Why do some businesses skyrocket to success while others remain stagnant, despite being in the same industry? One of the key factors is their mastery of small business lending. Ava Benesocky and August Biniaz explore this subject with Lou Rosabianca and Matthew Meehan of Credit Banc, which helps small businesses achieve financial flexibility and scale without limits. Together, they break down the three crucial metrics in access capital and the different lending options you can consider. Lou and Matthew also discuss the characteristics and skills an entrepreneur or founder must have to lead a tenacious team, unlock explosive growth, and maximize market value.
Get in touch with Lou Rosabianca and Matthew Meehan:
LinkedIn: https://www.linkedin.com/in/matthew-r-meehan-cepa
LinkedIn: https://www.linkedin.com/in/luigi-rosabianca
Website: https://creditbanc.io
If you are interested in learning more about passively investing in multifamily and Build-to-Rent properties, click here to schedule a call with the CPI Capital Team or contact us at info@cpicapital.ca. If you like to Co-Syndicate and close on larger deals as a General Partner, click here. You can read more about CPI Capital at https://www.cpicapital.ca.
#avabenesocky #augustbiniaz #cpicapital
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Watch the episode here
Listen to the podcast here
Important Links
- Luigi Rosabianca on LinkedIn
- Matthew Meehan on LinkedIn
- Shield Advisory Group
- Traction
- Who Moved My Cheese?
- Anthem
- The Fountainhead
- Atlas Shrugged
- The Liquid Lunch Project
- Credit Banc
About Lou Rosabianca
Luigi’s diverse background and his broad skillset make him an ideal strategist in supporting you take your business to further heights. With an educational background in architecture, political science and the law, he’s well geared to identify critical avenues for expansion and progress.
Moreover, he has managed and formed a vast array of small to medium-sized businesses including Teams from varied backgrounds and sizes. This experience allows him to accurately and precisely analyze your business’ strengths and customize solutions for your firm – regardless of size and industry area.
About Matthew Meehan
I have over two decades experience helping clients expand their companies through performance-based sales initiatives, business development and guidance for financing & credit solutions.
My team and I provide clients with proactive and keen insight into market dynamics and individual characteristics of equities, debt, and alternative financing that result in revenue growth, market penetration and increased market share .
Small Business Lending Mastery: Cash Flow, Credit & Collateral Explained With Lou Rosabianca And Matthew Meehan
This is going to be a great discussion because I wanted to talk about this. You can have 2 businesses side by side that have the same business model and they’re in the exact same industry and you can have 1 business who goes hyperbolic and has explosive success, and then you can have the other business who’s just in the stagnant mode. Do you ever see this happening? It happens all the time and it brings great curiosity from the outside looking in, saying, “What does that one company have or what is that one company doing that the other is not doing?” We’re going to be getting some of these questions answered for us by our guests, so I’m very excited about that.
I was going to warm up the audience about something totally different, but you got right into it. It was more about what’s taking place in the world and I was going to take a moment of sadness for what’s happened in in Canada with that school shooting that took place. A lot of Canadians are afraid of the US and they’ve got one of the most strict gun laws in the world, but now in the most liberal province in Canada, in one of the most liberal cities in Canada, we had a mass school shooting with a transgender individual who did that. The police chief being interviewed by the reporters, a reporter called the transgender person a him and the police officer got really upset and corrected her.
The reason I bring this up is we’ve made the move from Canada to the US and a lot of people we talk to, some of them very close to us, are really afraid about gun laws in the US and things that happen, mass shootings that happen in the US. Some of the reasons that people don’t make the move to the US or even vacation in the US is because of potential for shootings.
However, you can see this can happen anywhere in the world. In London, they have stabbings take place and people get killed. This throws out this idea of these gun laws or what have you. After that moment of discussion about that topic, yeah, excited about our guests. They come from very accomplished backgrounds, so we’re excited, preparing for the show. I’ll start right away with Luigi.
Looking Back To Lou And Matthew’s Career Journey
Welcome to the show. Luigi, let’s start with you right away. Brooklyn Law School, Political Science background and I think that with your first name and last name, it sounds pretty Italian and brings out thoughts about Rudy Giuliani, the mayor of New York at some point and what have you. I think he was an attorney. What was his title that he had? Anyways, he was advisor to Trump.
Associate Attorney General?
There you go. Associate Attorney General. We see you here talking about business financing, so talk to us about the road how did you end up here did you ever have any thoughts about being involved in possibly politics or running for office? Talk to us about that and your background there.
Politics, absolutely not. Let’s get that started, but first of all, thank you so much for having us. We’ve been looking forward to this for a while. We were blessed with having you on our podcast and it was honestly, to this day, one of our most watched, best followed episodes. Thank you so much for having us on. I didn’t really have a choice in the matter.
During that Sunday afternoon with pasta and sauce and a glass of wine, and yes, eleven-year-olds can have one glass of wine, there was one mandate when we were younger. This came down to me and all my siblings. We had to go to school. Whether I went to law school or architecture school or became a CPA or became a doctor, I didn’t really have a choice, I had to go to school. That was the one mandate.
My grandparents learned that the way out of the middle-class blue-collar grind was through education. There are other paths, but in their humility, they saw that that was the path. I just happened to go to law school.
Middle class usually pretty educated so workforce. It’s like Italians coming from that tough beginnings usually end up in workforce. How you get yourself out of workforce is through education.
My dad was a mechanic. I could still change a tire in less than 90 seconds.
We were just at a tour for our for two-year-olds for a beautiful school here, a private school here in Naples, Florida, and August and I are already getting excited. Our child is 2, but when he turns 3, he’s going to be joining this private school that is going to make sure that his wires his brain right to go right into college.
