EP 87: The Seller’s role in successful SBA loan with Heather Endresen of VISO Business Capital

Ed Mysogland  00:02
Over my 30 year career, I've had the opportunity to to know lots of business bankers. Some are really good, and some not so much. And the ones that really make the greatest difference are the ones that that have been in the trenches, and those that that can offer something more than just simply just simply finding money. It's somebody that can help us structure somebody that can help with seller challenges, someone that can help with just what does the future of this business look like? When I use in this case SBA financing. And so enter Heather Anderson. So she is the president of viser business capital. And it's a new company, she was with the number one SBA lender, and she saw a need, and she is filling it. So Heather has been in the business for 30 years. So she's seen, you know, ups and downs in the ins and outs of SBA lending. So she has started and manage, like I said, the SBA lending departments for banks of all have all kinds of sizes, and most recently, she was the top producer, at Live Oak Bank, the number one SBA lender in the nation, she launched Viseu, simply to simplify the loan process for acquisitions, for entrepreneurs, so they can spend more time, you know, on due diligence and less time trying to find funding. So she and I had this, we had a great conversation, and I'm so grateful for the time that she spent with us. And I can tell you that she's a different kind of lender and, and that's what the kind of person that you're looking for. There's all kinds of there's good lenders, but there's a different tier and Heather is certainly in that bucket. I also should should mention that she is she is a fourth host of one of my favorite podcasts acquisitions anonymous. And so you can you can hear her over there talking about different deals and structures and how perhaps they might, you know, how advisor might source funding for the deals that they're looking at. So I'm 100% certain that you will get all kinds of good value nuggets from from Heather and as much as I did, and I'm 100% certain that you'll enjoy this conversation I had with Heather Anderson, advisor business capital. Well, welcome to the show, Heather,

Heather Endresen  03:20
thank you for having me, Edie,

Ed Mysogland  03:21
and congratulations on the launch of Fizeau. Tell us about about it and and what you're going to do with it.

Heather Endresen  03:30
Well, thank you. And I'm super excited about visor, oh, it is basically a loan brokerage that's focused on acquisition loans, mostly SBA, it's a there's a number of reasons why I'm not taking on very many conventional engagements. So it's mostly SBA acquisition loans. And my aim advisor is to save buyers time, during their precious precious 90 days of diligence, they've got 90 days to go figure out everything they need to know before they close on this deal. And they need to spend less of it talking to four different banks and more of it doing diligence. So that's my main goal.

Ed Mysogland  04:08
Well over the years, you know, the, the, the, the SBA, whomever there were, whoever the buyer is working with the working with, with the SBA, it is so important that they are the sellers understand what the buyers are going through, and that's part of the reason why I'd like to, I want to be seller focused. I mean, we do have a lot of buyers that listen to this, but nevertheless, I do think that sellers need to understand from from what the buyers are going through. So I guess that the first question I want to talk about is is what are the programs that the SBA offers? You know, I know you have your seven a and your and your 504 but and please don't let me tell me the answer, boy, so go ahead. What are the programs

Heather Endresen  04:59
so The main program is the seventh eighth, the SBA seven, eight, that's going to be the big loan, that really is the bulk of the transaction, that's a term loan, it's a seven year or I'm sorry, a 10 year term loan 504. That's only for real estate. So they only really comes into play and sellers, if you're going to sell the real estate and the business at the same time, my advice is with the contract, if the if the buyer is going with a 504, for the real estate and a seven, eight for the business, they might close at different times the fiber for takes longer. And so it's nice to be able to close your enterprise sale with their seven eight loan that's a little faster, and then allow the real estate a little more time to close. I've closed a few that way. And then you have another program called the SBA express. And that is usually used for working capital lines of credit, it only goes up to 350 350,000. So it's really meant for smaller lines of credit, but a lot of acquisition buyers end up with one of those that they can access post close. It's not something that's funded at close, but they can draw down on it as they need for seasonality or carrying receivables, things like that.

Ed Mysogland  06:08
Yeah. So switching back to the 504. Now, what is there's a threshold if I if I'm not mistaken, where they blend the seven a in the 504? What is that threshold? You know?

Heather Endresen  06:22
Yes. Okay, so the SBA has a $5 million limit on the seven a program. And if that if effectively, it's a 75% guarantee. So there's that means 3,750,000 is the limit that they'll guarantee if you do a 504 and a seven, eight at the same time, and you get one approved before the other now I forgotten which one it is, but I mean, like a minute before or a day before, it doesn't matter. I think it's the seven, eight first, actually, you can actually get an additional 1,000,002 50 worth of SBA runway, so it's a little bit it's a way of doing a little bit more SBA guarantee that makes the banks more comfortable, a little bit easier to get the whole thing done.

