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Manage to Exit is a PMI Acquisitions Team podcast sharing practical playbooks for buying, building, and preparing your property management businesses for successful exits.
if you aren't already
doing seven figures in revenue
with your business,
you have room to grow Yes.
Yeah. grow
in your immediate market.
I mean,
even if it's an hour away,
we want you to be in your market
to where you are accessible,
to what you're buying.
Hey everyone.
Welcome back to the Manage
to Exit podcast.
My name is Aaron
Mcelhenny. Again.
We've got Hunter Goodall
from the PMI squad and we've
got a special guest this week.
We've got Jordan Coleman
from Live Oak Bank.
that took us a little bit
a little while to get started
today.
We're we've been like
sitting here for ten, 15
minutes, just, pre-game in
for this for this podcast.
But welcome. Jordan.
How are you?
I'm excited.
I feel like we had a lot of,
conversations
on our, on our pregame,
conversation here, but,
the Yeah, absolutely.
And, Hunter, I know you're
joining us from Arizona,
so we're all kind of scattered
today.
We got one.
And I'm out here in Utah.
Turns out in Wilmington, North
Carolina, hunters in Arizona.
So we've got yeah, we got three
different time zones.
We're in to the.
but yeah, just the the whole
goal of this whole meeting
was to get on a podcast chat
a little bit about Live Oak,
get to know Jordan a little bit
too, and, talk acquisitions.
Obviously that's what we do.
Hunter and I on the PMI side,
purely a resource
for property management,
business acquisitions.
And Jordan, you've
got some focus in this too.
But but yeah, we could dive
in a little bit today and,
and share a whole bunch.
But but yeah, Hunter,
I know that you and I
talked a little bit about,
Live Oak and some of the deals
that we were working on, and,
just kind of
want to start it off.
Let's throw some ideas out and
and get the conversation.
Go on to the.
Yeah.
I, it was really interesting
that,
I was talking
to a friend of mine that he
he went through
a business acquisition
up in Utah, and I was like,
oh, okay.
Tell me about your experience.
And he told me he was like,
yeah.
We went through Live
Oak for our SBA loan.
And he's like, I highly,
highly recommend Live Oak.
And I was like,
oh, okay, interesting.
And I swear it was the next day.
He didn't set this up,
by the way, but I had a message
from Jordan like,
hey, I'm with Live Oak Bank.
We do a lot of,
you know, SBA loans for property
management companies.
We'd love to talk with you.
And I was like,
all right, perfect.
So yeah, we
we got on a on a call and,
tell us a little bit
about Live Oak.
Like, you guys are a big player
in the SBA space.
Like, talk to us about that.
So, we are the number
one SBA lender in in the space.
So we started in 2008.
So we've been doing SBA loans
for a very, very long time.
You know,
we strategically I say we,
the founder of Live Oak Bank,
really strategically put
a process in place for Live Oak,
by combining industry
expertise, technology
and kind of our key
thing is a really,
really strong commitment
to customer service.
We want to look at any
of our borrowers
or any of, our relationships,
as a partnership.
And, you know,
we want to make sure that
we are extremely transparent
and we've got
a very strong commitment
to what
we're looking to do in service.
So because
we are one of the largest,
if not the largest SBA lender
in the country,
we are a preferred lender.
And so what that means on
the SBA side is
even though this is an SBA loan
and buyers are able to benefit
from an SBA loan product,
we really are able
to cut out the SBA.
So we never go through the SBA
to get anything done.
And we service the loan.
We underwrite the loan.
We, do everything
really internally.
So the speed in the process
is still just as quick
as a typical conventional loan,
other than we're abiding by
SBA guidelines.
And then the
the last kind of unique thing
that I'll mention about live
Oak is that we are not
geographically focused,
like a lot of banks
and a lot of local lenders.
We are industry focused.
So we build out
teams in industries that we feel
are a little underserved
from a financing perspective.
Yeah,
they're really strong margins,
really strong businesses.
And we build around
that industry.
And that's
where I kind of came across you
on LinkedIn and found you
and wanted to connect that way.
Just with your focus at PMI
and, Live
Oaks focused in the property
management industry.
Wanted to just connect
and see if there's
a good partnership for,
you know, property management
companies out there.
Yeah, it's
it's kind of interesting
how you put that,
because I don't know if a lot of
people know how SBA works.
The SBA is not the one
giving money.
It's the bank that gives money.
They're the ones landing on the
the loan, the SBA
just insuring it for the bank,
right.
correct.
And that's where, you know,
you essentially could do
an unsecured business loan
because the SBA is guaranteeing
and backing up
75% of the loan
that the bank has lent.
Assuming that all,
you know,
SBA guidelines were met,
if the loan were to ever go
into default.
So the SBA is really
just a product that,
you know, makes any deals
a little bit
less risky
from a banking perspective.
So it's it's not really,
like you said, SBA's money.
It's not the government's money,
it's the bank's money
that we're funding.
We are just making
the transaction less risky
for all parties,
because we've got a 75%
guarantee
backed by the government.
Yeah.
That industry specific piece
is super interesting too,
because I think, Hunter,
you and I both have worked
with lenders that we've had
to start the conversation
with pitching the industry.
And so you guys must have seen
just an overwhelming need.
I'm assuming here
I don't know, just in our space,
our property management space.
Like when did that department
really form from Live Oak?
Yeah.
So we are a little newer,
meaning that we started
looking at property management
probably two years ago
to two and a half years ago,
is when we really kind of
first said, okay,
let's look into this industry.
Let's do some research.
Let's put some white paper
together
and see if it makes sense
on an industry perspective.
Look at the financing ratios.
And as we started to learn more
and more two years
ago, was really where we kind of
picked up on, okay, this,
you know, industry and trends
seem to be there
to profitable business.
Just doesn't seem like there's
a ton of education out there
that there are financing
opportunities other than,
you know, I'm
going to do a loan to value
or a headlock on my home,
or I'm going to do a seller note
where sometimes buyers
want to cut the seller
out of the picture
and own the business up
right at 100%.
And so other than going
to a local lender, who does,
you know, your personal loans,
you got a car loan,
you can do a headlock.
You don't really understand
what what you're talking about
or how to evaluate and look at a
property management business,
which again, is an unsecured
business loan.
You're Yeah.
management
agreements and door counts.
So it's it started
probably two and a half years
ago of the research,
and we really started
implementing the acquisition
and financing side
about two years ago.
Yeah, I think that lines up.
I was definitely seeing
more Live Oak.
And I know we had a number
of buyers that had been working
with you guys at some point.
And you know, for Hunter
and I like this is all we do.
And so we've kind of seen
that shift of,
new lenders
coming into the space, people
really getting comfortable
with property management,
but still not having, you know,
some of these groups
not having industry focus.
And so it's nice
that they don't need to start
that conversation at ground zero
when we talk to em.
And yeah,
there's different risks here
right as far as assets go.
But but yeah, let's dive
a little bit into into Live
Oak on, on SBA
and maybe some of the trends
that you've been seeing.
You know, obviously
Hunter and I
are happy to chime in too,
just with the increase
that we've seen, I'm kind of
assuming this is industry wide.
But, you know, maybe we can talk
about the last 12 months
or maybe even
just this year, like 2025.
How is it stacking up?
Are you seeing any trends
or noticing
any kind of deal size
increase or decrease?
Yeah, I mean, I would say
our average loan size
is anywhere between one 1.5
million from a loan perspective.
You know, a couple of trends
that we look for in the overall,
you know, business
itself, our door count,
we want to make sure that
there's not a loss and revenue
loss and door
counts on acquisition side.
I would say that
there's probably
a lot more buyers out there
that we've talked
to than sellers and buyers
saying, hey, I'm ready to buy,
I'm ready to grow,
but I can't find that right
business
in that right geographical area
that I'm looking for
to really be able to expand.
