for getting an SBA loan.
And we don't know, it doesn't happen very often when we have somebody come and
(13:28):
says, oh yeah, I have a felony on my record and this is what it was.
When we've come across that, they've been what we consider kind of minor,
and they've been, you know, 10 years ago.
They've completed their sentence or their parole or whatever,
and the business that they're applying for had nothing to do with what they were charged with.
(13:51):
Yeah, it's generally not the guy that's committing the same crime while he's
out on bond that's applying for this.
And generally, a lot of these are common oversights. I think the message that
we're wanting to send today is, hey, make sure that you're error on the side
of disclosure to the bank.
(14:11):
Because this... You're not going to overshare with the banker, right?
Tell them everything like they're the doctor.
Just tell them everything. They'll decide what you can or need to disclose on
these forms. And I think the important thing here is these are,
there aren't a ton, it's not a ton of paperwork, but read it.
(14:35):
Yeah. Would you suggest sending that to an attorney?
You get those loans. I don't know if you really need to.
I think these are pretty common sense statements in here that you are promising
that you haven't done this or that in the use of the funds. And the other thing
is where are the funds coming from?
They're going to want to know where are you getting the money for the down payment?
(14:57):
And if you end up, this happened probably within the last year,
with somebody borrowed money right before closing to use for the down payment,
and that messed up the entire deal.
And I think we've done podcasts on that where we talked about clean months.
Some banks will want to see two clean months, meaning that, let's say that I'm
(15:20):
going to get my loan funded in June.
In April and May, I can't have a large deposit into my account.
Right, right. I could have it on March 31st, but I could not have it on April 1st.
So put it in April 1st. April 1st is now a dirty month.
So I can't close now until July because I have to have 60 days of clean months,
(15:44):
meaning two months of my statement showing that I don't have these large influences. Infusions of cash.
Yeah. External money, right? Right. So if I have a large infusion of cash from
a stock account that I own,
that's my portfolio or that I have a brokerage account that I'm moving money
(16:06):
into, that's totally fine.
But if Doug gives me a lot of money and then I put that in in the middle of
April, I can't close on that business until July. Yeah.
I think that's what we're talking about. And when it comes down to it.
If there's ever a question, just talk to the banker, talk to the lending source.
They'll work through it with you and help you with that strategy and getting
(16:31):
to closing because everybody's got the same interest.
So they're going to tell you if there's going to be an issue and hopefully early on.
And we're not waiting till the last week to find out some disaster.
Yeah, from a structure standpoint, I think this kind of goes overlooked a lot.
The buyer and the bank, they're partners. Mm-hmm. They are in partnership. Yeah.
(16:53):
And, you know, I think it's one of those things where the bank is looking at
is like, this is going to be our business partner.
Mm-hmm. And I need to make sure that my business partner is forthright and,
you know, tells me everything.
Right. And I don't think that people necessarily look at their,
I don't think that people look at their bank like that.
I think that one of the biggest mistakes that we see buyers make in their relationship
(17:15):
with their bank is that they view their bank like they would view their mortgage lender.
I'm going to go in here, fill out a few pieces of paper. You're going to give
me money to buy this house. I'm going to buy the house. And then I'm going to
send you a monthly check. And that's it.
It's as we talk about a lot, it's much more in depth when you're buying a business. Yeah.
There's a lot more like that bank is going to want to see financial statements,
(17:38):
some semi-annually, some annually, some even quarterly.
They want to see that. So you're going to be reporting back to them.
So realistically, you should be viewing your bank as your business partner. It is true.
And when you need to have some cash down the road because,
you know, cash is tight, you've got a line of credit and you call that banker
(17:59):
and say, I need 50 grand to get me through this next month because my receivables
are slow for some reason. reason.
Well, if you've got a good relationship with that banker and you've been honest
and open all along, you're going to have a much better time getting that cash.
They're going to want you to succeed. Like you said, they're a partner in this.
(18:21):
They don't want to see anybody fail.
But going into it, if they feel like there's a character issue,
they're looking at that partner and saying, do I want to be in business with this person?
Yeah. It's no different than if you and I decide that we're going to go into
business and into a venture together, we want to know, do I know this person? Do I trust this person?
(18:44):
How's it going to go down the road? And so I think that's the main thing that
you have to consider when you're, because let's be honest, the bank is bringing
80% to 90% of the money to these deals.
So you're going to buy a million-dollar business. They're ponying up $800,000 to $900,000.
Your banker is your friend. Right? So they need to be your partner.
(19:10):
Well, speaking of partners, if you need a partner to help you either in your
quest to buy or sell a business.
There's only one place that you should go, and that is KCAPEX.com.
You should be reaching out to Doug or myself, really me, then Doug.
All Doug does is podcasts, so he does podcasts and looks at the website.
(19:35):
KCAPEX.com, that's your one-stop shop for everything buying or selling a business.
There's tons of information out there for buyer resources and seller resources.
There's plenty of information out there for both buyers and sellers,
just general good business practices.
One thing we don't say enough is general good business practices are one of
(19:59):
the biggest things to selling a business.
And it is one of the biggest things to buying a business. So there's tons of
tips and tricks out there, both for if you're looking at selling your business
or if you're buying a business, something to,
as you look towards the end game of your entrepreneurship entrepreneurship and
your exit out of that particular business, that there's tons of stuff out there.
(20:19):
So of course our current listings are out there, podcasts, valuation tools,
all of that is out there. So go check that out, kcapex.com.
If you're looking at buying or selling a business.
Music.
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