Ed Mysogland  07:02
Okay. Now, I thought there was, and again, I'm putting you on the spot. We've had some deals that there's been a 17 year old blended, a blended deal. So can you talk a little bit about that?

Heather Endresen  07:16
Yes, yes. So that's when you're going to put real estate and enterprise in 178 loan. Oh, so whenever you can, whenever you're going to buy both at the same time, close them at the same time, you put them in 178 loan, there's two things that might happen with the term, instead of just a 10 year term, you're gonna get 25 years applied to the real estate, and 10 applied to the enterprise. And it's a blended average term, maybe it ends up 14 or 17 years. There's an one other little advantage there, though, only kind of works in the West, where real estate is more expensive. But if you have a business where the real estate is worth more than the enterprise, it's gonna sell for more, and buyer can get put them both in one loan and the loan term is 25 years for the whole thing. So they get an advantage when they buy real estate that's worth more

Ed Mysogland  08:01
and it's up fix, is that fixed money? Or is that still variable rates?

Heather Endresen  08:07
It can be either, but most banks prefer to stay variable, but they during this run up, they were offering three and five year fixed rates. So usually the banks will give an option.

Ed Mysogland  08:17
Got it? Well, a lot of a lot of sellers these days don't know that there's big changes going on, you know, you know, they see they see the prime going up. And I guess that's probably the first place we should we should at least poke at is, you know, the people that you're working with or that where you're sourcing sourcing deal funds, where, you know, what's their? What's their appetite for, for today's transactions? Because we know, we know borrowing power has been reduced?

Heather Endresen  08:47
Yes, it has. So the buyers of today of this moment have to find a way to structure less debt as a percentage of the bank debt anyway as a percentage of the overall transaction. So they might, they might need more seller note. Unfortunately for the sellers, they also might raise more equity. So this is something a lot of sellers don't realize there are serial small business investors now lots of them, who are wealthy individuals who have made lots of small bets, if you will, investing in folks buying small companies. So strangely enough, it is maybe almost a little bit easier for a buyer to raise equity for a good deal than it is to raise debt. And the reason for that is equity has upside if they do really well, the equity can, you know can make more debt doesn't debt only has downside.

Ed Mysogland  09:41
Yeah. Have you seen? What's the buyer typically paying for that? Basically, mezzanine? Well, I guess it's not mezzanine debt. It's it's actually equity. Yeah.

Heather Endresen  09:51
Yeah. You know, the terms vary. We've talked to a lot of investors and I keep a pretty good database of investors. It's usually some kind of a preferred returns. So we'll get some preferred equity with maybe an 8% coupon or nine these days. It's not like debt, though they don't have to pay it. If the cash flow is not there, they won't get that until the end until there's a sale or an exit or whatnot. But it's not cheap money, but it's still possible for them to get equity that they don't have to repay on a monthly basis so that there's more cash flow left for the for the debt payments.

Ed Mysogland  10:25
Yeah. And to be honest with you, I think we're gonna see a lot, a lot of that and I think you, you, you are to that? Or do you feel the same that we're going to see a lot, a lot of those, a lot of those investors are going to come out of the woodwork because that's, that's the only way that these things are actually going to pencil out at the value that the sellers want. Which now brings us to do the next thing of all these new SOPs that are coming out from the SBA? And I know, I know, there's, you know, they've got, what two months before it actually is, is almost a ratified, but before it goes into law, so to speak. But what can you talk a little bit about some of the some of the bigger issues or opportunities that that that are going to help the sellers,

Heather Endresen  11:23
right, so we've been we've been for SBA size transactions, which is kind of any business under maybe 2 million of EBIT da write that the buyers are most likely going to be using SBA, we've been having to structure deals within these SBA rules for so long, that it's really going to be interesting now that so many of them have just opened wide up, how different deal structures are going to be possible. So the first one that's really interesting is rollover equity, or the seller retaining some ownership of the business, the old rule has been sellers have to sell everything, they cannot keep any rollover equity, and they have to fully exit the business of any kind of roll in 12 months. Both of those are gone. Those rules are gone. So seller can rollover seller can stay very interesting. Yeah.

Ed Mysogland  12:12
What do you think the how do you think the I was I was debating on? I think that works really well with shareholder buyouts. I think that junior guys buying out, you know. So like, in our practice, we have, you know, some some older guys that eventually are going to exit, it makes a lot of sense. Because from a loyalty and transition, you know, they, my team would look to me, You know what I mean? And we wouldn't have that. But I'm just curious, like, a third party comes in and says, Look, you know, you're going, we're gonna roll roll over this equity, you're gonna keep your 20% or 19%. And I'm just curious to know, and it's crystal ball thing. I mean, there's no way to know where the staff loyalty lies. You know what I mean? That, yeah, so that's a hard one, don't you think?