So we do a lot of kind of
pre-qualifying and conversations
on the front end
with buyers to get them ready
for that acquisition.
So I would say that
that's probably been the largest
trend for us is buyers
can't seem to find the exact
right business
to to want to purchase
or to be able to purchase
because it's just not
what they're looking for
or they just can't find any
in their area.
As of today. Total.
And we like to be kind of picky
to, you know, like
we're not necessarily
the buyers in the scenarios,
but our clients,
our franchisees are the buyers.
And in many cases,
we're looking at 3
or 5 different deals before
we're really encouraging them
to say, all right, now
this is the right fit,
let's go talk to the bank.
And so we do
we do
try to make that process easy
just so we're not bringing
every deal to the bank.
Like we want to be
super realistic.
But but yeah,
I think that critical element,
especially in the last few years
where I think
buyers and sellers both have,
I think, stepped up a little bit
like, like multiples of increase
since I've been doing this.
You know, nine years ago
we were buying businesses
for like 1 to 2 acts,
and it was amazing.
And we do 60 deals a year,
and now we're stepping into
that kind of 3 to 5 acts more,
more regularly.
Like the sweet sweet
deals are not out there.
They're still good deals.
But it's,
I think, even more important
now to be more critical,
you know, with these higher
multiples that we're seeing.
Yeah.
I mean, I think you need to do
quite a bit of due diligence
as a buyer to make sure
that it's the right fit for you.
Not every transaction in deal
is going to be the right fit
and really going to make sense
for you as a buyer,
so I would agree that due
diligence on the front end,
you know,
you may have to look at a couple
before
you get to
the one that you're like,
okay, this is where
I really want to buy.
And put my cash
and my effort into.
So just making sure that it is
that right transaction,
you know,
door account size, the location,
the purchase price,
what's their staffing look like?
The technology side.
But you know,
a lot of different factors
as buyers are looking for that
right business to purchase.
that kind of segues
into the changes from June 1st.
That just happened
because
as I was reading through this,
and you're probably
going to know more about this
than we are.
But as I was reading through it,
it seemed to me like what
you just touched on of like,
buyers need to be more picky
with what they go after.
And it seems like these June
1st changes
are designed to make people
a little bit more picky,
because we started
running into a lot of people
just buying businesses,
and it wasn't necessarily
like the best fit for them.
It wasn't the best deal.
And so,
you know, a lot of people,
I think are going to be running
into a little bit of a headwind
with,
you know, possible defaults
and things like that.
And so, you know, maybe,
maybe talk to us about June
1st changes
that happened with the, the SBA.
Yeah.
So what Hunter's referring to
is the the SBA has,
what they call
their Esop is their standard
operating procedures,
which you want to Google.
It can.
It's about 560 pages long.
And every now
and again, the SBA does
do some changes to their SAP
or their requirements
and their most recent changes
and updates.
Started and were effective
June 1st of 2025.
So the biggest change that
I see, and I think
the reason the SBA did this is,
you know, we
the SBA was a little bit
more strict on equity injection
in start ups and,
first time buyers.
And then Covid hit
and they started to get
a little bit
more lax on their rules
because of the small businesses
and kind of what was happening
with the economy.
And they have now kind of
reverted back to having,
a little bit more stricter rules
and guidelines in regards to,
again, equity injection,
start ups, U.S.
citizenship, to where I think
the, the largest impact
that I can see in this industry
will really be for first time
buyers, where
essentially equity injection,
there's a required 10%
equity injection requirement
on first time acquisitions,
which could be held on a seller
note in
the seller
could really kind of help,
alleviate buyers
having to bring cash
to the project to where
they're saying now, well, buyers
now have to bring in a minimum
of 5% of cash,
and sellers could hold 5%
on the seller note,
but it has to be on standby
for the life of that SBA loan.
So they
they've definitely made it a
little bit, stricter in regards
to what first time buyers can do
and bring to the table,
which I think is going back to
Hunter's comment of, you know,
the SBA is kind of almost
being a little bit pickier on
are you bringing
skin into the game?
What does this look like
for you?
You've got to have some
backing to, you know, mitigate
this default risk that you've
you've got
a little bit more to lose
because you put your house up
against collateral
to to put into the transaction.
So I think that that's probably
going to be the biggest impact.
Again,
that's for a first time buyer.
Obviously expansion
loans second, third, fourth
acquisitions could be up to 100%
financing through SBA.
But equity injection
was probably one of the biggest
impacts
that I could see that that
came into effect on June 1st.
Because it wasn't just
they had to bring their own cash
to the table now.
But if anybody puts cash
and even if the seller has cash
and does
the seller have to have
a personal guarantee
for the deal if they're kind of
carrying a note, there?
So the seller could hold up
to 5% on a seller note,
but it has to be on standby
for the life of the loan.
The other 5% has to come
from the buyer on cash, which,
you know, there's still ways to
to kind of get around.
That could be, you know,
you could have funds
gifted to you.
You had a family friend
or a member, or you could have
a minority investor
that is a U.S.
citizen, put in 5% cash
in exchange for 5%,
stock in the company.
Maybe in two years.
You look to buy that
individual out
and you don't have to put
cash down.
If you did have outside income,
that could support
that 5% cash.
So, for example, you had spouse
that could cover a
you lock payment.
You could look at doing
a headlock,
to kind of put in as your 5%.
But seller can hold 5%
on a seller note, but
it does have to be on standby
for the life of that SBA loan.
Yeah.
I mean, we've had some pushback
on that before,
just like I think some deals
that might make some sense to,
to do that.
But I'm just lucky
because Hunter provided
a summarized,
an I summarized version
of all these SBA changes
so I could yeah, you're quick to
I knew I wasn't going to be able
to go through however
hundreds, however
many hundreds of pages that was.
But but yeah, it hits.
And then on a few points
and I was thinking
about our buyer pool
and I'd say,
you know, the majority,
you know, 75% or more,
our existing industry buyers,
you know,
it might be their first
transaction, maybe half of them.
It's their first deal.
Many of them are going through
expansion products.
But,
I did think about the first time
buyers because we've had
just I'm thinking about
we've had two transactions
this year with operators
that entered within six months
and then bought
$1 million plus business,
through SBA and I was thinking,
hey, if that if that deal was
12 months later, would they have
had the same, you know, terms?
How could that have impacted
the deal?
And we're working on one
that's closing tomorrow.
Fingers crossed.
That, you know,
when outside of an SBA option
and that SBA was something
we were looking at at first
but decided not to,
but so we are seeing an increase
in first time buyers,
like historically.
If I look back at the last
few years, it's a lot of repeat
buyers
and existing industry people.
but yeah, it's just interesting
to track that data 100.
I think we probably need
to be more, like external
with that information
because we have a lot
we track all of our deals.
I think we've done
450 plus all property
management specific,
and we track all of that data
and we don't
we don't, highlight
that enough.
But I think you might have
some interesting
takes on kind of our history
to join. So.
Yeah.
We're we're kind of
in an interesting spot where,
you know, there's there's huge
wave of everybody that's,
entrepreneurship
through acquisition.
And just everyone
trying to capitalize
on the silver tsunami
and just buying businesses.
And, you know,
it's still a risky asset class
to buy a business,
even if you have a bank
like Live Oak, that's like, hey,
this deal is approved.
We could finance it.
It's still a matter of,
the operator and and I think
back again, why the SBA
is getting a little bit picky
with the loans that they're
they're doing for the June
1st changes
is because there's going to be
a lot of people
who are buying businesses that,
have never operated a business.
A lot of people are trying to do
that for the first time.
And I think that's
what separates PMI apart
is it's like we're helping
existing operators
buy businesses,
someone who's already operating
a, property management business
or even, as you mentioned,
we had some franchisees
that are brand new to this,
but they're not doing it alone.
They have the support
of a franchise
backing them to help them be
successful in this acquisition.