Yeah, don’t get me started. This is a topic of conversation in our household all the time. I’ve come to the following conclusion, we are putting the standards that was once relegated to 5 and 6-year-olds to now 3 and maybe even two-and-a-half-year-olds to get them started sooner. I’m not saying it’s right or wrong, I don’t know. I’m not an educator and I’m learning as I go. The one thing I know about being a parent is I’m super humble and I try to make as few mistakes as possible. Yes, that’s the trend. The trend is now to have the kid go into kindergarten with a Master’s degree.
We are putting standards once relegated to five and six-year-olds to three and two-year-olds. Share on XIt goes Pre-K3 all the way to grade 12. A child’s genius really starts right away.
Let’s get Matt in here. Tell us about yourself. Wall Street.
For two decades, I believe. Tell us about that. What was your journey like?
Yeah, it was very different. Academics in my house were not held to as high of a standard as Luigi’s. I barely graduated high school. I wasn’t really sure what I was going to do. My father was an elevator contracting, the rest of my family was NYPD. At that time, to become a police officer, you needed two years of college. I didn’t have any college.
The original game plan was, all right, I’m going to go get two years Associate’s degree and I’m going to go be a police officer or I’m going to go work with my dad, one or the other. Turns out I went a totally different route. I called an ad out of a newspaper if anybody remembers what that was. I landed a job for a firm right across the street from the World Trade Center.
Flash forward, 9/11 happens, we’re there that day. I’m literally half a mile away from the World Trade Center. Everything gets shut down, the firm that I worked for typically what you’d call maybe a boiler room, if you saw that. Just people on the phone all day long. Now when I say boiler room, we didn’t do anything wrong. We didn’t do anything that was out of bounds, it’s just what people call it. Merrill Lynch, Salomon Smith Barney back then. It was football fields of people on the phone, essentially.
You say boiler room, you think about pump and dumps, but keep going.
Yeah, no, definitely no pump and dumps. Long story short, company by the name of Ladenburg Thalmann buys the firm that I’m at. Ladenburg Thalmann happens to be one of the oldest companies traded on the New York Stock Exchange. I got my experience from Wall Street and everything basically that I know about life from on-the-job training. No trust funds, no silver spoon, no college degree, smiling, dialing, talking to people, watching and learning and taking everything in.
How Lou And Matthew Help Small Businesses
I think this is great because an attorney, somebody from Wall Street is a perfect synergistic duo to help in businesses and business owners in what it is that you guys do, small business lending. Any questions before we get into it?
Advisory? No, let’s get into it.
That’s the type of advisors you want to have, somebody who understands Wall Street, somebody who understands law, somebody who provides advice to these firms. Give us a crash course what is it exactly that you guys do, who do you help, how do you help them?
I’ll make it very simple. Matt and I, we are the wildest generalists you can imagine. We are just generalists. We know a little bit about a lot of subjects, which allows us to help the chiropractor, allows us to help the dentist, the contractor, the medical service provider, the trades. We know a little bit about many fields and many interests.
Now our team relies upon the two of us. As much as we grow and as much as we like to delegate, at the end of the day, Matt and I set the tempo, and that tempo is set by the classic and I’m sure you’ve heard this a million times, the visionary and the implementer. Matt is the visionary. He comes up with these great ideas. I’m more in the trenches and when he says, “I want a rocket ship that goes to Mars,” I have to talk him down to, “Will you settle for the moon?”
Is that for your company and your business or that’s when the client comes and sees you? He’s a visionary for their business and you’re the implementer.
Both. Matt comes up with some great ideas. Some can be implemented. Some cannot be implemented. Sometimes I say, “Matt, that is awesome, but can we tone it down a little bit because that’s not achievable?” some are, “Let’s talk about this. How can this work?”
Essentially, when a client comes to us, most people come to us because they need money for their business. They’ll come to us and they’ll have this dollar figure in their head that they think they need. Nine out of ten times, they don’t need as much money as they think they need. Nine out of ten times, they’re borrowing the wrong amount of money and they’re trying to fill a leaky bucket and just slapping duct tape rather than fixing the root of the problem.
When they come to us, we take more of a consultative approach. We help them cross their t’s, dot their i’s. As Luigi said, we’re very good on a lot of subjects, but we’re not experts in everything and we know that. However, I’ve been doing this for a long time. I’ve been on Wall Street, Luigi’s been in law, my network is probably second to none. I know the right experts to bring in at the right time.
When you first look at a business, what’s the first thing that you guys analyze?
First thing is, we sit down and we have a good half hour talk with the person, see what they’re looking to do, what they’re looking to accomplish. The next thing that we’re going to ask for is a set of the financials. Everything starts with their financials. I’m talking about tax returns, profit and loss, balance sheets. I want to see their corporate docs. Do they have partners? I want to see the partnership agreements, do we have any buy-sell agreements in there.
When they do that, they get naked in front of us. I can’t tell you how many times somebody told me, “Yeah, I do $10 million a year, we have a great business, we know exactly what we’re doing.” We get the tax returns in, they’re doing $10 million but they’re losing $12 million. It doesn’t make any sense. What’s going on here? Why are we losing so much money? We can have deeper conversations about their kpis and what’s making them money and where they’re bleeding, and then we try to fix that first.
You then go on to identifying what where the biggest opportunity in their company might look like, and that’s where your visionary skills come in and say, “This is how we can take your company to the next level.”
Absolutely. A lot of the times, it’s you have somebody that’s all set in their ways and they have a website but they don’t do any digital marketing, they’re still living in the Stone Age, they’re not in the Digital Age anymore.
Many small businesses have a website but do not do any digital marketing. They are still living in the Stone Age. Share on XTake a quick step back. It’s pretty broad as far as the client type that you assist in both lending and advising, and you mentioned a few. When you say small business, what are we talking about? What constitutes small business?
Yeah, that term’s thrown around a lot. $20 million in revenue and below. Someone who’s doing between $1 to $20 million is really where we can actually step in, bring in teams to help them implement probably fractional. Anything over $20 million in revenue, you probably have a lot of in-house teams. They would just work with us on an equity raise or a capital raise.