Heather Endresen  13:09
I do. I think that whether to rollover equity or not, and this comes from the buyers perspective, and the sellers perspective, has everything to do with the chemistry between the two individuals, or more. And what the what the vision for the future is, if it's a shared vision, it can be great. Like, I've definitely done rollover equity in the non SBA side of my of my career. And I've seen both kinds of outcomes, though, I've seen really great, great outcomes and not great outcomes. And that usually comes down to if it's not great, it comes down to that people just didn't they weren't on the same page, or they became not on the same page at some point.

Ed Mysogland  13:51
Yeah, well, I think it's, I think it's hard for for, for employees, especially if there's any kind of change coming. But But again, it's back to the transition, though, the way you handle post sale matters, does matter, you know, and, and that person, you know, yeah, when you're, it's so funny, we keep talking about, about these business hours, especially the 70 year old plus, I mean, every employee wants to know what's going to happen to their job, they can see the guy or the woman aging. And so bringing someone else on and being able to stay visible within in the company. To me, I think that there's opportunity for I want to say, an amplified, favorable transition under those circumstances.

Heather Endresen  14:51
You could even foresee breaking a deal into a couple of parts, right? somebody buys in a small percentage and stays working side by side with the seller maybe for a year or two, and then is ready to buy them out maybe the rest of the way we could do that. And I think that's that would absolutely be a better outcome for for a buyer and this staff, like you said, to kind of ease into it. I think there's a lot of interesting possibilities that way.

Ed Mysogland  15:17
So let's talk eligibility for a second. So I often I often hear either my business is too big for the SBA, or my business is too small for the SBA. Can you talk about eligibility requirements? Yeah, and

Heather Endresen  15:31
it doesn't usually come down to the actual eligibility rules. So there is a you can you can Google this term, but you can do SBA size standards. And there's two different ones. One, one is based by NAICS code, and it's either dollars of revenue or number of employees, depending on the industry. And then there's something called the alternative minimum size standard. And most of the companies that we're going to be talking about that have less than two and $3 million of EBIT, da are perfectly we're below those standards. So eligibility wise, most of these companies are going to be fine. It's bank credit appetite, that sort of drives though whether buyer can get funding, right. So banks tend to favor different things. They don't banks don't like lending on really small acquisition loans, they might do other small SBA loans. But the fact is that putting together an acquisition, SBA loan is very expensive for a bank, it's an awful lot of work for everybody, really. But it's also an awful lot of work for a bank. So below a certain dollar amount, which is usually 500,000. of loan amount. Most banks don't want to do that. It's too small.

Ed Mysogland  16:36
You know, and the funny, I'm glad you share that, because one of the things that always bothers me is just say, No, don't, you know, just if it's if it's not in your wheelhouse, it's or it's too small. Just say so and, and so often, you know, the bank, or the BDO, just doesn't want to hurt the feelings, or I'm not really have

Heather Endresen  17:02
another reason. Yeah, well, I've been in banking too long. So it's because there's a lot of salespeople, they're salespeople. So they want to make their pipeline look full. And then have excuses later on why deals fell apart. So there's a certain there's a certain percentage of salespeople out there who will just take anything and throw it in their pipeline to make them selves feel good or look good, even though I know deep down, they're never gonna get that deal done.

Ed Mysogland  17:29
That's a good point. So for the sub half million dollar deals, so that's, you know, let's, you know, your rule of thumb is roughly 50% of revenue, so a million dollar business, so it's half million dollars. Where do those people get funding?

Heather Endresen  17:43
It's not easy. I mean, I get calls I have for years, and it's the My best advice to people looking for a good deal to get done on a small loan is CDFIs, certified. Community Development, sorry, community development, financial institutions. A lot of them have an SBA license for for smaller deals, and that's kind of their mandate. But you have to find one that's your deal fits in their geography and everything else. But that's probably the best bet.

Ed Mysogland  18:13
I get. One of the things I was talking, I was talking to another lender this morning about Aesop's. It seems as though, though, Aesop's are becoming more and more favorable with the SBA. And and and various lenders. Are you seeing the same?

Heather Endresen  18:32
Yes, I mean, they they SOP has a whole section now on how you can lend on to an ESOP transaction. So there, they've made the rules more favorable. I think what I've understood is that it's the same thing that we just talked about below a certain size, it's just too expensive to do so. And I'm not even sure exactly what that size is, but it's more than 500.