We're going
to help you buy this business,
but you have
this whole corporate office
to help make sure that you are
successful with this. Right.
And so I think that's that's
kind of what makes us unique
is we have so many hundreds
of property management
business owners
that are ready
to buy businesses,
and that's why I like
we're really excited
about getting connected
with Live Oak and with Jordan,
because you guys focus
on property management,
lending for acquisitions.
what is the SBA's
thoughts on franchises?
Yeah.
So I mean just like the banks
perspective
we we love franchises
because like you're saying
you're a support system
for business owners.
You know that's just kind of
one more extra layer of support
and backing
and mitigating the risk.
Obviously franchises
have their own internal,
you know, have to be on the
the SBA franchise
directory list.
But other than that,
I mean, it's it's a
it's a backing for buyers
and for business
owners to have a franchise
that knows what they're doing.
They're well-rounded.
They've got the team
and the support and staffing and
are able to kind of help them
not just grow and succeed,
but able to really help them
be profitable
on what they're trying to do
and listen to their goals
and their plans
and connect them
to the right people, to,
for that growth
or for whatever they may need.
So we, we love a franchise
backed deal, on an SBA loan.
Absolutely. Yeah,
I was thinking about that.
You know, Hunter,
you and I talked about this.
I mean, when we have something
under contract,
we have a weekly diligence call
with everyone involved,
and that could be five to 7
or 8 people.
And so the majority of that
being PMI corporate
team members, but also,
the PMI franchisee buyer.
And, when we tell people
that there's like,
you guys have a weekly diligence
call like,
yeah, we're
guiding that whole piece of it.
And so that's before it
even gets to the bank typically.
And so we're equally critical,
like these businesses
have to live within our system.
And at the end of the day,
like we need to support them.
And then also,
you know,
they're going to sell
that business
at some point. And,
and so we might bring another
buyer into that business.
And we've helped that franchisee
build a good business.
They did 5 or 6 deals with us.
And then they decided to retire
and exit sell like we're full
lifecycle of that person
that franchisee.
So it's just a different model.
And I it's hard to explain that
to some people that are
purely on the buy side.
There are some national groups
out there, obviously,
that do kind of what we do
without a franchise model.
but yeah, that's,
that's
interesting to hear about,
kind of how you guys
view franchises.
And I've seen that
over the years.
And I, I,
I just want to make sure that,
that we're doing
everything we need to do
from the franchisor level
to make sure that banks are
still, you know, confident and,
and in these franchises,
of course,
we're on that approved list
and have been for a long time.
But,
but yeah,
I think I think the majority
of our franchisees
still are existing
that are doing deals like
they're already in the space,
but that trend might be newer
franchisees coming in.
They're not so much interested
really in organic growth.
So while that's important that
they definitely want to jump in
and make that commitment
earlier on, where I think
historically
we would see people do
their first acquisition,
you know, maybe within the first
two years of opening.
And now there's definitely
an intent to say, oh,
hey, I'm
going to open up a shop in
Wilmington, North Carolina,
for example.
Perfect example.
We just opened an office there.
like their intent
is to buy something
within their first 12 months.
And so
they're actively hunting too.
So I think it is
trending a little bit that way.
And I'm hoping that SBA
is still a good option for them.
How are your, franchisees?
Like,
how are you guys finding the
the right businesses
for your franchisees to acquire?
Are they
the ones kind of out there
searching,
or do you guys kind of
connect sellers
and and your franchisees
together?
Yeah, it's
really a combination of those.
And you kind of dive into it.
But we do a lot of corporate,
marketing for acquisition lead
opportunities.
Kyler, our man over here, man,
that's Jerry.
He leads up
all of our marketing efforts,
and we really have just.
And I keep saying this date
because it's comical.
You probably know the numbers
better than I did,
but we really just
formally started marketing for
acquisitions this year in April.
So we
we did 400 plus deals
before we ever started
marketing for them.
And so I think
we're up over 100.
And how many leads
are we at so far since April,
140 or more leads us since then.
And so that's
a small amount of the deals.
Like Hunter,
you could talk a little bit more
about the local sourcing piece,
but yeah.
Yeah.
It's the best deals.
I tell our franchisees.
The best deals are really going
to come
from their relationships, right?
There's got to be a lot of trust
on both sides of the table
there to actually have a deal
get across the finish line.
So I tell people like you have
an opportunity that we don't
we know how to buy businesses.
Aaron and I and you know Jordan,
you know how to fund them, how
to get them across the
finish line in terms of like SBA
lending and things like that.
But the best deals are going
to come from them
going out and shaking hands.
Right.
That's seriously
the best deals are going to
come from
that is go introduce yourselves.
Aaron and I,
we just trained a week ago
on this
to a group of new franchisees,
but I was just listening to Cody
Sanchez's book,
and she said,
a really great line in there.
She said deals
go to the door knockers,
not the mouse clickers.
Right.
So Aaron and I with with
our guy in the chair, Kyler,
Yeah.
canvasing the whole country
because we have buyers
everywhere.
But the best deals are going
to come from them actually
going out and shaking hands.
And so I, we teach that
to a lot of our franchisees.
Mike, it does not hurt to have
a good relationship
with your competition,
like go meet the other owners,
because that's likely where
your deal is going to come from.
Besides that,
we do a lot of our own hunting.
So sometimes it's like, hey, we
we see who are our best buyers.
I'm going to target
a certain market
where we have
a handful of buyers,
and I'm going to just start
contacting these companies
and be like,
hey, if we had a buyer, would
you be interested in selling?
And, you know,
I get a lot of people that are
like, actually, yeah, you know,
so. And besides, more on that,
that I feel like
the smoothest transactions
are where buyers and sellers
have some type of relationship.
everyone is just kind of
a little bit more engaged.
And everyone knows
everybody from a
personal kind of standpoint,
even if it is your competitor.
but the networking side on
maybe you're going
and meeting someone today
with just no real intention,
but that may benefit you in 12
or 24 months.
You're you're kind of out there
networking even, again,
if it's with your competitor,
they may be ready to retire
in 24 months and are starting
to think about an exit strategy
and convenient timing that
you're running this business.
You're an independent
local individual
running the same business, and,
you know, you never know what
opportunity is going to come.
But the relationship between
a buyer and the seller, them
having that makes transactions
100 times smoother.
Not saying that
you can't do a transaction
without a relationship,
because we do that all the time,
but definitely there's there's
a pro to to really
getting yourself out there and,
and meeting these people in your
in your local network.
Totally. Like we.
Yeah,
we hit on that all the time.
And I think,
I think we're around 95% of our
transactions under that number.
You might I might be misquoting.
I think we're around
95% of our close
deals are off market deals.
And so a lot of that
is attributed to
those franchisees
that are out hunting.
And I think
just on like a national stage.
And maybe this is something
that we're still trying
to get over with,
with our marketing efforts,
like people assume sometimes
that they don't know PMI,
that where the buyers were like
this huge national company
and we're buying
all these companies,
and once we
actually talk to someone, it's,
oh, no, our guy, actually,
he operates down on he's
on Miller and seventh Street
like he's PMI.
So and so like
they might go to the same
Starbucks on Wednesday
and not know each other
like our buyer is like
in your community already.
And so when we get over that
hurdle like it's
it's really interesting.
Like the that changes.
That's
hey can you meet tomorrow.
It's not scheduling a flight.
It's hey
the guys down the street.
And so that's something
we keep having to get over.
But that local buyer element
like you never know when someone
wants
to sell or maybe needs to sell.
And Hunter
and I have dealt with that.
I'm sure you have to or hey,
there's a situation
in the seller.
Their plans have changed
for whatever reason, you know,
could be their health,
family member's health.
Something came up in their
lives. They need to sell.
And so we get calls
from people like that
just says, hey,
I know we spoke six months ago.
