Ep 320: Buy A $1M Biz With $25K Using SBA Finance with Beau Eckstein:

I've seen this time and time again, and rarely does dipping your toe in when you're buying a business work. Hi, I'm Jaryd Krause. I'm the host of the Buying Online Businesses podcast, and today I'm speaking with Beau Eckstein. He is a franchise and SBA loan expert. He's a business ownership coach and a seasoned investor with over 26 years of experience in lending, financing, and business acquisitions. As a host of the Investor Financing podcast, Bo has helped thousands of aspiring entrepreneurs secure funding.

He helps people navigate the complexity of SBA loans and find the perfect franchise or business, and an online business to own. Now, through his extensive network and deep industry expertise, he connects with business buyers with the right opportunities while guiding them through the financing process. His content spans podcasts, YouTube videos, live events, and webinars. He's generated millions of dollars in funded deals and empowered entrepreneurs to transition from employees to successful business owners.

Beau is such a great guy, he's passionate about helping people break free from that nine-to-five corporate gig and build lasting wealth and create their legacy. And that's what we talk about in this podcast is how does one who has maybe $25,000 or not much money buy a million-dollar business using an SBA loan? And what are the options? What's the risk of using an SBA loan? How does an SBA loan work? What are the interest rates, the repayments, how things are gonna change, and how much you can loan up to?

And what sort of businesses can you buy and the eligible for the SBA? We also talk about how you can pay little to not much money for the business with different creative ways, I believe it's better to put more money in the deal yourself and have less liability in financing, but there's a really good happy medium.

And we talk about the examples of like how much money you could make if you buy a million-dollar deal, 200K a year versus, and only putting 100K in versus, buying 100K business for cash, what that actually looks like and the massive differences in your wealth journey. We'll talk about how do you continue building wealth once you've bought a business using SBA?

What sort of businesses could young forwards that could build out your portfolio that just makes you far more wealth and gives you massive tax advantages as well. So we go through the ins and outs of SBA, who's eligible, what businesses and ARRA are not eligible, and how you can use this to build your wealth. If you're in the US and you're looking at buying a business, this is such a valuable podcast episode for you. Also, if you haven't got my DD framework, make sure you get that buyingonlinebusinesses.com forward slash free resources that takes the guesswork out of buying a business.

Enjoy the pod.

Beau, welcome to the Bob Podcast. Thank you for your time.

Great to be here. I'm excited.

Yeah, absolutely.

Now, buying a business, it's great you can do it if you've got cash, but what if you don't have cash? Financing is a great option, right? So, you've been helping people with SBA loans for many years now, right? How did you get into sort of, do you do finance brokering for acquisitions and for scaling businesses, or is it mostly just acquisitions?

So I do a little bit of everything. So my background rewind 27 years ago, got started in residential mortgage lending and did a lot of then fromthatre, got into the real estate investing, lending, commercial lending, which brought me to SBA lending, which I focus on that. Also have a company that helps people buy franchises, all sorts of franchises. So every day I'm talking to different people.

So for like the last eight years, I focused on SBA, and then sometimes I have to like tap into some alternative financing because sometimes it won't qualify for SBA for whatever reason. Many of your listeners are into online businesses like e-commerce and so forth. So, is it eligible for SBA financing? The answer is yes.

So when you're doing a business acquisition, what you have to look for is that we always underwrite the tax returns of the business you're buying. So we need three years. So right now you need 2021, 22, 23, and then end of the end-of-year profit and loss for 24 and a balance sheet from the seller. That's the first thing you want to grab once you build relationships with the seller.

And then you upload them to me and you say, Beau, I'm trying to buy this business for a million dollars and we review to make sure it cash flows. So, essentially, the business tax returns need to cover debt service on the new loan for the SBA. So let's say it's a million-dollar acquisition. We can finance up to $900,090. We can also build in working capital and equipment, and FF &E, whatever. So it's the best financing tool out there, period.