Ed Mysogland  18:56
Well, I'll tell you what we have in the last, gosh, six months, I mean, people have shown up at our doorstep about unwinding the, the they want to sell and, and they're an ESOP, and you know it, somebody got a hold of him and just jammed ESOP down their throat in it, and it just wasn't the right. It just wasn't the right tool, the right exit tool for the situation and they got into that still profitable, but boy boy, that it was just it was just a mess, but anyway. Okay. So can you tell me from a seller standpoint, you know, every seller just, you know, as soon as they get go under loi, they think it's immediate. All of a sudden, everybody should just be just be moving as fast as they can. And they don't understand this, especially this financing component. So I wanted to talk about that the application process and what is a typical time One thing that somebody should anticipate,

Heather Endresen  20:03
well, let's start with the timeline. I know most ello eyes are going to be 90 days of exclusivity. But we've, we've actually got a couple of surveys we've done and then just our own anecdotal experiences doing lots of deals lenders, they usually take between 90 and 120 days. Yeah, it is, it's kind of goes through what you're saying this, this process is lengthy, and no one party is in control of the whole thing. So you're waiting for the other party, they're waiting for you, et cetera. They're waiting for the bank, the banks waiting for someone within the bank. So it causes all these little small delays that add up. But it can be done in 90 days. So I'll give you like, if you're wanting to sell and you want to close in 90 days, here's how it can work. You want to make sure your buyer has already got an idea of where they're going to go for the debt. Hopefully, it's visor, because I'm going to chop all the banks for them. But they got hopefully, they figured out where they're gonna go before the LOI is signed, they go straight there on this, I've got a signed loi, I'm ready to get started. They make sure they get a term sheet from from banks within the first week. That's what that's shouldn't take longer than that if they've got as long as the seller is given them access to tax returns and all that stuff that they need. So that's the other thing, seller, don't make sure your deal rooms are organized. I'm sure Ed is going to make sure that of that. But they don't all have AD unfortunately. So sellers, real organized, given everything term sheets can be out in a week. And then it can go into underwriting now and underwriting there's thanks for going to ask a lot more in depth questions. sellers need to be quick with the responses if they can, and provide the additional backup support to some answer that the bank might want to see. And there might be a quality of earnings report that this that the buyer is going to engage. So it's like financial due diligence, and the seller has to give them access to the books so they can do that. And answer questions. So it's a it's pretty time intensive for sellers at that point. Well, and,

Ed Mysogland  22:09
and the funny thing is, everybody talks about this, everybody talks about the things that you're going to have to have in order to not only survive due diligence, but in order to keep the deal together. I mean, you're talking 120 days, you know, and that's customary. And the funny thing is that, you know, when you start crossing the years halfway mark, or crosses over a year, and now all of a sudden everybody wants to talk about, you know, what's happened in the last 120 days, while your foots been taken off the gas, because you're because you didn't prepare well enough in advance, you know, and that's, that's a, it's a landmine that can be sidestepped, if you just take just a little bit of time getting your deal room together and going, you know, going through a process rather than, you know, I'll solve. And this is the next one of the next questions is everything seems to be the buyers problem. And the seller fails to realize that at least 40% of the buyers problem is his or her problem. You know, and, and so I guess that's what I wanted to talk to you a little bit about is, is how those sellers, and I think you pointed on a number of good things as far as getting the deal room together and, and being prepared. Is there anything else that the seller can do to make the lender and the buyers job easier as part of this process?

Heather Endresen  23:44
Yeah, I think it's just be prepared for how much time you know, you're gonna have to dedicate in those few weeks that the deal is in underwriting, you are going to have to, unfortunately be distracted by that process. And, and you never know when the questions are going to come. But you want to be able to stop and whatever you're doing and try to answer those questions as clearly as possible. At that point. I think letting in really just having a really clean deal room is probably absolutely the

Ed Mysogland  24:15
the bare minimum again, all right. Well, one of the things that get scrutinized is the business valuation now I've I've done SBA valuations myself in over the years. I don't want to say I'm not a fan. I just, you know, if the deal pencils out, I mean, I like to think that, you know, that's a good indication of whatever the buyers pain is a decent value, but that's that's just that's just Ed's pontificating. But one of the things that that happen to a lot of sellers is that the business value comes back and it perhaps it doesn't make The deal price. And so what do you do then? Well,

Heather Endresen  25:07
we should I agree with you, if of all the deals I've seen when I pencil it out, I don't even think twice I know this deals gonna appraise. There's very few times where I'm at all concerned if I haven't, because already the debt is too tight, the debts too tight, and it might not pencil, but then I have to remind myself that there's a lot of qualitative things that go into the business valuation. And it is very subjective, right? It's a very subjective report. It's not like we can get real estate comps and figured out there's no comps. So I think, you know, what do you do with it comes in short, well, usually you can, I don't want to say argue, but you can make some more points back, you have to kind of read the thing and see where they felt there was weakness, and you have to come back with a counter point to that. Maybe they misunderstood something. And I would say that I haven't had very many of those happen. But when they have happened, we got the value up by just explaining things better to the valuation,

Ed Mysogland  26:03
that's good to know that that's a great point is that, you know, again, it's back to preparation, you know, because the sim or or whatever is being used as the document, as part of the valuation has to be clear enough that the appraiser can can follow can follow along, so yeah, all right. So, so the good news is, what I hear you saying is that you can go back to the appraiser, and an offer some rebuttal commentary on why, why or why not? This doesn't work. Alright. Yep.