I know I told you I was 3
or 5 years away, but hey,
what can you guys do
for me in 3 to 4 months?
And you know,
we have some flexibility,
but that phone call
would have never happened
if we weren't
proactively outreaching.
And, you know,
putting our hand in there. So.
So we
we have an interesting chart
where we, we tracked
like all of our active deals
that we were working on
from just found discovery
valuation due diligence, closing
closed lost right.
And I separated them between off
market and public listings.
And it's like we had, you know,
5 or 6 deals in each stage.
And they were almost all off
market deals.
And then and close lost.
It was like huge chart.
It was like 100 plus
closed loss and
none of them were progressing
towards closing.
So it's like public
listings are really hard to win
because they're so competitive
and you're not getting
as a buyer,
you're not going to get
a good deal. Right.
But I'm curious, you guys do
a lot of property management,
like lending.
What do you see on that?
Like are most of the deals
public listings or are they off
market?
It's going to be more off
market.
I mean, it's going to be
the ones
that have a direct relationship
with one another.
Like you're saying,
all of these, deals
that you see on on Market one,
they're not going to cash flow.
They're asking for way too much.
Then what
the business can really support,
to there's probably going
to be $500,000 worth of seller
add backs that
we're going to look at and say,
this just doesn't seem to make
Yeah,
it's.
count them. putting a $20
gas bill from three years ago
into our cash flow.
And it's like you said,
it's extremely competitive.
And they go very quickly,
which as an independent buyer
that needs financing,
it's you just,
you know, unless you're a cash
buyer that can put $2 million up
on these market deals,
it's going to be extremely hard
for you to really be able
to win any type of bid
on, on kind of moving forward.
So we get a lot of inquiries
about, hey,
I saw this on this website.
Can you pre-qualify me?
You know,
and we could get somewhere close
to what they're asking for.
But it's it's the relationship
between, you know,
just even
if it's not a relationship
between buyer and seller, it's
you guys connecting a buyer.
And so there's
some type of connection
that is off market
to where it makes more sense.
And there's actual true
financial due diligence.
From the financing perspective,
that's kind of already
been completed.
That makes sense to, to be able
to lend to versus the off
market crazy seller, add back
discretionary earnings.
Yeah. We love that.
We like, constantly, you know,
are super critical of that
or like really 100% of
all of those are all at.
That's amazing.
You know, like that's
you know, that's unheard of.
You've done 50,000 of expenses.
That's it. It's. back.
Yeah.
You had a great six months
before you decided to sell,
you know. Yeah.
Well what
are some of the common add backs
as a bank that you're like,
no, that doesn't count.
Because when I look at it,
I'm like people.
They always try to add back
meals and travel and I'm like,
I'm not adding all that back.
And I don't think the bank will
either.
Like,
what are some of the common
add backs that you're like
now that doesn't count?
To me, anything less than like
$3,000 I'm not going to look at,
you know, sometimes
it's even 5000.
If I have to nickel and dime
to make a cash flow work,
it is not worth
what you're going
to be trying to pay for it.
So Yeah.
want to look at larger
add back expenses.
That truly makes sense.
Salaries, the payroll, the,
you know, maybe the technology,
maybe there was consulting
that truly makes sense
for a buyer versus this,
travel expense of a vehicle
from going to my home
to this place.
I'm not going to collect a gas
That is not going
to impact the value at all.
does, it's not worth
what they're asking for.
So we really try to be realistic
on our add backs.
And if,
if it's a small amount and again
we're nickel and diming the cash
flow,
it's not worth
putting it into the cash flow.
Yeah.
You should be confident
enough with those larger items.
And if there's other benefits
there, that's purely
for the buyer down the road.
But that's not for the deal.
Yeah.
It's
you'd be surprised
of what people will come up
with to try to add back
into their cash flow.
I'm sure you've seen maybe
more than we have with that.
But, but yeah.
And just that and I've seen,
you know, just these over
projected values
for year and finishes
and I'm just like,
I can't look at what you think
is going to be there
in six months.
Like,
I need to look at last year
and get really comfortable
with the last three years.
But yeah, I mean,
how do you guys view that too?
I'm just thinking about even
some of the roll up scenarios
that we're with, right,
where in some cases
we need the whole team
and we need the new office.
But sometimes we don't
and we're really just absorbing
the contracts, you know?
Is that something you guys are
looking at quite a bit? Yeah.
So obviously each transaction
is dependent on the buyer.
You know, each
buyer will impact
what they can afford from a cash
flow basis, what they can afford
from a loan amount basis.
So we are a cash
flow based lender.
So we do just like you're saying
look at three years of tax
returns.
Want to see positive trends.
Want to see the door
count increase.
Year to date financials
are kind of weighing out.
We don't look at our projection
based cash flow
like you're saying.
Well, you know, in six months
I'm supposed to be getting this
huge client to add on.
Well, that's great,
but that's not impacting
your today's cash flow.
So we can't lend on that.
It's got to be based off
of what we're looking at today.
But we can look at it,
from like an expense,
projection standpoint,
so we can look at adjustments
and we can add those salaries
back in.
If at the end of the day,
you don't need their staffing,
you don't need their rent,
you got your own
physical location.
So we can look at true
add backs that make sense.
For a buyer
if they've already
got an established business
that they're operating.
So we look at historical
financials kind of start it,
but then we will cater
the cash flow
to each specific buyer based off
of what they really need to do
with the business.
That's really interesting
because I
don't make those adjustments
when like I'm
looking at a deal right now
where they're like, oh,
we just let go of an employee
and I'm like,
I am not adding that
salary back, because
how do I know they weren't
critical to how this operated?
And over the last three years,
right.
I don't
whatever their forecasts of,
oh, we eliminated this rent.
All right.
If they eliminated a lease,
hey, we've gone remote.
Okay.
That's fine.
But in terms of like
general operation,
they make adjustments.
I'm like, that's unproven.
Whatever you just changed, it's
going to impact
every part of this business.
It's going to impact
the revenue,
potentially impact
the cash flow.
It's unproven.
If you want to structure
the deal with those forecasts,
we're going to do some sort
of creative structure
with an Earnout.
If the business continues to hit
certain benchmarks.
But if you want to cash out,
those adjustments are not going
to impact my valuation.
Yeah.
And you really want to make sure
that you don't need
to replace these people
that they're saying
that they can get rid of
because that's, Yeah.
that's essentially
like you're saying is a wash.
But if you know, the other
kind of a red flag for us
is that they did
lose their key man
like you're mentioning
within the last 6 to 12 months.
The question to the bank is,
like you're saying,
okay, well,
you as a new buyer,
let's talk about
why did the seller lose
that individual.
Is there something going on
internally
that we don't know about.
And then you will see,
is there a decline in the door
count or the revenues
when they let this person go
or these people go.
So there's definitely a story
to tell
as you're analyzing and looking.
But I think for a buyer,
understanding what you're buying
is, is going to be very
important for us to kind of help
to finance
any type of acquisition.
Yeah. You brought up
the red flag piece.
And you know, I think
all of that insight is super
helpful for buyers and sellers.
Right?
There's a lot of sellers
that are really gonna listen
to this kind of prepping
for their prepping for the exit,
like they may.
And I've seen, as I'm
sure you have to
seen, people running it slimmer
last year for the last year
to add back a salary
and try to push that into it.
But you know what?
Other red flags
like any anything
even more recent
any like good examples.
You know,
from what you can talk about.
You know, any other red flags
that buyers should be aware of.
To me, a couple different red
flags
would be owner concentration
on an acquisition,
you know, want to make sure
that it's not heavily
concentrated on 1 or 2 owners
of the portfolio you're buying.
If it is that that's a red flag.
And hard for the bank
to, to want to proceed with
just because if you lose 1 or 2
owners, well, there may go
50 to 60% of your cash flow.