Although some businesses aren't showing cash flow and would not be eligible. The business must be domiciled in the United States. Unfortunately, guys, if you're out of the country, as long as the business is domiciled, you have to be a U S citizen or a permanent resident of the United States to be eligible. What we look for is we look for people with good credit, generally 680 or better, and a decent resume. Doesn't have to have exact industry experience. And then generally outside income that supports your outside debts. Right? Because other than that.

Now, sometimes people are like, hey, I just got laid off in tech. I want to buy an econ business. If you find a business has enough cash flow that you can pay yourself a salary and that covers all your outside expenses, that's fine. So there are always use cases. What I do is I'm like a middleman. I work with banks, credit unions, and non-bank SBA lenders that are PLPs, or preferred lenders for the program. When a deal comes in, I ask some questions, gather some intel.

And then ask for a few documents from them. Work through my lender network and essentially find the right lender, bank credit union. And generally I don't charge a fee because I could pay the referral fee. So you don't really have to sell my services. It's like, Hey, I'm going to get you a better deal, a faster deal. And I'm going to help you position the deal so it gets approved. So it's kind of an easy sell.

Yeah, people that don't work with you are kind of like, why would you like you're silly doing it yourself when you don't have to pay you to do the work, the bank will do that for you. And so it's a massive win, right?

It's crazy.

And then, every business is classified with what they call a NAICS code, the North American Industry Classification System of a business. So, assuming you acquired a business now and you're running for a couple of years, and let's say you found another online business, an econ business in the same NAICS code, you could take that down and get a hundred percent financing on the next, it's called a business expansion. You can also get working capital. We can also start businesses. Like if you had a startup idea, you can use startup financing with the SBA as well.

It's an unbelievable tool. So that's why I used to do all this other financing, but I enjoy this because it's more creative and you're, you know, I have a mission to help. It used to be 10,000 aspiring entrepreneurs become successful business owners, but I scratched it out and now it's 100,000.

And now I think by getting on your podcast, I'm going to help more people. So maybe it's not me personally helping them, but them listening to a podcast, going, wow, I didn't know about SBA. Now I can put a deal together. But yeah, it's an amazing industry.

And people out there are getting disgruntled working for a company that gives they no appreciation. They know they want to start their own business. And many times it's better to buy an existing business. Although sometimes starting a business makes sense, in a business acquisition, you're usually going into a cash-flowing business. So that's a good thing for people. They're like, Hey, how can I transition out of my W2 and live that laptop lifestyle? So that's the appeal, right? If you only own an online business, as long as it's domiciled here.

You could be surfing during the day, running the business that's domiciled in the U.S. that's perfectly fine.

Yeah, absolutely. It's a cheat code. Of course, there's a reason to start a starter business. I think the only people who should start a business are people who have a passion for a product or service that doesn't exist. And they want to be in that business for a minimum of 10 years. And they're not trying to chase cash straight away. If that's you, great. Like you're passionate about that product and that service.

If your literal goal is to just replace your wage, and it's only just about money. You're crazy not to just buy a business that's providing that, right? You can go shopping and buy a business and not use your own money. Like the example that you gave of a 90 % loan-to-value ratio on a million-dollar business. If you're buying a million-dollar business and you are doing 90%, obviously it's a 10 % deposit.

So it's a hundred thousand dollars. And then from there, a million dollars is going to be roughly earning about 300K a year, maybe a little bit more, maybe a little bit less, but let's just be on average, right? So 300K a year. And then you've got your 900K in financing, which is 90, if it's going to be a 10 % interest rate, sometimes I've seen that it can be up to 12%, but roughly it's between eight to 10 or 11 sometimes.

So yeah, it's based on Wall Street Journal Prime plus a margin. So the highest the margin could be is three. It's prime at seven and a half, but most of the time you're seeing. Think of the deal itself, you're seeing a two to 2.5 % margin.

So seven and a half plus two and a half is your fully annexed rate, and adjust with Wall Street Journal prime. So that could be adjusted quarterly. There are sometimes fixed-rate options, 10 10-year terms, and no prepayment penalty. I wanted to call a timeout cause I wanted to, as you were bringing that up, here's a good point that we talked about. Let's just say, let's go back to that million-dollar deal.