Heather Endresen  26:39
It usually works. As long as you have a real good point, you know, it usually works. You know, they're trying to do an appraisal of a business from a desktop. So it's easy for them to misunderstand something or miss something.

Ed Mysogland  26:49
No, and that's true. And, and, like I said, I I'm with you. I mean, if you can make a pencil out. I mean, you can feel pretty good about how how it's going to land on on on its way back. Idle loads. I, I'm curious, you know, that's some cheap debt. So for for a lot of sellers, that that, that are listening that that that didn't participate. I mean, it's, it's the idle is what emergency? Oh, I don't

Heather Endresen  27:28
disaster loan deal. I don't

Ed Mysogland  27:33
Oh, my gosh. Any rate, the idle loans, that's 3% money on for 30 years, right, three, three and a half percent? Are you seeing that as a, as an as an assumable? Debt? And what you know, what do you think? What do you think of that? As a manner? No, it's mezzanine debt, but on the actions admitted, it's it's debt, that it's cheap money. And I gotta, I mean, in no way around it. So I'm curious to get your thoughts on, if a seller is sitting on, you know, a million dollar idle loan, you know, at 3%. Why would the buyer assume that and from your perspective, you know, how do you make that deal work?

Heather Endresen  28:24
Yeah, so I'm completely understand why everyone's looking at those loans saying, Can't I keep that? I don't want to pay that off. I get it. And I I've seen this question floated around. And I've been in SBA lending for a long time. I know one thing about assumability with SBA loans, SBA never releases the initial borrowers or guarantors, they only add more, they don't take your name off. They just put the new guy's name on or go

Ed Mysogland  28:52
geez, I didn't know that yet. That's as bad as Elise. Yeah, so we we have that conversation a lot that look you know, you're you may with with the sellers we work with, you know, if you've got a lease in place you're not that landlord is has no motivation to take you off. So they're gonna burn through all of the buyer and the buyers were with all the more they get to you. But they're still not there's no motivation to release I had no I didn't know that that's the

Heather Endresen  29:25
same thing with SBA loans. So there in my mind, that makes them not assumable because you're not transferring it to another party at all. You're just adding more parties to it. And it's a really clunky back office for the eidl. So when we do pay them off as most of them just that's the only way to sell the company is to pay it off that I've seen. You have to like pay it off directly on their portal. There's nobody to call the banks can't like verify anything you actually pay it off on their portal and take a screenshot and send that to the bank. Oh,

Ed Mysogland  29:56
I know. Well, I just I just didn't. I had no idea. I could I thought that that was that was relief for the seller. But I can I can see that. There's

Heather Endresen  30:13
nobody to help you do the docks or anything anyway. So there, you know, I don't even know if you could reach someone at the SBA to put the new borrower on the loan. I mean, I think that would even be wonderful, very difficult to get done.

Ed Mysogland  30:26
Well, that is I was looking, I will find what idle? Well,

Heather Endresen  30:31
the problem is you don't have a bank in the middle. So you don't have a back office of a bank. All you have is the government and they're not really answering that phone that.

Ed Mysogland  30:40
I'll tell you what, a lot. It's I'm glad you've said some some great things during our time here. But I'll tell you what, that might be a big one, because I know a lot of sellers that are that have heard that the idle loans are assumable. And it's it. And they are but but you're not off the hook. So are there any as part of this process? Are there any fees from that the seller should expect going through the this loan process? Fees

Heather Endresen  31:14
for the seller? I mean, no, I mean, not related to the buyers loan anyway, the buyer has to pay for their attorney, they having to pay for the quality of earnings, all their diligence. So no, as far as the fees, it's really just whatever their engagement with their own advisors, their attorneys, and oh, can I say you probably already say it a million times. But you know, it's super important that sellers use a m&a attorney, not some other. All attorneys are able to do this well. And if you use the wrong kind of attorney, you could be blowing up your own deal and costing yourself a lot of money.

Ed Mysogland  31:50
Yep. We just had we had we just had that conversation on Friday, we had a closing and it was it was the docks were were rough. And, and, and again, they the seller, the seller, good good news was represented well, buyer was not represented well. And, and again, I it was a fairly clean deal. But at the end of the day, I mean, that when that buyer becomes a seller? Well, I hope that that that party is not is not part of the deal. Yeah,

Heather Endresen  32:26
that attorney can ruin, they can completely ruin it. Or they could just make somebody paid three times more attorney fees than they should have. And they really frustrate everybody, because they don't understand market terms for these types of deals. But