And then just the overall trend,
the door count in the revenue
is, is pretty important
to kind of understand,
to a high level
bird's eye view of the business.
Again, are they
declining in three years?
Are they lost stores
as their rent gone down?
There's a story
that we can't quite understand.
Let's dig into what's happening
a little bit more to get us
a little more comfortable
on on what you're buying.
Yeah, definitely.
I was thinking of one
that came up recently where the,
the seller actually owned
a pretty large amount
of the single family
properties in the portfolio
and wasn't charging himself
for that management.
Right.
He considered it
like taking money
from one pocket,
putting in the other,
but was still trying to exit
with some value
on those contracts.
but yeah, we will see that
there's obviously
a lot of investors turned
property managers over the years
and oftentimes are
managing their own portfolio.
Sometimes they are charging
for it.
And we've done deals where, hey,
we need to get new agreements
and we put 3 or 4 year terms
on some of those properties.
But have you dealt
with that at all where
one of the one of the clients
was actually the seller?
Yeah.
we have.
And, you know, again,
it kind of goes back to
are they going to keep
those homes in the portfolio?
If they aren't, what are they
charging themselves?
Let's kind of make an adjustment
to exclude those,
because it's not fair to give
value to the business
if it's something
that's going to be going away,
or if they are going to be
keeping them,
just kind of
getting a good understanding of,
okay, well,
what percentage of revenue is
kind of dictated by the seller
and how many homes is that?
Is that a majority?
Is that Yeah. portion?
So it's
just really understanding,
like the portfolio
as a whole, on on seller side
and what that looks like.
Yeah.
And if it's a small enough
portfolio
and they're willing
to sign a new agreement on it,
and we've got good terms on it,
I think there's some value there
for the seller.
You know we treat it
just like we would
any other client's property.
But I have seen that,
that issue come up before
trying to think about
other things that we've run
into more recently.
I'm really curious
to get your feedback on,
including real estate
or commercial space.
What's in an SBA backed product?
We went through one recently
in Arizona,
where we were about to include
the the office space,
and it, ended up
just not working.
We pulled that out of it,
but we are seeing
that opportunity to include
some commercial space.
Do you do a fair amount of SBA
with real estate?
Yeah.
I mean, you're, you're eligible
for up to 25 years
on a loan term
when there's commercial
real estate involved,
depending on
what percentage
of the commercial real estate
is allocated towards
the overall loan package.
So if 51% or more of your
purchase price and loan amount
is allocated towards
your commercial real estate,
you get a 25 year loan term
which is inclusive
of all of the business assets
that you're looking to buy.
So I mean, we love our rent rule
replacement, right?
It's it's an asset for the buyer
to put on their balance sheet.
They've now got a place
to truly, operate out of.
They don't have to be on a
annual lease
potentially, or a month.
A month lease.
So, yes,
I mean, we we deal with a fair
amount
of commercial real estate.
And if that's part
of the acquisition, it's
it's only going to make,
you know, the transaction
that much stronger
because you can go out on that
loan term.
You could still be eligible
for 100% financing
to where you're not
having to put cash down.
So yeah, we absolutely love
commercial real estate.
As long as,
as long as your business
is occupying 51%
or more of that space,
you are eligible
for 100% financing.
And that's a 500 for loan.
Right.
Because there's a difference
5 or 4 and seven A.
Oh okay.
your seven alone,
can be inclusive of real estate.
The 504 side is really going
to be catered
more towards
just real estate on.
Just real estate.
ground up construction project,
or maybe you've got a really
large commercial property
that you're looking to purchase.
So you could be eligible
on the 504 side there.
But the seven
a loan will be inclusive
of the business acquisition
or the 500 formal finance that
your commercial real estate,
your closing costs.
And we typically like to give
3045 days of working capital
for any acquisition
inclusive in the loan
just to kind of help with that
first couple of weeks
of transition.
Some buyers don't need it.
Some buyers don't want it.
So really
just kind of depending
on what they want or need.
But that's
typically what we try to include
in our acquisition loans.
That's great.
Just kind of help them
transition out
a little bit, right?
It takes a little buffer off
the first month. So.
Has let's them
have a little bit of cash
on their balance sheet.
If sellers are kind
of taking all of the cash
in the existing accounts,
where you've got some true
operating cash to help
with your expenses on day one,
as soon as you take over,
you've got kind of that buffer
there to help you
with that transition.
That's probably an often
overlooked element
like working capital.
A lot of people miss that.
They're just like, here's
the value of the business.
I need a loan for this much.
And it's like, well,
let's get you a buffer
because you got to make payroll
a week
after you close on this. So.
You've got expenses that you are
going to have to start paying
as soon as you take over
the business,
you want to make sure you've got
a little bit put away for,
for when you need that.
And then obviously
you start operating
and you can put that operating
cash away.
But we really want to try
to give working capital
that makes sense for each buyer,
typically 30, 45 days
of of operating expenses.
The cool thing about Live Oak
is you guys
typically have a pretty low
interest rate.
You guys are prime.
Plus what?
Could be anywhere.
I mean, interest rates
will really vary on the credit
quality of the guarantors,
credit quality of the overall
cash flow and the loan size.
So obviously, the larger
your loan size,
the more competitive
we're able to get, the lower
your loan size 500,000 and less
well, not able to get quite
as competitive.
But I mean, we've seen interest
rate anywhere from prime
plus half to prime
plus one and a half.
Yeah. Prime day
seven and a half.
So it really just
kind of depends and varies
on a couple different
characteristics,
but that would be kind
of the median range,
of what we've kind of seen
in the past year or two.
Now, because it's on loan size,
you probably get a lower
interest rate if you do
one of these seven eight
loans with a building involved.
Yeah, I mean, that's the larger,
larger purchase price.
You're able to kind of go up
a little bit on multiple,
from kind of our
underwriting standards
and how we look at that and,
you know, larger loan size
get a little
more competitive on rate.
We are now no longer
an unsecured business loan.
We've got a little bit of real
estate
attached to the loan as well.
So I mean, yeah,
you can definitely get
a little more competitive
when there's commercial
real estate included.
Does that
when you add the real estate,
you can extend the loan out
because normally an SBA
loan is 10% down over ten years.
The interest rate is going to be
prime plus x.
But if you add real estate
now, it's going to extend
not just ten years.
It's going to be 20,
25 years. Right?
Potentially 25 years.
So 51% or more allocated
towards real estate
on your purchase price.
You got a 25 year loan term.
If it's under 51%,
you'll have a blended term
of anywhere between 12
to 25 years, kind of depending
on what
the allocation to real estate
is compared
to the overall loan amount.
So you're able to extend
your debt out longer.
But again, it's one loan.
So you don't have a business
loan.
You don't have a real estate
loan.
You've got one loan that's
inclusive of this acquisition.
That includes your real estate,
your business
acquisition, working
capital and closing costs
and all amortized over 25 years
or a blended term
depending on that allocation.
And if you're an existing
operator, you're 100% financing.
You're not putting
cash down on the real estate.
If you're a first time
acquisition, there would be
a 10% equity injection
of the total project.
So SBA loans, it's like a person
has a max limit of $5 million
in SBA loans in their life.
So even if they pay off,
hey, I took out $1 million SBA
loan and I paid it off.
Four years later,
they still only have access
to 4 million left after that.
Right?
Does it change with real estate?
a $5 million SBA runway
based off of your loan balance.
So if you got $1
million loan today
and you paid it off
in three years,
and you come back and say,
I want a $5 million SBA loan,
you're eligible for 5 million,
it's out of your existing
loan balance.
Georgia.
Wow. Okay.
I thought it was over.
The the life of a person.
You could max out at 5 million,
but you can if you pay it
down, you can go back
and get another 5 million.
Oh, that's awesome.
I think we've had so many buyer
conversations
where they're kind of
in that 3 to 4 mil space already
on pretty recent buys, and
they're kind of looking at like,
hey, what
what can I do to get like,
they don't want to stop buying.