You need a hundred grand. Well, you can get the seller to finance up to seven and a half percent of that. It's called seller carry back on full standby. So you can close on that business with two and a half percent out of pocket. So, 25 grand or the other thing you can do.

You said 7.5%. Do you mean they'll sell a finance 75 % of that?

Let me do the capital stack here. $900,000 loan. Yeah. Seller carries back on full standby $75,000. You come in with 25 grand to close, or let me just do option B. The Seller doesn't want to finance anything. I go, Hey, look, you need to have a little bit of leftover in the bank that the bank's like, okay, this guy's not putting his last penny in the deal. I could bring in a partner and say, Look, partner, I'm going to give you 15 % of the business.

You don't have to guarantee the loan. And they bring in the hundred grand in close, and they own 15 % of the business. We do structures like that all the time. So you can be extremely creative. You can get gift money too. There are other ways of wrangling the money, but overall.

The deal has to make sense, right? Like, it can't be like you have no credit experience, like there's nothing on your credit report.

You've got to have a credit at least, and then you've got to have a business that's eligible, right? Like, eligible means not just domiciled in the States, but a business that is going to be able to repay the loan and also pay you a wage.

You got it.

Yeah. So let's talk about what we're talking about, like the capital stack. Just for example, do, uh, somebody puts a hundred K of their cash in. And if not, you've got a million-dollar business making 300 K a year in net profit, just on average, could be a little bit more, could be less. Let's just stick with averages here. And then you've got a 10%. Let's say that the interest rate is 10%. So you've got a 900 K loan at 10 % with 90 K. So that's your repayments per year. And then you've got your 300 K. So you take your 90K off your 300K, right?

And you left with your 210,000. No,w for $100,000, you can buy yourself a $200,000 wage per year, right? For a business that is doing might take you five to 10 hours a week to run, which is a great wage to jump into if you can wrangle up that $100,000 or if you can get maybe a couple of people, friends and family to get the $100,000 together for you or with you.

And then you pay them. Maybe you have your sort of financing structure to repay them. Or like you said, if you can get maybe 50 cello finance for that deposit, you put 50K up. It's a pretty fast way to replace your income, and I'm not going to say little to no cash because I mean, to come up with 50 to 100K can be difficult depending on who you are, but it's a pretty great strategy, right?

Now, the biggest thing is that the business needs to be eligible. So outside of a US domiciled business and then also a business that just makes profit, what are some other things that can rule that business out from being eligible?

And we're assuming the cash flow is good. Yeah, we're assuming the cash flow is good from underwriting off tax returns. That's fine. It's got to be eligible. So it couldn't be anything in the cannabis industry. Certain industries are not eligible, no money type of businesses like money lending businesses, obviously, but that's not going to be an e-commerce business. Nothing that's got any religious denomination.

They don't want anything that's for like Christian or Jewish entrepreneurs or whatever. Can't have any religious domination. Like so, you can't fund a catholic school or something like that. But for an online business, that's generally really what, like, as long as it's not one of those uses, there are not too many ineligible uses of the business.

And then one thing I'll bring up is if the loan amount's over 500,000 and there's a collateral shortfall, which there will be a collateral shortfall because there's no collateral, maybe there's inventory, but it's like pennies, we give you pennies on the dollar. So, if you did own a primary residence and the loan amount is over 500,000, SBI SBAA guidelines require us to look for additional collateral.

So, if you own a primary residence, they could put a second lien on that if the loan amount is over $500,000. It's a requirement to look for it. If you don't have it, we can still do the deal. You almost get penalized if you have collateral. We can do air. A lot of people think you need collateral.

It's not true. It's just, they have to look for it if the loan amount's over $500,000. But we've done four or five million, what we call airball deals, meaning there's no collateral. So some banks don't like it, but others do.