I want to be clear here just so we don’t get confused. We have multiple companies. Shield Advisory Group is where we help people scale their business. We’re more consultants over there. I’m also a Certified Exit Planner, so like we were saying before, somebody comes to us they want to sell their business, you have two the same exact businesses, the numbers are exactly the same. Why does one sell for 1 multiple and the other one gets a 4 multiple? We come in and we show them what the best in class is doing, so when they do exit, they can get a higher multiple.
A Crash Course On Lending (And SBA Loans)
Perfect. That’s a great segment too even said the word exit, even help them exit, so totally get that. Let’s break them down in silos. Let’s talk about lending. Business between having revenues between $1 and $20 million. It matches your client profile they come and see you guys either they want to scale their company but for whatever purpose it is they want to buy equipment, they want to scale, they want to have an exit, that’s why they want to, for whatever reason, in need of some funding.
You mentioned that they think they need more money than they actually need, so you guys advise them there. Where does that money come from? Are you guys actual lenders? Is it your own money that you’re lending like a venture capitalist? Do you go out there and find lenders? Are these lenders private? Are they government lending? Give us a crash course on the lending part and then we’ll go on from there.
All of the above. Allow me to define what the challenge is. To simplify our industry, there are three metrics to allow you to gain access to capital. One is credit. One is revenue, and the other is accountancy. Put those on a spectrum. Let’s call that spectrum 1 to 10. I’ve got revenue 1 to 10. I’ve got credit 1 to 10. I’ve got accountability 1 to 10.
Everyone operates at a different level. If everyone scores a ten on that metric, I have a plethora of solutions, but if I have a company that is an 8, but a 4 and then a 7, I have a certain lender that has that risk tolerance. If someone is a 2 and a 2 and a 2, we need to roll up our sleeves and do a little bit of work because any capital that we get for you is going to be expensive.
It doesn’t really make sense to gain access to expensive capital because not many companies can withstand that debt service. To define the solution, it’s better to understand what the problem is. The problem is we inherit our clients when they come to us. It’s our position to put them in a position where they are more bankable.
There’s very little we can do about revenue. I used this analogy with an actual client because they were looking for working capital where they should not have. I explained to them imagine having a fireplace. We are the fuel on your proverbial fire. When you have a fire and that fire is your product, your services, your sops, you have clearly defined clientele, your team is in place, all you want to do is go from 2x to 5x or from 5x to 10x.
Working capital allows you to do that because you can scale with more machinery, more inventory, more staffing, more software, etc. You’re just having more abundance. If you’re still figuring out, “I don’t know if I want to be an orthodontist or whether I just want to be a hygienist or whether I want to do cavities, or maybe I want to do braces,” you have to figure that out first. Putting fuel on an empty fireplace is not going to trigger any spark. I hope that makes sense.
Yeah, it does.
Luigi, I like to break it down to three things. I call them the 3 c’s, cashflow, credit, and collateral. Now you don’t have to have all three to get funding. We could work with one. The more of those 3 C’s that you have, the better rates and terms you’re going to get across the board. Now one thing your audience needs to understand is not all lending instruments are equal. We have SBA loans here in the United States, which go out ten years. The rates could be in the single digits. We have short-term capital and bridge capital where the rates can be 25% to 30%.
Stay on SBA loans. I’m part of a Canadian whatsapp group chat that buys companies in the US, so I hear these guys talking about this stuff all the time. Talk to us about that. Do you guys need to be a service provider of SBA loans? Do you have a middleman you need to go through? What does that look like? What’s the basics that’s needed? If a mechanic who’s doing a couple of million dollars in revenues, he wants to buy another building, can they get an SBA loan? Give us a quick crash course on SBA loans.
Lou, do you want to take this or do you want me to go?
No, sure. Thanks, buddy. The SBA is a Small Business Administration. They are not a lender. They are a guarantor. Imagine if Matt was going to give me a loan, but he knows that 85% of that loan is going to be insured, guaranteed by Real Estate Investing Demystified, Matt would be more inclined to give me that loan. That’s all the SBA is.
The SBA offers these guarantees to federally insured lenders so long as they meet certain guidelines. That’s the key. The key is these lenders will package these loans that meet SBA guidelines, and once the SBA says, “You meet my guidelines,” we check all the boxes, we issue you an SBA number, then the SBA will guarantee a portion of that loan.
The SBA guarantee comes in many shapes and sizes. They have microloans, which are small pre-DSCR type loans. You have real estate backed, collaterally backed loans. You have 7a working capital loans. You have real estate acquisition loans. You have a plethora of SBA type loans for small business. The key metric there is above average FICO, above average credit. They want a certain amount of time in business, so usually more than two years because most businesses tend to fail prior to that two-year mark. They wanted to see positive EBITDA. If you’ve got those three metrics and you are not in one of those blacklisted type industries, for example cannabis or pawnbrokers or any of the sin industries.
Predatory type industries?
No, also sinful, meaning like, believe it or not, strip lounges and vice industries.
To clarify one point that the SBA is insured through a government agency, but lenders are totally different. When a client comes and sees you guys, do you have to go through these first get this? Get that insurance fixed the SBA and then go find the lender or do they work?
Our approach is more consultative. As Matthew says, we get to know the client and then we recommend a solution. The SBA could be a nice solution for them or it could be a terrible solution. The SBA has a lot of limitations. For example, the maximum exposure you can have with the SBA is $5 million. If you are growing and you have multiple businesses and let’s say, one business has a $2 million SBA loan but another has a $3 million SBA loan, you’ve hit that ceiling. You’re done. They also require collateral. They’ll ask you for cross collateralization. If I’m partners with Matthew in one business, but then I’m partners with you and another business, I don’t know if you want to cross collateralize Matthew’s business.
To dive in a little bit deeper, I think this is the way you’re going with that, the SBA has their one set of guidelines. We work every bank in the country. All they want to do is write SBA loans. Why do they want to write SBA loans? That’s because they know if I lend you $100,000 and that loan defaults, they’re getting $85,000 back from the government. Their liability is only that $15,000.