And they're looking
at creative options,
trying to think
what's beyond that.
You know, for that buyer
that needs to extend past
the five and get into some
some larger
transactions is Live Oak
have options for that as well.
Yeah.
So I mean, there's a couple
different ways that we could,
you know,
we try to get as creative
as possible
when it makes sense for the bank
as well as the buyer.
But I mean we could look
at depending on each case,
we look at trying to extend
past that 5 million
and reducing our guarantee,
which it's
just more risky to the bank.
the 5 million is capped because
of the SBA guarantee fee.
So if we start reducing that
guaranteed your your leverage.
The SBA runway starts
to extend a little bit.
You could also, I mean, again,
trying to kind of get creative.
It's not necessarily bank
financing,
but maybe you do seller
note financing.
And you look in two years
to refinance that with SBA debt
because you'll have runway.
Well that's
a potential opportunity
on close on the loan.
You do seller note financing.
You look in your intent
is to refinance that two years
because you're eligible at that
point to refinance seller. No.
And you have more SBA runway
because you paid down
your existing
loan down pretty quickly.
We do have conventional products
as well.
There just going to be
a little less favorable.
And our credit box
is much greater than on an SBA
loan, because again, there's
there's no SBA guarantee
to back up any loans.
It's strictly
a 100% risk to the bank.
So, there's a lot more liquidity
requirements.
And that we want to see on
a personal financial statement.
Our debt service
coverage is way up.
Loan term has gone
from ten years on an SBA
loan to a five year loan.
So it's, you know, a
lot of different characteristics
have to play out and make sense
on a conventional structure
for a business loan.
Sure.
I mean,
I think there are some
strategic buyers
that Hunter and I
are thinking about already
that might fit that small box,
but I think there's still such
a huge amount of opportunity
just with traditional SBA,
just for our space.
And, like your point,
you can get pretty creative
on including other seller
finance elements with that.
but yeah, I do see
just the trend of people kind
of extending past that window
and hopefully that
that's getting serviced
in a, in a fair term
that, you know, they can,
you know, put that to work again
on their next deal.
But I think Hunter and I
just based on the conversations
we've even had, just recently,
like over the next 12 to 24
months, we'll see more people
maxing out, with SBA
just kind of within our network.
That's
without real estate, by the way.
But we are super interested
and, and doing
some more,
commercial real estate too.
And one thing that came up
the other day,
there was a buyer that said, oh,
I don't really want
that office building.
And they assumed
that they had to buy the
the sellers office building.
Like, can you talk about that
a little bit too,
as far as like commercial space?
With the transaction
not necessarily
part of the original deal.
Right.
It's like buying,
book of business from one seller
and buying
a completely other piece
of commercial real estate
from another seller.
Yeah. I mean, absolutely.
That's it's
still a commercial real estate,
purchase, still a business
acquisition purchase.
You know, we got to make sure
that cash flow
can support the combined debt.
The only other factor
to think about as a buyer is
you do have to sellers.
You've now got kind of you're
one seller on the business side.
You've also got one seller on
the commercial real estate side.
So not saying it can't be done
and we haven't done it
in the past, but you do
kind of have to be wary.
And understand
that you have two sellers,
but it's going to be one loan.
So we got to make sure
kind of both parties
are on the same page of closing
that if one side kind of has
a little bit of a speed hump,
need to make sure that this side
is going to be okay.
But yeah,
I mean, if you want to buy
a completely separate commercial
real estate in another,
location and it makes sense
for you in the business,
I mean, absolutely, if it's if
it makes sense for you and it's
not going to mess up
the operations
of the the business itself,
you can definitely help
to finance that.
Yeah.
I could see how timing that
with all these parties involved
may be difficult, but,
let's talk.
I mean, Hunter
and I get a lot of push on this
when we're talking with sellers
that have some time constraints
and, you know,
a lot of our offers and our,
our buyers offers do
have kind of an A and B option.
As far as,
hey, here's an SBA type route.
Here's a seller financed route.
Like we get pushed back
on the time to fund with SBA.
And you know, our whole goal
really, even while we're kind
of, you know, working
closer and closer
with Live Oak is to,
you know, hopefully speed
that up a little bit too.
But like,
what are you typically seeing
as far as SBA turn time?
Like is it
still that 3 to 4 month window
that people have been used to
historically?
Now, that is a big myth on SBA,
which is one thing people hear.
I say, yes, we're the number one
SBA loan in the country.
And they'll say, I don't really
want to go the SBA route.
what do you not like about it?
They say it's the timing.
Then I kind of have to explain.
Okay,
but we're preferred lender.
So again, our process
from start to finish the main
holdup is a buyer and seller.
Sellers go on vacation.
Buyers have to go
do this in our busy
our timeline is really dictated
on buyer.
And seller.
Is your attorney in the state
how they created
your purchase agreement?
Do you have the financials?
Are we waiting on
a, accountant to get you year
to date interim financials?
So, I mean,
we can close a straight business
acquisition to where we're not
ordering appraisals on CRE.
We're ordering a business
valuation
that comes in in seven days.
We can close within 30
to 45 days once That's amazing.
once we have
all of the financial information
and buyers and sellers
have agreed to a purchase price,
that's
that's typically
going to be the biggest.
Hold it up.
Our buyers and sellers and.
I think our record is like 60
days, by the way,
and I was actually kind
of happy with that.
So you
saying 45, I get that a lot.
Yeah.
The whole lot of
stars have to align for 45 days.
But but still,
that's we've, we've dealt a lot
with the 3 to 4 month window
like historically.
And that's
probably not the banks
that the banks fault in any way.
But you know,
I think a lot of people
I've heard that too,
whether they've gone
through the process or not,
they're just not prepared
for that time. Wait.
Yeah.
It's it's really going to be
how much due diligence
have you done on the front end.
Where are you in relation
to your purchase agreement.
And have you guys agreed
to a purchase price.
Because that's I mean,
people say, well,
I want to close
at the beginning of October
and they think they've got
a lot of time, which you do,
but if you don't start doing
your due diligence and you're
negotiating on purchase
price starts September 15th.
Well, yeah.
You're not going to close
October 1st.
You kind of
have to go ahead and start
getting your ducks in a row and
make sure you get your purchase
price agreed.
To make sure you've got
your financial due
diligence in hand
to where you could hand it
to the bank or PMI,
and we can kind of run with it,
and then we can really kind of
start moving.
It's it's really
where the buyers and sellers
are not in agreeance on the time
frame.
Sure.
And I'm just guessing, you know,
that if we have a buyer
that's probably gone
through the process
before, right?
And this might be their second
or third transaction,
I think we can
definitely speed it up
that that first one always seems
to, you know, for first buyers,
first time buyers,
always
a little bit of a process.
But like I said, many of ours
that are on deal two or 3 or 4,
we've done eight transactions
with a single office too.
Like I'm pretty sure that
that buyer would qualify
for maybe some of the larger
products you mentioned,
but also could probably
with the help of his team.
And our team,
get that 45 day close.
I I'm just guessing,
but I think that buyer
experience is key to.
Yeah,
I mean they kind of
they've been through the process
once kind of know
what to expect.
I mean, obviously there's,
you know,
application
documents and documents
you've got to fill out
and kind of provide to the bank.
But, you know, we've
done this again since 2008,
and we've got a team built out
for property management,
and we've got a process on
what this looks like
and how this works.
And, you know, I know
I told you guys this before,
but time kills deals.
And if buyers and sellers
just kind of sit on stuff or
don't want to be proactive
until a month before closing
day, even start their due
diligence,
well, you're going to come up
with some hurdles.
You kind of need to just move on
it, know what you want to do,
and let's move forward.
Yeah.
We, we try to do as much upfront
diligence as possible
so that I don't want
to have to go and renegotiate
a purchase price.