That's my specialty is figuring out which bank will do what. Cause I've taken, sometimes it takes me three or four attempts with a bank. If a deal has got some hair on it, there's always a way to figure it out. That's what I found out. Most of the time, there's always a way to structure it.

Let's, I would love to hear some examples of some creative ways you've been able to structure it with somebody that's like the SBA said, either said no to, or you either need more money than just the five to eight million for SBA or five million for SBA, seven A, I think it is. What are some other creative options for people?

Sure. So a lot of times people are trying to buy businesses for eight or nine million or 10 million. So what we do is we do an SBA 7A up to five million. That's the most you can have in aggregate. You can have multiple loans up to five million. Although there's a 504 for real estate, we're not going to talk about that, where I could do $20 million deals. Some of the banks I work with in the liners, they'll do what's called pair pursuits.

So I could do a $5 million 7A with up to two and a half million dollars of conventional loan paired together. So I actually can get higher proceeds. And then we do some seller carry options so we can, like, we're able to finagle a bigger transaction that way if the deal pencils out,t like, it's an e-comm manufacturing type of business or whatever it is. And it's a $9 million acquisition.

And I might do 5 million plus a two-and-a-half-million-dollar conventional pair of deals. So that's a pretty cool thing. Cause I will mention this. Look, the $5 million has been in place since 2010. It's about time they're going to raise it. So it's going to open up those businesses that are too small for kind of private equity, but a bit too big for SBA, it's going to open up the playing field.

I think within the next 12 or 24 months, we'll see seven and a half to $10 million move that limit to that amount. That's what's cool about that interest rates coming down to be able to do that to increase that. Sensee as interest rates start to come down,n to be able to increase that credit limit for the SBA 7A.

Yeah, hopefully. Mean, the Wall Street Journal prime floats. Mean, three years ago was at four something, and now it went up to eight and a half. Now it's down to seven and a half. And so yeah, I hope they drive it back down because it's going to open up a lot of opportunities for people.

Yeah, absolutely. Now, you've got a personal, let's just talk about the personal guarantee on an SBA loan. Like what people's biggest fears are around that, and how do you explain that to them?

So everybody's asked that question. What do I, it's a loan to my business. Do I have to sign a guarantee? And the answer is yes. Anybody that owns 20 % or more of the business needs to sign a guarantee. And what does that mean? It means don't default because they could come after you for deficiency judgment.

And if you default on government-guaranteed debt, then you'll never get as far as right now, you'll never be able to be eligible for future government-guaranteed debt. So like anything, but if you get a personal credit card, you're signing a personal guarantee. sign personal guarantees for almost every type of load out there.

So it's no different, but I would recommend that I give you ideas on how to get leverage into a deal with very little out of pocket, but you should be pretty confident in that deal. Think one of the nice things about going SBA, it's going to get it right from a standard of how banks look at deals. So at least it meets the debt service, as it likes, because oftentimes people send me like these pro formas. And then when we compare them to the tax returns, it looks nothing like it.

And people have bought deals, just never looking at the tax returns of what's reported, how much does salaries the owner's salary is. It's a kind of a, a protection I think is to look if it's eligible from an SBA standpoint, from a debt service standpoint. Butt yeah, to answer your question, you're signing a guarantee. So you gotta be careful. It's real.

Yeah, it's real. Like that's why you want to have somebody on your side, likemef as an advisor to help you find the right one, you know, do just understand like the value of it and the risks as well and what to do if those risks do happen. Typically, what I tell people is like, if you're going to buy, if you've go,t say a hundred thousand dollars, you could go buy a hundred thousand dollar business and make $30,000 a year. And you don't have the risk of like finance, but, do have the bigger risk, which is a smaller business.

A $100,000 business is 10 times smaller than a million business. 10 times less money, but 10 times more risk. Now that's very general, right? If they're very similar businesses. And when you have a larger business, say you're buying a million-dollar business, you're getting 300 K. So,o say after repayments, you've got 200K there and you want to use that as a wage. Great. You can still pay yourself a wage, but say something happens with the business.