Most banks only want to do that because of that insurance. The SBA has their one set of guidelines and I’ll give you a perfect example here. In the SBA guidelines, it says your credit score needs to be 640. Now the bank has their own set of guidelines. Each banking set of guidelines is different. Just because I hit the SBA guidelines doesn’t mean Chase is going to give me an SBA loan. They’re saying their credit requirement is 720. They won’t write that loan.
However, there are other banks out there that have more lenient guidelines. When a client comes to us, we sit down with them. We discuss what they’re going to use the funds for. We decide the right route to go, and if it is an SBA loan that they want to go for and we think it’s the right thing, then we go in and we match them to the underwriting guidelines of the banks that we know to ensure that they get at least a shot of getting approved.
I’m not going to bring somebody with 680 credit to Chase when they have a 720 credit requirement. I’m not going to bring somebody who has a tax lien to another company we use, but I’ll bring it to lender B because I know up to $15,000, they don’t care about that. It’s a matter of not just knowing the SBA guidelines, but each and every guideline from each lending institution that does the SBA loans.
Let’s quickly going on this again finalizing the lending portion of the discussion. Business owner comes and sees you guys, I use the example that the mechanic who makes a couple of million dollars a year, for SBA, it doesn’t matter what industry they’re in. As long as they’re meeting those revenues and credit?
Yeah, as long as they’re not in a vice industry. However, it’s also banks though. Banks have different industries that they will lend to. Lender A, if they have too many home healthcare companies on their books inside their portfolio, they’re going to stop lending the home healthcare companies because they have too much exposure. Those guidelines change constantly.
Going For Traditional Banking Lenders And Alternative Lenders
You go and find somebody else for them. Now you guys are not only SBA advisors, people at that route, but also other types of lenders that exist. How much of your business is SBA? How much is it let’s call them other lenders that lend to business owners would you say approximately?
Twenty five percent.
25% SBA, 25% other lenders. Give us a crash course on these other lenders. Who are they? How much do they lend? What’s the parameters they look at? Is it insured? Is it just their own money? Tell us about the lending part of the discussion.
It’s both. It’s traditional banking institutions and private lenders and private credit. When we think of lending, “Let’s go to Chase, let’s go to Wells Fargo, let’s get a loan.” That’s a traditional banking lender. You have alternative lenders or private credit is a big term that everybody’s using these days. Private credit and alternative lenders are like me and Luigi. We have our own fund. If we like the deal, we like the person behind the deal, we will fund the deal. The key difference between alternative lenders and banks, alternative lenders, it’s their own money. They don’t have to qualify. They can make anything happen that they really want to make happen.
They usually do have a box that they need to fit. Again, some lenders want 700 credit, some lenders don’t care about credit. They just care about cashflow, so you got cashflow based lenders as well. Time in business is another thing. Time in business, even though I’m an alternative lender I still want you to be in business for two years. Why? It’s because two years, that’s the risk profile that we have.
Quickly on the private credit. The more institutional type of lender is banks backed by SBA. What is the interest rate for the SBA Loans and what is the term and interest rate of these loans for private credit?
They could they could vary. You have factors factoring, which is just another type of lending vehicle. What factors do is they buy your accounts. As long as that’s out, they can charge you 3% a month. You have revenue-based lenders, that they also use a factory. They don’t use an interest rate because in certain states in the United States, that’s usually a loss. However, revenue-based finances will use a factory of a 125 or a 130. What does that really mean? It means you’re paying 30% for the money.
Essentially, what they’re doing is, let’s say you need to borrow $10,000, they’re buying #13,000 worth of future receivables. Traditionally speaking, those types of lenders, the way they mitigate their risk, and look the way we do it is we take our capital back on a daily or a weekly basis. We’re not waiting for one big payment at the end of the month.
Now, from the lenders side, it’s great because what happens if I’m bringing my money back in on a daily or weekly basis, and we deploying that capital so the money keeps compounding. However, with those types of deals, you’re usually dealing with what we call some prime borrowers. People that have less than a 650 credit score, they can’t show you full financials.
Small business lending must be considered more of a custom suit rather than an off-the-rack suit. Every business is created differently and has different credit, revenue, and collateral. Share on XWhat you’re lending based off of is their revenue profile. How much money is coming in the business and going out of the business on a monthly basis based upon a historical trend. That’s what we see a lot of people moving to. Another reason people use revenue based financing is we could do $10 million in 72 hours. An SBA loan is going to take 3 to 4 weeks to get done. If you need money tomorrow, no bank is going to give you that line of credit tomorrow. It’s not always about the interest rate or how much you’re paying for the capital. It’s about opportunity cost and how soon you need the money.
What’s the most common need that people come and see you? Is it for growth, is it for purchasing real estate, equipment? What is it for?
Generally speaking, we see a lot of people that got caught up in revenue-based financing loans. They have these weekly and daily payments. They come to us to get them out of them and put them in more of a traditional banking. Consolidate and put them in more of a traditional banking instrument.
We’ve learned about that. Any last words on that, Luigi, before we move to the next subject?
On lending?
Yeah.
I think it would help if we considered small business lending a little bit more of a custom suit rather than an off-the-rack suit because every business is created differently and every business has different credit and every business has different revenue and collateral. For example, if you have a trucking company and you need money to buy more rigs or more trailers.
We then get you an equipment loan because the collateral of that equipment allows you to get a low interest rate. If you have a very robust accounts receivable, we can put either a purchase order financing or a factor in place because you only need the money for those 90 days and you need to absorb wages and supplies for those 90 days. It’s really finding the right solution for the type of business and your cashflow.