What we put on the Loi I'm like
I want it to be this price.
Please don't make us
like renegotiate this.
Because the first two weeks
of due diligence, we're
going to do legal and re review
financial to make sure.
Do we need to renegotiate
and then we'll start
our purchase agreement.
But, yeah, I, I don't want
to have to go back through that.
We've had to do that
a couple times.
And it's like man, this
like unfortunately flag.
We found a skeleton.
It's like, dang it,
you should have told us this
before, you know,
Yeah, we could have helped you
if you had a day set as 30 days.
So with that, though, like,
when should a buyer go
talk to the bank?
And how should they prepare
for that initial conversation?
Do they need to have a deal
already lined up to
to come and talk to you?
Like, when do you think
they should come and talk?
No, I mean, I never
I don't think it's never
too early
to start the conversations.
For a couple different reasons.
One can kind of walk
buyers through
what does our process look like.
So they're aware of what
this is going to look like
to give them an idea.
This is what we typically ask
for for buyers
on the front end, for sellers
and for individual guarantors.
So they've now got a list,
even if they're not ready
for six months
of what we're going to ask for.
So go ahead and start
collecting your information
or go ahead
and kind of start thinking
about what this could look like.
And then
we're also having a conversation
of let's talk about structure.
Are you putting in 10%?
Where is that coming from?
Is that eligible?
Are you thinking of
100% financing?
What are your goals?
What are you
kind of looking for.
So we do a lot of like
pre-qualifying
on a buyer side just to say,
hey, everything looks good.
You guys are checked out.
Your existing business operates
fine, your credit score
looks fine, personal
financial statements checks out.
And that may give
some reassurance to sellers on.
Hey, I've talked to a bank.
They understand the property
management industry.
They're the number one
SBA lender in the country.
I've got a pre-approval letter
for me individually.
I'm serious
in wanting to buy your business.
Here's
my pre-qualification letter.
Now, it's kind of your turn
to provide the financials
to start the due
diligence on your end.
So I never think it's too early,
even if again, it's 612 months
down the road
to start the conversation
and start that relationship,
and completely open to,
you know,
walking through questions,
ironing out any scenarios
gives buyers kind of an idea
of what,
what they want to be looking for
and what that looks like
for them. Careful.
Because we're going to send
470 people
to schedule calls with you.
started in April.
Yeah.
And we still to eight offices
every month being added.
So that list is just go.
Now. But.
what questions should they
should they come prepared with?
Should a buyer
come and talk to to you with.
there's
no right or wrong question.
I think if especially
if you're not super familiar
with the bank or SBA
or the process,
just come loaded
with all of the questions
that you have, there's
no there's no dumb question.
You know, it's
I do this every day.
So it's it's what I do.
You don't you run the property
management company.
So we're really here again to be
a partner on on transactions
and to help buyers get to what
they're trying to do.
So, I would just be prepared
to come with as many questions
that you have to try
to understand.
What's next?
How do I start the process?
What does this look like?
So we can, you know,
as much information that
we can get upfront from a buyer
and there's no surprises
later on.
The better for us.
Yeah.
I'd say just part of our role
too, like the expectation
setting piece that we have
and just historically,
we haven't really been bringing
deals to the bank
until we have a signed Loi
because we've been confident
enough to say, hey,
we know the bank's
going to like this
based on some criteria
we've worked on before.
But but yeah, I mean,
we prep a lot of our buyers too.
We're like, hey, let's get
it might be 10 to 20% down.
Hopefully it's less.
And so usually we're in that 5%
or even zero.
But like that's kind
of the quality of our buyers.
Like they're prepared.
They've got cash to put at these
deals.
We're hoping
they don't have to use it all
because, well, we've noticed
as we close
one deal
with one of those offices
and within a few months
of closing,
something else shows up.
They always happen.
Like, I don't know what it is.
Is it maybe it's marketing?
I don't know, but,
but yeah, they always seem
to stack up like that.
And so we've done a few where
and maybe
you can speak to this too.
Like, are there any restrictions
around someone
utilizing an SBA product,
you know, 2
or 3 times in a year?
I know we've just done one
within two deals
and within six months, but,
have you seen three, 4
or 5 transactions
in a single calendar year?
Probably not.
So 4 or 5 would seem 2 or 3.
Again,
it's all really going to be
based off
of that individual buyer.
They're extremely strong buyer.
And it's in their market.
They're buying the competitor.
And it makes sense.
And they've got a business plan
and the manpower to support it.
And they've got SBA runway
I mean then yeah
we can definitely kind of help
facilitate what that looks like.
If you're getting past three
in a single year,
would kind of
want to understand,
I don't know,
credit would say, you know,
let's give it a couple months,
kind of
let the transition be smooth
and then look at doing this
in a little bit.
I think it's really just
kind of case
by case on target cash flow
and that existing operator.
You said a really key phrase.
Let's let's
rewind there in your market.
So many people want to look
in different markets
to buy a business.
And I'm like, no, if you've done
go for it.
Go look in a different market.
But if you've done 1 or 2
like you need to buy,
you need to be
where you're buying.
Like,
how do you guys feel about that?
first, first time acquisitions,
our credit stance is
you have to be in the market
for your first time acquisition.
It's too risky
to try to run a business
when you're in New York
and the businesses out
in California,
especially with, you know,
different rules and regulations
in different states.
If you're not And look at all
those time zones.
time zones right now.
As you start to expand and grow
your business operations
and you have gone to three,
four acquisitions.
Yes, we can look at doing
different state operations
if it makes sense.
Again, if you've got that
business plan that makes sense.
I will say
one update on the SBA shop rules
is that you are buying
in different states
or a different
geographical area.
Let's say seven hour drive.
You would be required to
bring in cash to that project.
That is one change that the SBA
has updated as of June 1st.
But these are the conversations
where again, it's
if you're a buyer, it's
never too early
to have this conversation.
So I can kind of try to prepare
you on what this could look like
for you or what is your goals.
What is your plans?
Where are you buying?
Never too early
to start the conversation.
Yeah.
I think Hunter's been
jaded by that before
where we have franchisees that,
you know, get really excited
about a new market.
And I think,
while we love
kind of that multi-unit
franchise owner mindset,
I think there's definitely
a stepping stone
to getting there.
And that's going to usually be
a series of acquisitions
in your key market.
And I think it's even
more recently that we just did.
We had a buyer in the Midwest
that went to their second
state for the first time,
but that was their eighth
transaction.
So we really saturated deep
in their key Midwest market
and now are looking for that.
But but yeah,
we encourage that too.
So I'm glad
the bank is on the on
the same wave length as we are.
I'm like one.
If you haven't done multiple
deals and know what to expect to
if you aren't already doing
seven figures in revenue
with your business,
you have room to grow Yes.
Yeah.
grow in your immediate market.
I mean,
even if it's an hour away,
we want you to be in your market
to where you are accessible,
to what you're buying.
Totally.
Just the add back values too.
It's just hey, we can
confidently step into these.
We know
there's going to be some overlap
and you know purely to the buyer
benefit on that.
But yeah,
we we run into that quite a lot.
Even just today, you know,
and for us it's unique too,
because we have a franchise
element where, hey,
there might be a new territory
cost,
a new franchise cost to that,
that we might need to include
in the, in the bank loan
also as part of the deal. So
good things to go on.
There's
a reason for the guardrails.
The SBA has guardrails.
You know, we put up guardrails.
And we tell people when whenever
we look at businesses,
we look at it
through the eyes of like,
would I buy this
if I would not buy this?
I will tell you,
I would not buy this.
Right.
But we put up these guardrails
and these recommendations.
Don't buy outside of your market
because I think people
often forget
this is acquisitions
is a very risky asset class.
You know,
like it's not like you're
investing in the S&P
500 or something.
Like it's not like
you're buying real estate,
but it is better than buying
crypto.