You've got $200,000 a year to be able to reassess, to be able to fix and throw money at problems. You've got some great resources there. 17K a month, you can make some fast changes in a couple of months if something happens within the business. But if you're getting $30,000 a year from a 100K business and the risk is higher for a smaller business, which it is, right? Something smaller is subject to a lot more risk, just in general principles in life, then you've also got only 30, what are you getting?

About $2,700 a month to try and resolve an issue compared to 17 grand a month. I believe that yes, you're signing a personal guarantee, but I've seen that through my experience of helping so many people buy businesses under the $500,000 range and then in the seven figure plus range, the people that doing it at a larger scale are the ones that making their lives so much easier and move so much faster with less stress and pressure.

Are you helping people source deals, too? Are you helping them uncover opportunities?

Absolutely. So,o as a buy-side advisor, people come to me and I sort of ask how much money they have. And then I put them towards somebody like yourself, Bo. There are a bunch of other finance brokers and stuff like that. It's great to know that you don't charge a fee. Other people do, and then work out what your borrowing capacity is.

And then I build out an acquisition strategy. And thee, I go and source the deal either off market, sometimes they're on market. And then I'll run due diligence, offer structures, negotiate, and then help close the deal. That's the seven-figure plus businesses under that range, people, it's only worth my feet.

But the same thing with that is like when people are buying a business using an, say a seven figure business using SBA, what's beautiful about SBA, and I'd like to hear your take on this, is that your advisor fees can be taken out of your deposit and covered by the SBA loan and also your legal fees as well. So,o for example, say your legal fees on a million-dollar business, let's just say they're 10 grand, right?

You got a hundred K deposit. If you pay 10 grand to your lawyer and you've got a receipt for that, you can put 90 K into the deal instead of the hundred K plus your 10 K in legal fees. And it's the same with your advisory fees as well. I'd love to know where I poke holes at that for me, Bo. And where did I get that wrong? And is there anything else?

You're a hundred percent correct. As long as they paper trail it, that's part of the equity, considered part of the equity, equity injection considered part of the total project costs, as we base our loan on that. We can also build in a working captain. Yeah. Let's just say it's more of a seasonal online business or whatever, and they need, you know, they're closing during this low part of the season. Let's take in working capital. So most businesses fail because they don't think through those things.

Like all of a sudden, they're like so excited to acquire and then like, well, now there's a little bit of a learning curve, right? Like anytime you take over a business, you spend a little bit more time upfront, and then you get it running. And that's what you do. You help them find it and transition into ownership.

And there are so many people out there. Every day, I'm talking to people looking for businesses. So it's great to know what you do. Cause I probably have some people that I can roll your way that need your help. Like pretty much everybody needs your help because until you've done it one time, it's like, there's a lot of what ifs, right? And like having somebody experienced.

It's all about experience to get the deal done. Cause you're going the wrong way, like, you're never going to get it done. Most of the people I talk to, too, it's funny. It's like, they'll call me like two years ago, and like they, Hey, I want to do a business acquisition. They don't even know how to find a business or to buy. And it's like, they never do it. So like, make sense. What I've realized is you want to work with people who are good at what they do, and they can help you.

And like, once you realize that and like it costs money. Well, yeah, it does, but you also will acquire a business sooner rather than later. And what's the cost of you never acquiring a business, which would probably be the outcome if you try to do it yourself, because it's a lot of work, and it's hard to get to the finish line, and have somebody that you can?

The financials and understand the mechanisms of the business. Right. Cause like, I believe everybody should own some sort of business, whether it's a vending business or it's an economics business. Like me, like you're living the dream. You live in a beach town, right? And you surf.

During the day, but yeah, you run a successful business. That's what people are looking to do. People don't want to be stuck somewhere and never be able to travel. Right? Like what if you could bring your laptop and you could run this business anywhere, and you have all the systems in place, to me, that's the way to live your life. It's not about like, I need to be a multimillionaire.

