Buying $1.5m of Earnings Without an SBA Loan

Right, right.

So for the, not for the non financial listener.

On the other hand they're very incentivized by their equity ownership in their rollover because they've bought into this vision of you're going to get a second bite of the apple and the second bite is going to be much larger than the upfront bite if everything goes according to plan. And so you have two misaligned expectations or incentives from the same person. And they already know what their…

And so now you're solving for their equity. And the binary decision there is the more equity you put in the business, the lower their role becomes their equity rollover. And so the easiest way of solving for that is using debt and putting that on the balance sheet because that's non dilutive to the, to the equity holders.

And so you know, and, and you know, the difficulty there is also explaining that to, to the sellers who are, who are not financial or don't have financial backgrounds. You know, that's a whole challenge in of itself. But I guess that's a, that's A conversation for another day.

But so the question of how do you raise debt spas off the table. So you scour the earth for any lender out there. The business did not own the property or any real tangible assets except for vehicles.

Underwriters or banks or lenders don't really like that as underwriting collateral. And so how do you finance a deal without, you know, significant, significant tangible assets as collateral is a really challenging piece because the SBA really helps you when it comes to that front. And that's kind of the design by the sba.

And look, I guess with the SBA becoming more stringent, I imagine that there'll be more credit funds entering the market and more regional banks becoming more entrepreneurial. But the landscape on the regional banks, well, kind of just take a step back. Where do you get debt from?

Banks, credit funds, and then obviously individuals who are willing to lend or family offices. But that's not as big a market at the scale of our deal. So at a 1.5 million EBITDA deal, that's right in the strike zone for sba.

When you speak to regional banks, they are very traditional and not as sophisticated to underwrite cash flow deals. And so the deal that we did, because there's no big asset like a building or, or a property or land to underwrite to, no hard asset. When you underwrite those businesses, you're underwriting based on the cash flow of the business or the EBITDA of the business.

And traditional, you know, regional banks really dislike those type of deals. There's too much, there's too much risk for them. So, you know, scour the earth for them.