Ed Mysogland  32:41
I think I may have told you I mean, we had an attorney once, you know recently that asked for, you know, a sample of our documents, and I'm like, you're an attorney. I mean, how many times have you done this? And you're asking me for a sample of one of our finished deals? Unbelievable. No, it was not. So you had mentioned quality of earnings. And we're seeing that we're seeing that more. And I think that's a good thing. And not not a bad thing at all. I wish there was a way I was talking to Elliott Holland about it that, you know, that the that the buyer could sell to the seller, the quality of earnings to be used down the road. Know that, that hey, we did this, it didn't work out for us. But this this is a valuable document for you. And I hope and I and I like said sellers are as part of the preparation. You know, they should anticipate someone's going to scrutinize them really hard and and someone like you know, Guardian coming in and doing a QB is a really? Yeah, that's a good thing for a buyer. So I guess what I'm asking is, are you seeing more of that being done on your, from your from your standpoint? And is the is the lender that you you're working with triggering it? Or is it the buyer triggering it?

Heather Endresen  34:05
It's mostly the buyer. So yes, I'm seeing it more. And I'll give you a little history lesson. Since I've been doing this a long time now. Maybe five or six years ago, there were very few cuvee providers focused on smaller companies. They were only kind of upmarket doing large businesses, middle true middle market businesses for private equity and they were charging 30 to $50,000. And they still are doing that. But now we've got several vendors who are focused and have the right price point and scope of work for small deals. So that's number one is it didn't really exist as a service at a at the right price point until fairly recently. And second, the buyers are kind of buying into the fact that this is a good idea for them this this is keeping them safe, more so than the banks requiring it. Banks do require it on certain occasions like let's just say it's a carve out something where you don't Have a standalone tax return. So then you have to have one. But a lot of SBA banks, they still haven't caught on quite to when to require it or should they require it but most buyers, a lot of buyers, I should say not most, but a lot and a growing number and percentage are wanting to do with qv to kind of give them peace of mind about the the the cash flow?

Ed Mysogland  35:23
Sure. Well, I'll tell you, I think it's I think it's a good thing. I, I did the the funny thing is we had a regional bank asked for a qv and and made the buyer made the buyer pay for it. And, and that deal didn't go together. And, and that was 30 grand worth of of qA and qB work. And I was you know, everybody was sick about it. And I was like, Oh my gosh, I've been in 30 years, I've never seen a bank require qv. I've seen lots of buyers, but I've never seen a bank ask for it, which was alright, it is what it is.

Heather Endresen  36:03
It is what it is. And I mean, I guess it depends on what the QV came up with. It can be kind of like a business valuation. Did they miss the mark? And if so, you could argue back? Or did they find something that wasn't being accounted for correctly? I can certainly look at some businesses and say, I bet you something comes out of this qv that's not great. Going in I know, I can just tell we have a lot of inventory. There's not maybe a great inventory control system, or that was the information we're getting. I would expect that qv to adjust.

Ed Mysogland  36:37
Well, I think I think that we're seeing especially in like construction businesses, I because those are Yeah, those things are, there's a lot of moving parts in those things and how you how you treat revenue and expense and, and whip. I think those are all real, real opportunities for someone to kind of scrutinize them, and rightfully so. Yeah, all right. I am one of the things that every Yeah, it's funny, all the sellers, worry about, about getting the business back. And I am, I'm sitting here, there's a 2% default rate. And I mean, you're talking 98% of the deals going together, stay together. And it's kind of like seller financing. You know, you just hear about the horror stories, no one talks about how, you know, over the years, that that's how, that's how this stuff works. And, and selecting a buyer that is, you know, capable financially, as well as operationally. That's, that's how this program works. So, but, but I said I would, I would ask the question. So when you have SBA, alright, you have an SBA loan in front of the seller. So there's either a standby note, or there's some sort of seller financing, or the seller has some sort of interest in this case, oh, this, as I'm talking about this, I may have already answered my question, but I'll see if, if you if you and I are thinking the same. So how does the seller get back the business or recover any of the value? I mean, can can they intercede and say look, I'm I'm here, I will fix this? I'll I can't assume I guess I got to reapply and get my own business back. But how does how does a seller do that?

Heather Endresen  38:31
Yeah, so there is a process for what I will call like a short sale, where a buyer has sort of shrunk the the earnings down, but it's still positive, there's still profitable business there. It's just smaller than than it was. And now it may be it's just got too much of an SBA loan, you know, okay, so that's a little bit of an over leverage business. Sellers got a note behind them. You can sell a business to another buyer, and that new buyer can get an SBA loan, but I mean, it's not usually the seller, it's usually a third party, maybe it's an existing employee, I've seen that done before, where there's a good employee that will step in, do the SBA loan with a personal guarantee and assume the seller note and get a new smaller SBA loan, so it kind of brings the leverage into a better position. But you need a really proactive owner, you know, buyer sure has taken out they have to, it's very psychologically difficult for a lot of these buyers to raise their hand and say, I need help. I'm in a bad spot. A lot of them tried to power through it or Sure, maybe they let it just go too far it so the seller would have to have really good communication with their buyer. How are things going, can I help you with anything and identify things before it goes too far?