No, it's more like a lifestyle business. Like, what are you making with the least amount of hours worked per week? Uh, and with steady recurring revenue that comes in without too much legwork, right? Like I'd much rather a lifestyle business where I'm netting 17 grand a month with five or 10 hours a week, than putting in 30 or 50 or 60 hours a week, making 20 grand more per month. Doesn't make sense because you're, you know, you get old and then you haven't lived your life.

So I love the fact that how you're helping these aspiring entrepreneurs, cause there's a lot of people out there like will never, they would never take action. Probably like when they listen to your podcast, they're like, wow, I'm motivated now, and you're giving them actionable advice, right? And then some of them will reach out and say, Hey, I'm ready to move forward and hire you to help me get to the finish line.

Yeah, I'm so with you. It's like, definitely,y I could make more money. You could probably make more money and by us working more, like, is it worth it? Time is so much more valuable than money. Like I'm all about spending more time helping people sort of get that, replace their income, so they can spend more time doing what they love with the people they love. That's really like the most valuable thing is experiences with people you love, in my opinion.

And you can do that with dollars and maybe $50,000 or $25,000, like we mentioned in these examples. And does it cost money? Yeah, of course. You might have to pay 10 grand for a lawyer. You might have to pay my fee as well. The reality is, though, when you do it and you pay for professional help, that professional help pays for itself. For example, when I buy a property, am I going to go and try and beat somebody who's got two decades of experience in buying a commercial property?

Or am I going to pay them 20 grand or 1% of the deal, right? Or what, at 5%, 10 % of the deal, whatever it is. Of course, I'm going to pay the money because they're going to be able to find something that's probably off market or something that's on the market, good, but they've got a reputation. So, other sellers and brokers want to sell to them. And then they know how to negotiate to bring the price down to a point that their fee is covered in the negotiation anyway.

And then you've also got like, why would you not just like this is what this is all about, is us referring people to create what they do in the whole transaction. Here are the lawyers that I like to use. Here's Bo, whom I like to use for you to get financing. And it's just a smarter option when you're using the right people. And yes, it's going to cost money, but that money is an investment. It's a, you know, everything you do costs money, but sometimes you make bad investments like liabilities versus assets, right?

Totally. Yeah. Think, and also, people are more committed when they put money into something, right? Like I found that out in my other business. Help people buy, invest in franchises, and like a lot of them are just putting their toe in the water, right? They're not committed to the process. So I'm starting to charge people to go through my kind of coaching program because it's like, like, look, we're all busy and we all have limited time and we're not working. We want to go surfing. I don't surf, but one day I will.

And so like, yeah, that's what I've learned. Mean, this year alone, like I always reinvest back in myself. Like if I want to learn something, I pay for the best person in the world or the best person I can find that I resonate with to teach me how to do that. If I want to learn how to throw a webinar the right way, I'm going to find a webinar person, right? And pay them a lot of money. I've this year alone, I was calculating, I'm going to spend like 60 or $70,000 on courses and coaches. But what's your ROI, right? And the same thing.

What, what is your, what is the real cost of doing stuff? When you find, when I used to do a lot of real estate deals, and I would buy from wholesalers, right? They get the property under contract, and then they assign the contract to you. Sometimes I pay these guys 20 or 30 grand, and I'd be like, all they did is get it under contract. But you know what? When I flipped that house and I made a hundred grand, was it worth it? Cause I wouldn't have had that deal. And so people don't think about that. They all find a deal. Know how to, you know, they don't know what they're doing, and they don't know where to.

Everybody wants to own a business, but nobody can figure out where to get the deal flow and find deals that pencil out, right? That's the whole magic of what you're doing, which is cool.

Yeah. The scary thing is like, okay, cool. I can go get finance. They speak to you, and they go and look for a business and they buy one or buy themselves and they've never bought an online business before. Like, that's just the silliest thing you could do. But we don't want to sell ourselves and our services. It's mostly about the process. It's like, if it's not me, use somebody else. I want to move on from that and give more examples.