How To Improve Business And Financial Efficiency
That’s where you guys come in. Now let’s talk about operations. Ava’s going to love this. We talked about debt and lending and stuff. Let’s just talk about operations if we can. Business owner comes and sees you guys, you talked about situations where the burn rate is more than their cashflow, you talked about situations where they’re trying to borrow more money than they need, probably there’s situations where there is money left on the table for a lot of businesses, efficiency. Is that a consulting service you guys provide as well?
It is. I start the conversation with the same question all the time. If you and your family were to go away on vacation for one month and turn off your phone, what happens to your business? You’d be surprised the answers like, “I wouldn’t have a business to come back to.” if you use that metric on a daily basis and you conduct yourself to put the sops, the systems and processes in place, and the team and the cashflow, you could one day go on vacation for a month.
All right, so sops, so acronym that we’re very familiar with here at CPI.
Standard operating procedures. They’re in place for everything.
Very familiar with Gino Wickman and the book Traction and Entrepreneurial Operating System.
Matthew always says the entrepreneur should be working on the business not in the business.
Talk to us about a journey of a client that comes and sees you. Let’s say funding is one aspect of it. The cashflow is great. It’s not consolidating more. It’s more of what they want to bring in. They want to borrow some money to grow their business. The business is doing great, but there’s some operational issues. How do you guys come in and audit that and what program do you put them on? What type of consultants do you bring on?
Do you upgrade their accounting? Do you upgrade their bookkeeper? Do you bring in this assistance that we talked about if it’s Entrepreneurial Operating System or other systems do you bring in software’s? They could use like how do you come in? A lot of franchise, for example, have these systems. A lot of mom and pops businesses don’t. Discuss about that journey of a client coming in.
That would be difficult because each industry is so different and there’s so many arms in each company.
We have a love-hate relationship with franchises meaning this is a process in place and the branding and that turnkey operation but sometimes, the franchise agreement is so rigid that it handcuffs an entrepreneur from doing anything further. We had a company that was providing gymnastic types of services for children.
However, their structure was very rigid. How to be on a class basis during certain hours for insurance purposes? I can understand that, but if they want to offer a one-to-one or maybe like off hours types schedules, their insurance didn’t permit it, so they couldn’t offer those services. You’re limiting your Revenue based upon a certain time frame. You cannot scale. You simply cannot succeed. There’s only so many rooms you have, there’s only so many people you can have working in those rooms per day. There are certain models that just a flawed from the beginning. I’m just giving one example.
Falling In Love With A Business Model
I have a question for you, guys. I know you guys do the landing portion as well yours, but if you ever advise a client to say, “You guys should start looking for investors and give up a portion of your company other rather than going and getting lending.” Have you ever talked about that? My next question to follow that is have you guys ever met with a business owner, absolutely fell in love with their model and said, “Hive us a portion of your company, and we want to invest in your company.” Instead of lending and getting an interest, you actually have an ownership stake. I’m curious about this because you guys meet so many different business owners. Talk to us about a little bit about that, please.
Yes and yes.
I see a smile on the Luigi’s face there.
Everybody wants an investor. I’m very clear about this. Everybody thinks, “I need an investor so I don’t have to pay anything back,” but let’s think about something here. If you have $1 million a year business, you could sell maybe from $1 million, you’re there. You want to bring an investor and he wants to give you $300,000. He’s going to want 30% of that company for $300,000. Now, let’s flash forward three years. Now we’re doing, I don’t know, $5 million a year. The multiple goes up because we went into a different range. Now, we have a $15 million company. What’s 30% of $15 million? $5 million for $300,000 dollars. It gets a little salty, doesn’t it
You’re selling your soul.
What rights come in with this? What rights does the investor have? Is he passive? Does he think he owns the place? Let’s say you own a restaurant. He’s in there every day. He thinks he’s eating for free.
Does he have voting rights? You can bump heads.
He’s taking 30% of the company and you want to grow. He doesn’t want to sign that personal guarantee for the SBA loan, taking another $5 million out. What do you do? Do you buy him out? No, you don’t really have the money. On paper, you do. Would you take that $300,000, 30% on that $300,000, like in a revenue base loan, pay $90,000 for the cost of the money. It’s a lot cheaper than having an investor in there.
What’s interest rate on that?
Forget SBA. I’m using expensive money here. Let’s say 12 months, 30%. If I execute, I’m not owner, I know where I’m going right. Next year, I do $4 million then I’m at $5 million. Multiple goes higher. It seems like a lot to pay that $100,000 to borrow $300,000 right then, but if you’re executing, you believe in yourself, I would do that every day of the week.
Yeah. If you put it into perspective, like that. Absolutely. How about my second question, Luigi, you had a smile on your face or is there any companies that you guys ever come across? You’re like, “This is incredible. We can help this company grow and maybe we can actually invest in ourselves and forget about lending.”
I’m laughing because Matt has an internal joke here at the company. I fall in love with one client a week, but I fall head over heels in love like, “You’ve got to see the carpentry work. You have to see the handrails. Unbelievable.” Let’s leave them alone. Get out of here.
There is one out of Minnesota. Brian came to us. Funny. You just mentioned it before. This is a different company. He acquired a bunch of gymnastics studios during COVID. We came to us, we lent the money debt. He went out, and I don’t know, 15 or 16 gymnastics studio’s. He was executing. He came to us and he said, “I got this vision. I want to bring on one of my friends that was a founder of Lifetime Fitness.” I don’t know if you guys ever heard a lifetime.
“We want to build out a kid’s gymnastic studio. Here’s the land, here is what I need. Flagship location. Once the first one is up, another 12 in over the course of the next 3 to 5 years. We invested for equity in that company,
There was a common thread. We fell in love with the company and he’s a solid entrepreneur. He’s been doing it for twenty years.
Helping Small Business Owners Become More Financially Literate
Let’s go back and spend some time in operations. We talked about dead and lending stuff. Let’s talk about operations if we can. Matthew, with your Wall Street background, business comes to you. How much of your time is spent making them more efficient, making them more financially literate about their spending and so on? Talk to us about that part of the services you guys provide.