But but I mean
it's it's a risky asset class.
So it's like there's a reason
experts say do this.
Don't do this because it's like
we don't want people to fail.
You know?
Yeah.
I mean, and we're very true.
I mean, we look at more deals
and say
it doesn't seem to make sense,
and we do.
Yes. Go, go for it.
Because there's so much due
diligence
and protection
on the buyer standpoint,
that we want to make sure
it just makes sense.
So I would agree
100% with that.
we look at every deal
through that lens
and it's like we when we find
a deal, we hand select like,
you would be a good buyer
for this one or hey,
this deal is not right for you.
Maybe this one is actually
too small for you.
I want you to go find
a bigger one.
And we've actually just recently
we had a deal
come up like that.
We were like,
franchisee actually went out
and found a deal
and we were like,
this is actually a great deal.
But I don't think it's
a great deal for you.
It's a great deal for this guy.
Let's find
you another one. Right.
So, Yeah.
You need something bigger
with team like.
That's a big piece
for our deals too.
Like we're looking for a staff.
Like that's
a huge element to this.
And you know, so
it's interesting
because we do have franchisees
that are targeting
specific businesses
just to get like, hey,
I want to hire that GM.
He's you know, like so there's
a little bit of that too.
But but yeah, Hunter
kind of mentioned that.
Like, if we weren't confident
enough to,
you know, buy
it ourselves or even,
even if we were to personally
land on one of these
and we're not going to encourage
one of our buyers
step in, we're not going
to bring it to the bank, like,
if we wouldn't lend on it
ourselves.
That's kind of
just our internal mentality
that some people
are just surprised to hear,
because sometimes it's
just large group by everything.
Like, no,
like we turn away so much to
and you know, it's
at the end of the day, it's
totally worth the hours
that you're putting into things
that you're figuring out
are not a fit.
You know, in the long run,
it plays out.
I've got a question for you,
Jordan.
I know, I know, we might
be running short on time,
but what do you wish
sellers would know
when they're trying
to sell their business?
Buyers are trying to get an SBA
loan.
What do you wish sellers
would know for for this process?
So recently
I probably run into sellers,
don't want to provide
financials.
I'm sure you guys don't
get that very often. Just
do? But
I have come across probably 6
or 7 times in the past month.
I would like to buy
this business.
I'm buying
the management contracts.
I can get financials
in seller sourcing.
Just because you're buying
the management contracts.
You can look at my door
count and revenue and,
you know, do
A11 and a half times a revenue
to where from a cash flow
perspective,
we've got to look at
tax returns.
We you're
you're selling a business.
So we've got to look
at some financials.
And what does that look like
for a new buyer to take over
even if we can add
back these expenses.
So to me that's one
big thing is if you're a seller,
you've got to release your
your tax returns.
We've
got to see some financials.
And then this second thing
would be in the market,
really any industry
I feel like since Covid
there's been
a lot of consolidators eating up
more independent businesses,
not just in the property
management space, but
independent buyers
don't have the cash to put down
and have as a moat
or as a consolidator
that can pay straight investor
cash or cash to the project.
So it's, you know, you may not
get quite as much potentially
with an independent, individual
needing the actual financing.
But you're going to have
that touch in your business
post-closing in the community
with that individual
and them being there and,
and not being a consolidator.
So I guess that would be kind of
like my,
my two piece there is please
provide your tax returns
It's, that that last part kind
of setting the expectations,
buyer profiles for the seller.
It's, you know, we we tell them
you could go
get a private equity
really hard to sell to them,
but they will
give you a ton of cash,
but they're not going to be
the ones
operating this business.
There's a lot of strings that
are attached with that. Right?
You could get one of these kids
that are coming out of college
going through these guru
training programs,
entrepreneurship through it's,
first deal.
They're not going to be able
to pay you as much.
And they don't know
how to operate this.
So you got to hold their hand
for it.
Strategic operators,
people are already operating it.
They know how to operate
this business.
They're going to be able
to take care of your clients,
take care of your employees.
They're not going to pay as much
as as the private equity groups,
the institutional money,
they're
they're probably going to pay
a little bit more
maybe than the entrepreneur
through acquisition guy.
But there's still that
expectation sellers
that in fact, I'm dealing with
this on a deal in California
where the seller wants 3 million
for his business.
And I have to explain to him
something about debt service
coverage ratio, Yeah.
15 years
of zero paychecks
to pay this off, right?
So debt service coverage ratio.
Like what.
That's what
what are your requirements?
There's a 1.5.
We're close.
takes into account
the buyer taking a salary
from the business.
So like you're saying again
each buyer will dictate
an overall cash
flow on an overall project.
So we want to make sure
a buyer can afford the business
from a debt service
coverage standpoint,
but still pay themselves
a salary if needed.
If they've got
an existing business,
maybe they don't need
to take a salary.
So you could probably get
a little bit more,
from a loan amount potentially.
So we underwrite that 1.25 debt
service coverage.
But each buyer
is going to dictate
what what your overall project
is going to look like.
Yeah.
The business has to be able
to pay for itself like the bank
looks.
Buyer.
Are you qualified as an
individual to buy this business?
Business.
Can you support
can you pay for yourself like
you have to be able
to pay for yourself
from a debt service
standpoint, as a business.
And that's something
that I think sellers
need to be aware of. It's like
there's a reason, like
there's a science and an art
to valuation in the sciences.
Can the business pay for itself?
And then the art is okay,
how are we going
to structure the deal
so that the business
can pay for itself?
But that's the primary thing.
Can the business it has to be
able to pay for itself, right.
if you were that seller
put yourself in the buyer shoes.
Why would you buy a business
where on day one
you're in in the Yeah, yeah.
life until the loans paid off
or goes into default.
So why Yeah.
make a buyer pay for something
where the cash flow is not quite
there?
So yes, it's got a cash flow.
Yeah.
I mean, there's
a lot of education that we're
even pushing out to sellers,
trying to prep them for the exit
and you know, that expectation
setting piece is critical
because we know
and we're learning more and more
what the bank wants.
Right.
And so
yeah, those crazy multiples,
they might exist for the tech
company that's down the street.
But at the end of the day,
you know, you
you cleared $1 million last year
and this is what it looks like.
So we're super transparent
because we realize the time
it takes
to, to go through the process.
yeah, I think ultimately, it'd
be great to get more exposure
for Live Oak within our network.
I know we've kind of talked
about,
you know,
walking through process
on a few deals,
and I think we will be working
on some shortly.
yeah, I'm excited.
Just understand, kind of, you
know, how your team operates.
And I know just on the public
facing piece,
like we're transparent
about what we do.
And I think
a lot of people can learn
not just from the podcast today,
but going forward, I'm
sure we can have some really
good kind of shared content
just to make sure that buyers
and sellers
are getting into this
for the right reason
and have good expectations.
Set early.
Yeah, absolutely.
I think as much education
or not even education,
but just conversations
helps people
kind of understand what this can
look like for them.
any last words, comments,
thoughts, concerns questions
that you want
to throw out there? Jordan.
I hope my husband has dinner on
the table for when I get News.
Right.
I'm just kidding. No.
I welcome any conversation,
any opportunity, any,
phone call, email, teams
call for any buyer or seller.
We somewhat pre-qualify sellers
as well,
just like we do
buyers and explain again it's
this will be impacted
depending on a buyer.
But happy to have
any further conversations
with with any party
that just has general questions
or wants to talk
to potential structures.
All right. Well, thanks,
everyone, for joining us.
Jordan Coleman, live Oak Bank,
thanks again for jumping on.
You had to suffer
through that with Hunter and I.
We had a lot of fun.
I hope you had a lot of fun to.
I did
I could be doing worse things.
So I appreciate the invite,
appreciate the conversation.
And looking forward
to doing a few more.
Excellent. Hey, thanks so much.