Lending and building out a portfolio of businesses. So once somebody buys, for example, a million-dollar business, it's an e-commerce brand, it's a good sales distribution for, say, surfboards, right? And then they say, okay, this business is doing well after three years, they may have paid more of the loan down if there's no prepayment penalty on the SBA.

And they think, all right, how do I now cut costs in this business or buy out my biggest expenses to build a cheaper portfolio of businesses? For example, maybe it's costing me 15 grand a month for my own or 10 grand a month for my digital marketing agency, or maybe it's costing me X amount for my products from the manufacturers.

Can I raise money with my primary business now, my e-commerce sales distribution, and use SBA or another lending source to acquire the manufacturer or to acquire the digital agency to cut my costs there, and then merge them or run them in parallel?

Yes. So yeah, let's just look at the, yeah, let's just look at like a, where outsourcing your digital agency work and then you wanted to bring on people internally and hire the people, and you needed some work in capital. Say that was $300,000.

Or just buy the digital agency, like say, the digital agency. Like, you could just buy the whole digital agency with all of its clients, and it could run the marketing for your business for free, but you have the digital agency, and you own the sales distribution.

And then you can buy moree and then eventually buy more e-commerce businesses and use that digital agency to run, to auto grow those other businesses you purchase. But say the second purchase is the digital agency. Like what do we need to do for financing to be able to do that?

Same thing. We're going to look at the tax returns of that business. It's a different NAICS code. If you were buying another manufacturer in the surfboard industry or whatever it was, we could do a hundred percent financing, assuming it made sense. On this, it would just be like a different business acquisition because it's a NAICS code.

So we could do 90 % financing, and it would be an easy sell because it's like, look, we're already paying them 20 grand a month or 10 grand a month. We're becoming vertically integrated with our businesses, which makes a lot of sense. And now you control that. And then now you have a network of people that you're going to do business with, a nd it's already that's another cash flowing asset. So I like the idea of owning vertically integrated businesses together.

Eventually, maybe you merge it underneath the umbrella, but generally, yeah, I mean, like you can get, or for example, if you just want to hire, like build out your digital agency, you could just get, could get, go out and get a working capital SBA loan. And they just rolled out another, a new pilot program, to provide a little insight into SBA financing. The day the loan closes, it's generally like 80-ish percent of these banks sell off the guaranteed portion of the loan.

See, the banks make a lot of money selling off the guaranteed portion. Very lucrative on the SBA 7A. So that's why a lot of them don't like working capital because they don't disperse all the money at once. But now with this new working capital program, we're going to see a lot bigger working capital loans coming into play, which will help everybody.

But yeah, you could do the working capital way. Could do an acquisition strategy. Like you're just by the business you're working with, which is great. I like that vertically integrated. Then like, and then we're saying it's a surfboard manufacturing.

Let's just say you're the economic business that sells surfboards, and now you buy the manufacturer that's manufacturing them. Yeah, you can do that. It's a, know, we'd have to see if we could get the same NAICS code to justify an expansion, or would it be treated as a separate purchase? There could be some differences there.

But generally, you're probably going to get 90 % financing as well, maybe 100%.

Cool, okay, so I want to talk about how it works if you can get 100 % financing, and then also how it works if you're gonna acquire it using working capital? Is it you work out how much working capital you would need for the first few months or weeks and use that as deposit or like, yeah, what are those two examples of like maybe being able to do it 100 % or is there a way to use it through working capital and then is there a third way that might be, a third example that might be…

Can you use the business as a SPV, special purpose vehicle, and sort of use that as collateral to not need to have a deposit to get lending?

So, typically, if it's the same NAICS code, we could do a hundred percent expansion financing after we have two years in business. The NAICS code is a North American classification. So, like when you set up an LLC, it's like, what is your NAICS code?

And you say I'm a logistics company or whatever. It's a classification, how they classify businesses. So, assuming, like if you own a hotel, you're classified as whatever that NAICS code is for that. So, if it's like a high NAICS code acquisition, that would be considered an expansion. If not, it's not.

What's the next code?