Ed Mysogland  39:49
Well, I'm wondering whether or not the equity portion solves that I so if I, if I take a larger Are seller Nope. You know, I'm in second position. But you know what I'm going to, I'm going to retain, I'm going to retain 5% 1%. I don't care what the percentage is. I'm first on the list to get the business back, you know, because I'm a shareholder, that might that might be the workaround. I don't,

Heather Endresen  40:20
I don't. And as a shareholder, you can say, I want quarterly board meetings, you know, where I can see what's going on and understand.

Ed Mysogland  40:29
Well, I think were the stems from a while back, there was a seller that wanted a first right of refusal, and and under underwriting would not give them that first right, of refusal in their deal. And, and I don't, I don't remember why, but, but it would be, that would make some deals more palatable. If you if you were the guy, or the woman that could could just come back in and say, Look, alright, it didn't go, it didn't go as planned. Let me see if I can fix it. And I'll do it. Yeah.

Heather Endresen  41:03
Yeah, I think it just was really good communication with the new buyer, that is very possible.

Ed Mysogland  41:09
All right, well, I want to be sensitive to your time, because you were generous with that. So I want to talk about Pfizer for a minute. And, you know, as I, as I've come to know, to know, you, I mean, clearly you're, you're you're competent, but I guess I want to know, what, what brought you out on your own, you know, what, what makes you different our, you know, being my age and having to what I've seen, you know, I'm in a unique position, and I think I see the same unique position you are, and so I want to talk about visor, so fire away, let tell me about about it, how you got into it, what you're gonna do with it, and how we can work with you? Well,

Heather Endresen  41:54
thank you for asking I, I have been a banker for over three years working at no four banks directly. And I realized something. And that is when I'm representing just one bank, I can only represent one point of view. And that really limits you know, the types of deals I might be able to do or the types of situations I might be able to assist with. And I see this small business acquisition market continuing to grow. And I don't think it's driven entirely by people retiring, the way it sort of got started maybe was that but I think where we are now is that there's enough liquidity, there's enough buyers, there's just a critical mass has been reached, that it's, we've we've made it possible to buy and sell businesses, you can sell a business, if you're younger, you don't have to wait till retirement you do, you could decide for a variety of reasons that you want to sell a business. So I think that's kind of just driving all of this growth. And I believe I can serve the whole community better if I can represent lots of lenders and lots of points of view for these deals.

Ed Mysogland  42:57
I got it. So the lender said, and that's that's always been a kind of a question is how do you select the the lenders, I mean, because all lenders aren't created equal, I can tell you in our community, I can tell you who's more conservative, you know, who who has the appetite for for, for what kind of deal? So I'm just curious to know, how do you select it? Or do you have a, you know, an RFP that goes out to all of them? Or is it hey, I know, just by virtue of who I am, and what I've done over the years, I know where, who the handful of people that this is going to appeal to a lot of is

Heather Endresen  43:35
that and a lot of it is just simply my years in the business and my network and just knowing I can pick up the phone, it's not even just that they'll have the appetite for it, but that they will give this deal the attention it deserves. They have the capacity for it right now. And they will be responsive and get it done, you know. So that's all part of kind of my, my own thought process. But I also keep a database. And I keep that populated with not just what they say they'll do but what they're actually doing and how they're changing, they do change. That's the only thing it gets harder to track because everything changes their credit appetite from time to time. And I also work with a partner company called Lumo, Stata. And they use the SBA Freedom of Information Act database for all kinds of really cool things with banks. And let's just say I get a deal in the landscaping industry. I will use their data to see who are the lenders who did the most landscaping deals. That's fine. Yeah. And then and then I know that those lenders understand that industry and sometimes that's the right bank to pick.

Ed Mysogland  44:37
Well the funny thing is, they're they are coming on the podcast here in a couple of weeks. So I didn't know that. Yeah, that's gonna be interesting because same kind of thing. I'm I totally I'm totally with you that this, this the landscape the buying and selling landscape is going to be so much more data driven. And who's Who's the right tool for the for the job? And yeah, I'm really stoked to know that you're partnered with, that's a great organization, or I've heard nothing but great things about.

Heather Endresen  45:11
They're awesome. And data is awesome. The more we have actual facts, you know, to backup, what we're doing is just

Ed Mysogland  45:18
super helpful. All right, now for the hard part of the interview. So crystal ball. All right, tell me tell me this time next year, what do we what do we have going on with the SBA? And I won't hold you to this. This year, you're on the internet, you can say, Hey, you want?