I’m going to be completely honest with you. I am more working on the business with the marketing team, bringing everybody in. Luigi’s spending time on operations, he’s our Operations Officer. I’ll have a couple of calls with clients, Luigi will have a couple of calls. We’ll do a couple of calls together. My time is very much focused going out, building relationships, bringing deals to the table. We just launched our capital advisory and introduction division.
These are higher companies, higher than $20 million that are looking for capital. What I do is because look I raised $250 million on Wall Street, doing everything from private placements, equity, bringing companies public. I’m working with those types of clients now to introduce them to more family offices. Private equity firms. The day-to-day with our book of clients we probably spend what, an hour a week would you say, Lou, with the clients overall in the consulting side? It’s more about them executing. We can talk to them all day long but they have to go out and execute at the end of the day.
We’ve been avoiding the 800-pound gorilla in the room and I think we should let him in for a second. We can take out the bananas and explain to everyone large banks in America are not fond of small to medium-sized businesses for various reasons. One, they have a high-risk profile. Small businesses may fail.
Small businesses, if they lean too heavily on a founder or an entrepreneur and that entrepreneur gets the flu, gets sick, retires. There are many reasons why small business is not attractive to big banks. When I say big banks I talk about your big cash banks, Wells Fargo, Chase, even TD Bank. While they are Canadian in foundation, they have a huge presence in the States. Those are the big shop banks.
Now when a small business is confronted with that stress in the market in trying to gain capital, you understand why all these hybrid solutions are so widely successful. I’m streaming right now from a hotel room because right after I sign off I’m going to a lender conference. Why? To try to find more hybrid lenders for our clients because the more creative solutions we have, the more successful we are.
The more successful we are, the more referrals we get. It’s a recurring cycle. However, our greatest sources of referrals and our best affiliate partners are cpas and big bank managers because they get so many declines that they send them to us and say, “Lou, can you help them out. This gentleman had a tax lien in the past or this gentleman had a felony or this gentleman had a bankruptcy or this gentleman had an ingrown toenail.” Those are the type of declines they get.
The lending part seems to be the bulk of your business. Operational side, you’ll look at it, you’re not going to get in there get your hands dirty. You talked about marketing. How much you guys getting involved in the marketing of a company? Do you see money left on the table they’re not doing too much marketing or do you leave that to other consultants?
No, when we see a void or a blind spot in a business model, we’ll make a referral to someone that could build in either an SEO campaign or a marketing campaign or a drip campaign. Whatever we think is missing. It’s basically just a very warm introduction. The same thing with accountancy. When we see books that are in disarray we have a stable of solid accountants and bookkeepers that we are very fond of just so that we can make that introduction because there’s no reason an entrepreneur should suffer because their books are in disarray. That’s just unacceptable.
How To Prepare For A Profitable Business Exit
Fair enough. Let’s talk on the last point of here before we move to the next segment of our show, but let’s talk about exits. That’s something we discussed from earlier on. You guys advise for exits as well or is that part of your business is that as well? Somebody comes and sees you, maybe they don’t even know, but halfway through talking with you guys, you’re like, “You seem like you’re already talking about retirement or exiting. Is this something you want to do?” What is your level of consulting? How much you get involved in that portion of it? Usually, it’s a business broker that gets involved in in exit. Talk to us about that portion of it.
I’m a CEPA, a Certified Exit Planning Advisor as well. It was just the next natural extension for our business of what we’re doing over here. When I left Wall Street, by the way, my partners bought me out, I was a partner in an investment bank, I grew it from 4 of us to 80 registered reps. I got into private lending. We got into consulting, I’m like, “All right, I’m writing people checks why don’t I help them and consult?” Now I’m consulting for them. It’s that one simple question that nobody really asks themselves. What am I doing this all for? What’s next for me? When do I look what do I want to do next am I going to sell my business am I going to leave it with my kids? Do I even have a plan?
You don’t know how many entrepreneurs don’t even have that in their head. They’re just going through the motions to create cashflow for today and tomorrow they’re not thinking beyond that because they’re just moving so fast working in the business, like Luigi said, rather than on the business. Let’s say we’re working with somebody. We get them funded, we help them start scaling. We go, “What do you want next? When do you see yourself retiring? When do you see yourself possibly selling the business? What do you think you could sell the business for?” you get all these rando answers, “I don’t know. I never thought about that.”
There is no reason an entrepreneur should suffer because their books are in disarray. Share on X“My buddy down the block, he sold the same business that I have and he got $5 million for it.” “What does he do?” “I’m a mechanic, but he sold tires.” I’m like, “How did you come up with the same multiple?” What we’ll do at that point is we’ll bring in a financial advisor with us. We’ll see what they have personally, what the value of their business is, and what their wealth gap is. The amount of money that they need to retire comfortably.
Here’s the problem, 80% of business owners, all their worth and their net worth is tied up in their business. If they have 20% of their net worth in stocks and bonds, it’s a lot. What we need to do is we need to take an overall picture of the amount of money that they need to retire, see where their business is now, and see how we can adjust that multiple.
Sometimes it’s just about crossing the T’s and dotting the i’s. “I’ve been doing business with Steve for six years.” “Do you have any contracts? Contracts, add value to the business. What can we get? How can we get reoccurring revenue here? Recurring revenue adds value to the business so we can increase that multiple higher as we go along.” That’s a 2 to 3-year process to get that done. That doesn’t happen overnight. There’s little things that you can do along the way that make your business more valuable.
Non-competes. How active are you in the business? The last thing I want to do is when I go in and I want to buy a business is I don’t want to buy a job. I want a business that runs itself. The first thing we need to really do is work on getting that owner out of the business to make it more valuable. Luigi has a joke too. When somebody’s calling John’s Plumbing and John answers the phone all the time, that’s not a business.