Generally considered an expansion. What I would probably do strategically is say we had a $900,000 aggregate SBA loan. I have now run the business under, I've acquired it. I've run it for two years. It's growing. It's profitable. I'd probably go back to the, I would probably go get a couple hundred thousand dollars working capital loan, just to have more operational capital. And then I would probably look for a third SBA loan that would do the acquisition of this digital agency.

And then I would have liked, maybe some of that money gets lent to the other acquisition arm, or you'd figure out how to source the money appropriately. Right. But on that acquisition, since it's a digital agency, it has a different NAICS code. I would have to see if we could get it as an expansion. There might be a way to classify it as an expansion. Typically, it's not, but I could see that if you bring it under the same umbrella, a possibility.

But if not, you're still getting 90 % leverage, assuming that business cash flows, and we can always get the seller to carry back because it's very common for a seller to carry it back a little bit. And some banks are comfortable with a carry back of seven and a half percent of the 10 % required down payment.

So if you're requiring that business for a million, that's only 25 grand, right? And we have working capital from an SBA loan anyway. I mean, you could be super creative. Like, and then you just keep going and going and going.

At some point, you tap out at the 5 million. That's why I'm saying if we can, if they now bump that up to seven and a half or 10 million, you have a lot of runway. And then over time, another tip you could do now that you own this surfboard manufacturing business. Well, now you use the SBA 504 loan program. You can use something called the SBA 504 green. You buy the building where the surfboard manufacturers in. Onee thing you'll need as you grow is you need tax write-offs.

So you buy this building, now we can get on a 504 loan. Can get 90 % financing generally. But if you do it as a 504 green, even if I had $5 million of SBA aggregate, it doesn't matter. So then I can go buy a 10 million or 12 million dollar building. And then why I'm telling you that is because once you start making a ton of money, what happens, you pay a ton of taxes. So if you buy a commercial building and it's for your business is active, you can do what's called a cost segregation, accelerate the depreciation. Cause we depreciate real estate.

And you could offset some of that earned income, right? So, as you're building your business, we want to create some wealth creation vehicles for you. And a lot of that is tax strategy. I'm not a CPA, by the way, but I can refer you to one. And because at the end of the day, it's not how much money you make is what you keep.

And then you also want to build more assets. So now you own the digital marketing agency. You now own the surfboard manufacturing company, a nd you own the building. And now you have a lot of tax write-offs. So now you're building kind of a monopoly money, right? And that's what, think about what we want to do, but we need a starting point. And remember, we just started a $ 1 million acquisition with 50 grand out of pocket, or 25. We can help anybody with the right team. That's the beauty of this.

Yeah, it is about the starting point. You said, 's because once you get started and you've got the businesses working well after a couple of years, you've got money to, and you've got options to buy something else, expand, whatever it is. Like it's like, everybody knows the more money you have, the easier the money makes money. So yeah, Beau, it's been so good to chat to you. Thanks so much for coming on. People are going to be so excited to get in touch with you now. Where can we send them to reach out?

Sure, just go to my calendar, it's booked with Bo. That's book with Bo, B-E-A-U, B-E-A-U dot com, bookwithbo.com. Goes right to my calendar, and we meet on Zoom, and we're just like, what are you looking to do? If they're obviously if they're looking for a business, they contact you because that's a big part of it, right? They need to maybe learn about your ecosystem, but once you're ready to talk about financing, I'm happy to dive into it there. That's the best way to get hold of me.

Yeah, I love that. Normally, what I'll do is I'll speak to people, ask them what they've got in terms of capital to contribute towards an acquisition. And then I'll refer them to you, work out what your borrowing capacity is, how much you can finance, and then we'll go back and build out an acquisition strategy.

So we all work in unison. I do this with multiple great finance brokers like yourself, Bo. And yeah, really appreciate you coming on and sharing the examples, and people are going to be ready to move, I think. So great work. Thanks.

Thank you, it's been a pleasure.

Thanks for listening, and reach out if you need. I'll see you at the next one.