Heather Endresen  45:36
Exactly. You know, what is it going to be like a year from now? I think that we've just seen a very big rule change. So I think a year from now, we're going to see how that plays out. In terms of what situations will the banks use that in? When will they allow rollover equity? And how much? We don't know yet. So a year from now, we might have the answer to that, like which banks are comfortable with these new rules and are applying it to different situations? Is it opening the door? Like I said, for me, like maybe slowly buying into a business now that it's possible, maybe we'll see more of that where someone can buy 25% and by the other 25? You know, whatever it might be that makes sense for that particular deal? I think it'll mean more deals get done, because we have more options. Definitely. And I think that, you know, we'll have another, we'll have another year of credit performance to look at that data to see if there's, if the default rate ticked up a little bit, my guess is it will a little bit not not a lot, not dramatically, but rates are very high. And you know, defaults happen, even in good times, you know, because these are small companies and things happen. So I think it'll be up, it'll only be up a little bit. And I think everyone will kind of be one year better about how to do all of this safely.

Ed Mysogland  46:52
I agree. And you brought something up, as far as like the fractional interest buyouts from a valuation standpoint. Oh, my gosh, I, you know, with discounts and premiums for fractional interest, I'm sitting here going, Oh, my gosh, how are they ever going to calculate that, and if I'm a minority shareholder, who's going to govern? distributions. So as if I'm 75, and you're 25, I can control I can control this. And, and so I can control the distributions. And subsequently, I can control the repaint your repayment. So it'll be really interesting to see how that that part works. All right, you have any thoughts on that?

Heather Endresen  47:35
Well, I think I mean, one thought I do have, and that is, you know, I think with some of these situations, whether it's third party investors, or the seller rolling some equity, I think one of the solutions might be using like a, a controller type service, the ones that host your QuickBooks, and having everybody have visibility day to day into the books, so that there's better monitoring, you know, create some dashboards so they can look at it on their phone and make sure that their investment is is being handled or their loan or whatever is going okay.

Ed Mysogland  48:10
I back to the crystal ball. So, election year, we always know everybody has big promises. So yep, anything for the I guess that would be 25. Any, any revelations there?

Heather Endresen  48:25
You know, I, I've been pleasantly surprised that regardless of which party is in is in power, the SBA has been pretty well supported it, there was a time way back when that wasn't necessarily the case, was not supportive, and one party was now they're both pretty supportive. And we've always been able to get good funding. So I think that there's a general consensus that this is good for the country and for the economy. So I don't think that election matters, except for one thing, that it's real difficulty every year end, if anybody talks about raising capital gains, even if they just talk about it, because remember, politicians talk about a lot of stuff that never actually happens. But every time that gets talked about, it puts it under a magnifying glass, and people get really worried that they need to close the deal, you know, before a certain date. So, you know, that I think that adds, it adds some urgency to some closings every time we get near an election cycle, because that that becomes a talking point, somewhere.

Ed Mysogland  49:26
Yep. And, and again, I, I'm with you, I think that I do believe that, that that same sentiment that you know, this, this whole wealth transfer thing, this is this is really these are taxable events. And if things are going well and you're in businesses or you've got a 2% default rate, you're able to aid subsequent generations or subsequent buyers that are a generation behind to buy these things. Oh my gosh, I mean, I I do I do foresee an easier way to get perhaps some community incentives, you know, some of the some of the tax breaks, I wish that would be a little bit easier for, for and faster for buyers to be able to say I can, I can immediately add value not only my buying this, but I'm picking up, pick whatever the the savings is. All right. All right, I asked this question from every, with every person I've ever had on the podcast. So what's the one piece of advice that you would give to business owners that would have the most immediate impact or the most immediate impact or the biggest impact on their business when they go to sell?

Heather Endresen  50:46
Well, that's planning ahead. And that's not running too many personal expenses through the business before you're going to sell in those couple of years leading up to it, it gets the mix the numbers really messy, for lenders to get behind, if they're adding a lot of stuff back. And sometimes it's adding back things they can't really verify. So if you want to maximize the value of your business, that amount you're saving on taxes is probably less than the multiple you could get paid on the earnings. And I think I would just look at it that simple map that way. I know it's nice to not pay taxes, it's fun, or you know, but it's just from a shared value perspective. You're gonna get more out of not doing that as much.

Ed Mysogland  51:28
I go. What's the work can we get? Where can we find you?

Heather Endresen  51:34
I am I'm on Twitter as interested in Heather and I am on LinkedIn and I am I have a website called visor cap.net vi so ca p.net.

Ed Mysogland  51:45
Okay, and I will have all these links and everywhere to find you in the show notes. So, Heather, I am so glad to have visited with you. I've been looking forward to this and and yeah, it's been you certainly delivered everything I had hoped he would. So thanks for being on.

Heather Endresen  52:05
Oh, thanks for having me. It was fun.