How To Bring Your Business To The Next Level
One last question for you guys, kind of how I started off the show. This might be difficult, question to answer, but have you guys been able to pinpoint what really does separate businesses that stay small from those that break through to the next level? Have you guys been able to pinpoint a couple of different things or one particular factor?
It comes down to the ownership. Who’s driving the business? Are they complacent? Did they get comfortable? What do they see next? Do they surround themselves and build a good team is really what it comes down to. You could be the greatest salesperson greatest marketer or technician in the world but you can’t do it all, and you can’t scale.
That’s so true. When we co-founded CPI Capital, August said to me, “Are you ready to become a great manager? You’re not going to be able to do what you’re doing, and then started building our family.” We have two sons now. He’s like, “You can’t do it all. As much as you like to have your fingertips on the pulse of everything that’s going on, being in control of everything, you’ve got to become an amazing manager,” so that aligns with exactly what they just said. That’s amazing.
There is also one character trait that cannot be overlooked. It’s got to be tenacity. Your founder owner entrepreneur has to be tenacious. I’ll give you a very simple example. Matthew and I have achieved a certain age where we can look back and say, “We’ve covered a lot of ground.” That ground also covered several acts of God that shut down our businesses. They involved terrorist attacks, multiple, which shut down our businesses. Personal incidents that may happen that can give us setbacks. Storms. Stuff happens. People quit, people get pregnant, people retire. Your business is a bullseye for incidents so if they’re not tenacious and try to overcome it.
I’ll give you a perfect example. If you look at our company, we have a host of redundancies. You may say, “Why are you guys spending money on this?” We have redundancies in place because we don’t want to suffer how we did in the past, but that comes from experience. If I tell you, “You need 2 of this and 2 of that and 2 of this,” that’s just a waste of money. No, it’s not a waste of money because if your business is, shut down for two months, you realize that lost business is not a waste of money.
If you think about it, if your number one salesperson comes in and resigns tomorrow but they would drive an 80% of the revenue, you’re in trouble.
Game over. Absolutely.
Taking that from our businesses, that’s another thing we do when we’re looking to exit. We want to see what concentration of revenue is coming from how many different businesses and diversify that out. If we sell widgets to IBM and IBM accounts for 90% of our revenue and they pull the contract, do we even have a business anymore? That’s another little thing that makes businesses more valuable than the other.
Unless you have some blackmail information on IBM. All right, let’s move to the next segment of our show.
10 Championship Rounds To Financial Freedom
Next segment, the Ten Championship Rounds to Financial Freedom. We’re going to ask you guys a series of questions. Matt, we’re going to begin with you. Are you guys ready?
Let’s go.
Let’s do this. First question, Matt who’s been the most influential person in your life?
Hands down, my wife.
All of our guests say their wives.
You can elaborate on that a bit if you’d like.
Before my wife, there was Matt. Matt was wild, Matt was crazy. She definitely put structure in my life and she was able to tame me a little bit where nobody else could.
Matthew’s the reason the SBA has that blacklist for sin industries.
Luigi, who’s been the most influential person in your life?
My grandfather. My wife is going to be a close second with the one caveat that I’ve only known my wife for 5 years and I knew my grandfather for 30.
Our wives coming later on in our lives, whose face do you see right away.
Next question, Matt what’s the number one book you’d recommend?
I could only pick one? Who Moved My Cheese? You guys ever read that one?
No. Never heard of it.
You should read it. It’s really good book. It’s about two mice.
Is it Dr. Seuss?
No, but I mean it’s a really good book. It’s a short read, maybe 100 pages and the book is don’t get complacent. There’s two mice, they’re in a maze, they don’t know where to go. One takes his shoes off. We don’t need that because they found a big source of food. That food runs out, the mouse has no more shoes. The other one tied the shoes around his neck and held them for later and kept moving. That’s the essence of the book. I like that.
Right on. Okay, nice. Luigi, what’s the number one book you’d recommend?
I’m going to cheat but it’s not really cheating. I love Ayn Rand and the three books that she wrote and they were technically three books but they were like a continuity of capitalism as seen by a Soviet immigrant. There was Anthem, The Fountainhead, and Atlas Shrugged. I make a point of reading those 3 books every 5 years.
Our first son’s name is Atlas.
Next question, Matt, if you had the opportunity to travel back in time, what advice would you give your younger self?
If you could go back to any age?
Yeah, any age.
Get married sooner.
No, not get married sooner. I had fun before. I got married at 26. That’s pretty young. Buy as much stock as I could in Google and Apple.
Luigi, if you had the opportunity to travel back in time, what advice would you give your younger self?
I have to take your answer. I would have gotten married sooner. I wish I would have met my wife Tina 10, 15, 20 years ago. I just don’t think she would have liked me back then. I was a very different person.
Yeah, everything’s about timing. Yeah, absolutely. All right next question, Matt what’s the best investment you’ve ever made?
Paying for my Series 7 class. I had a watch. The only thing that I had of value to my name it was a Movado watch. I sold it for pennies on the dollar so I could afford to pay the $500 to buy my books for my Series 7 class.
Investing in yourself, yeah and Luigi, how about you?
Partnering with Matthew. I have this rule about investing. Whenever everyone is running one way, you got to run the opposite way.
That’s true. It works.
When everybody was buying gold, I sold it.
How did you guys meet?
We met on Wall Street.
That’s why we named our podcast The Liquid Lunch Project. Back then, deals would occur more often over a beer. I remember Matt and I’s offices were very near each other and there was a popular restaurant bar called Bobby Van’s. I remember the bartender would always have this wonderful witty saying, a good Irishmen. He’d say, “This place is always packed. You guys love to come here to celebrate or commiserate, but we’re always busy.”
All right, awesome. Okay, next question, Matt, what’s the worst investment you’ve ever made and what lessons did you learn from it?
This is a really tough one. There’s no one that I’m just like, “That was bad.” I got something. There’s a silver lining to this. My parents were going through foreclosure so I just bought the house. They wound up moving. It was my second property. I had no idea what was going on. My numbers were all off. All we did was lose money on this thing. I wound up selling that for pennies on the dollar too. At least they got out of foreclosure and they were able to move.
That’s a great son. Luigi, how about you? What’s the worst investment you’ve ever made and what lessons you learned from it?
Back in the ’05, ’06 real estate boom in America when interest rates were very low and there was 103% financing, yes, that was a thing. Could you imagine given today’s underwriting criteria, back then they were financing 103% of real estate value. I got overexposed, I bought too much real estate in ’06 and ’07. I was lucky because the property did increase eventually, but there were a couple of lean years.
What lesson did you learn?
Don’t overleverage. As my grandfather used to say, if you don’t have the cash in your pocket, you can’t afford it.
The Achilles heel of real estate is leverage.
All right next question, Matt, how much would you need in the bank to retire today? What’s your number?
I don’t know if there is a number. I think I just need enough money in the bank to do what I want when I want. I don’t think there’s a set number.
Nice, perfect. How about you, Luigi?
My number is more of a lifestyle than it is a like number in the bank. Meaning today, and people change. I’m not who I was when I was 40, I’m not who I was when I was 30, but today, I can’t see myself sitting down and watching TV or reading a newspaper and just being retired without a hobby. I’d have to find something that was super active to keep me mentally and physically active. My wife understands that. I don’t know what it is. I think I have a couple of ideas of what it could be, but I haven’t figured that out yet. I’d have to find a schedule that affords me to be active and also be able to bounce my grandkids on my lap and who knows, maybe I’ll still be stuck with Matt.
There you go. Nice. All right, next question. Matt, if you could have dinner with someone dead or alive, who would it be?
I’d want to have dinner with my grandmother again.
Maternal, paternal?
Maternal, my mom’s mother. She passed away and I was just getting started out and I think I just wanted her to meet her grandkids. Her great-grandkids.
How about you, Luigi?
That’s a beautiful sentiment, Matt. I can’t I can’t answer with my grandfather again because I already answered that with the first question. I’m going to throw you for a curveball. Benjamin Franklin because he was probably the baddest ass in a group of badass gentlemen.
General founding father did a lot.
What those guys pulled off back then, I know we call them our founding fathers and there’s a certain deference to them, but I don’t think we understand how much they suffered and the turmoil they were put through just to pull off. Could you imagine like, “Let’s tell St. Thomas to declare independence from the United States.” It’s not going to go well. Imagine pulling it off.
That’s a good one. We never got Benjamin Franklin before. Yeah, that’s awesome.
Also, keep in mind that Matt and I are Americans.
All of our guests are Americans.
All right, next question. Matt, if you weren’t doing what you’re doing today, what would you be doing now?
Training dolphins.
Really? Do you have a love for dolphins?
No, what would I be doing now? Honestly, I can’t tell you because I already had one career in a prior life. I was on Wall Street for twenty years. Now I’m doing this. It’s great and I’m more active in real estate now, so I think I’m moving towards what I would be doing anyway while still maintaining this.
Was there something else like in in sports or anything else in life life could have possibly taken you that way but you went the other way? Was there something else?
For the longest time in high school and middle school, I did Taekwondo. I’m a third-degree black belt in Taekwondo and I was training I thought I was going to the Olympics. Flash forward, that’s why I was working at a diner and I didn’t do really well in school because all I cared about was Taekwondo. I thought I’d maybe open a school back then one day and do that. I don’t see myself doing that anymore.
Is that the one where you have to wear that big thick wedgie like pajama type thing?
No, buddy. That’s just another dig, I guess you call me a sumo wrestler.
I get confused with the Asian martial arts. I’m sorry, buddy.
How about you, Luigi? The question is if you weren’t doing what you’re doing today, what would you be doing now?
I would love to have been a professional sailor. Think of what the word amateur means. One that loves what he does. If you do something as a hobby, you tend to love it, but if you have to do it for work, you probably won’t love it anymore. I don’t know. I have this love-hate relationship because I’m scared that if I were to ever have become a professional sailor, I maybe wouldn’t have loved it because then it was just a job. I had to sail.
All right, next question, Matt. Book smarts or street smarts?
Street smarts.
Street smarts all the way? Awesome.
All the way. I could always give you a book and you can read it, but if I bring you in the middle of New York City, do you know who to stay away from?
How about you, Luigi? What are your thoughts on that? Book smarts or street smarts?
Street smart. I’m still a kid from Brooklyn and I read a room when I walk into it. All those degrees, I think they were in lieu of me hiding my street smarts.
Matt, now last question. If you had $1 million in cash and you had to make one investment today, what would it be?
I’d probably sell on the S&P 500. As of today.
You’re shorting it?
Yeah and that’s only the short-term trade for the next 6, 12 months.
Luigi?
I’d take that money and put it into my investment portfolio with the same percentages I’m in now. I still think the American stock market still has room to grow. I think investing in America’s still solid. I don’t think we’re a perfect country but I think business-wise, we’re still solid. I don’t think we’re a perfect country but I still think business-wise we’re still solid. Just for the next three years.
The American stock market still has room to grow. It may not be a perfect country, but it is solid business-wise. Share on XNice, I think that’s why you guys are perfect partners. Luigi’s would diversify across his portfolio and Matt would just short S&P. You got the risky and the risk averse.
I actually I think he’s 100% correct. I just think over the micro, we’re going to have a 10%, 15% pullback.
Exactly. Awesome, guys. This has been amazing. If you guys can just let everybody know how they can get in contact with you, that would be great.
Absolutely. You guys can come listen to our show, it’s called The Liquid Lunch Project. You can find it on any major podcast platform provider or if you’re looking for business funding or you want to reach out to us and see what your business is doing, you can find us at CreditBanc.io or ShieldAdvisoryGroup.com.
Right on. Thank you, guys, so much. This has been great.
Thank you.
