Jeremy Weisz 15:48
That was compelling. One of my favorite talks of the event was that 60-second talk you gave about the expansion loan. And I immediately went back and told a bunch of people who were looking at doing that exact thing and buying something similar business, there was a scenario where you had someone and they bought out because I’m able to think, well, I own 10%, I think the person in this scenario, their partner on 90%. What are some of the things that you saw in that scenario that with the process that people should know about?
Ami Kassar 16:27
Scenario, this is actually a YPO, friend of mine, out of Philadelphia, who’s fresh out of college was at a company, and he worked there for before he bought it, I’m gonna going to say 30 or 35 years, and he became the owner, almost like a son to the owner. And over time, he had collected some equity, I think he had 10% equity in the company. And then it was time that the owner wanted to retire. And the transaction was possible. So there was an appraisal business. In this case, it included some real estate. And let’s just say for round numbers, the appraisal was $5 million.
The owner’s share was worth $4.5 million dollars. And the younger partner was able to borrow the four and a half million dollars from the SBA to take out the other 90% of the owner. In that case, because there was also some real estate involved, we were able to get a longer amortization than the 10 years for little help with the cash flow. The most important thing I encourage people to think about when you are looking at a transaction. And this could be whether it’s for an acquisition, or even just long term debt for your business for growth purposes. If there’s one number, that’s the most important number to stare at and look at, it’s what’s the monthly payment going to be. Sometimes people get caught up and they focus exclusively on APR. So sometimes you would say, why would I ever pay 10% If I could pay 8%.
And on one level, you would never want to do that. On the other level, if the 10% note amortizes out over 10 years, and the 8% note amortizes out over five years, your monthly payment is going to be dramatically different. Answer strategy is about buying flexibility. You want to keep as flexible as you humanly can. And the world we’re living in is a tinderbox and is full of unexpected surprises. If you bought a business the month before COVID hit, which is something nobody saw coming and well felt great. Monthly payment would you rather have memories or short trees to grow to the sky forever? And businesses rarely ever go in a straight line.
Jeremy Weisz 20:04
Yeah I remember I was watching a webinar that you’re conducting. And you propose this question with these two scenarios. And you ask people to respond. And it’s funny, I don’t remember, maybe it was 70% took the lower interest rate, or were like, which one would you take? Right? And people were responding. And you said the same thing. It’s like, well, from a cash flow perspective, you want lower monthly payments. And also, if there’s no prepayment penalties you always just pay it down over the same amount of time. But you have a you are saying right now is the flexibility to have lower payments each month.
Ami Kassar 20:46
The people around that, Jeremy, sometimes people will call me and I go, I want to buy this building. But I’m 60 years old, and I want to be out of debt by the time I’m 70. So give me a 10 year note on the building. My answer is, I wouldn’t recommend that. Quantify the normal note on the building. Pay it down as fast as you. But if suddenly the shit hits the fan, you need the flexibility of that lower monthly payment.
Jeremy Weisz 21:24
Yeah, what do you tell people and I’m sure it ebbs and flows, but people are getting frozen by high interest rates.
Ami Kassar 21:38
Jeremy, like well, here’s a scenario. And I remember this so clearly. I saw scheduled planning call with somebody, I can’t remember if they were an EO or not. The day after Russia invaded Ukraine. And they canceled the call. They said Russia invaded Ukraine, the world is too risky. We’re not expanding our business anymore. I don’t agree with you. But okay. Interest rates are dramatically higher now than they were two years ago. We live through an unparalleled period of low interest rates. So some people just like the guy that canceled the call after Russia invaded Ukraine have put all their expansion plans on hold? Because they can’t fathom or accept the high interest rates?
The answer to that is okay, but this might just be part of the furniture for a long time. We don’t know. Anybody who can tell you where interest rates are going to be. or predicting with a straight face, where interest rates are going to be by the end of 2024 is lying. We are living in unrest. There’s no playbook for the economic dominoes of COVID. And so, yes, interest rates are high. Other expenses are higher. Also labor is higher. Raw materials are higher stuff is more expensive. Yeah. It would be great because interest rates were back to what they were two years ago. We won’t see that in our lifetime. So either accept it or stop investing. Realize that you might be freezing yourself a guy called me, a friend of mine several months ago and he’d been eyeing acquisition for 10 years.
Exact same type of business as he is. The competitor was ready to retire. He dreamed about this acquisition for a decade. And he was frozen with a higher interest rate. We did month but different payment was about $2,500 a month. Which he could have for there was a psychological thing. My advice to him was buy the damn business. Think you actually ever did. My advice is trying to get frozen by the interest rates. It’s dance, but lots of others that stink. What are you gonna do about it?
Jeremy Weisz 25:02
See, you’re part psychologist with the business owners when you take them through this process?
Ami Kassar 25:09
What money therapists there’s no doubt about it.
Jeremy Weisz 25:13
We talked about the expansion loans. There’s also one you’ve mentioned in the past about one without a lien.
Ami Kassar 25:24
So another use of SBA loans that many entrepreneurs don’t realize or think about. Jeremy, can we roll model? Can I have a question that you? Shoot? If Uncle Joe gave you a gift $350,000 and he said to you, you have to invest it in your business, and use it for things that you’re not doing today in the next year? Or he’s taking it back? What would you do with the money?
Jeremy Weisz 26:07
Spend it? Specifically, what I do, or I mean, yeah, I’ve taken and I, probably the things I should be doing anyways, I imagine, which
Ami Kassar 26:20
I’m not holding you to it, what are some of the things you would invest in that you’re not doing today?
Jeremy Weisz 26:24
I mean, one of the things we are looking into, but is acquisition, purchasing a business. So we use it towards something like that? Probably, more paid acquisition. We’re doing a little bit of that, but not tons. So we put it into marketing, advertising costs, and then because of that influx, probably more staff, I imagine.
Ami Kassar 26:55
So why are you doing that today?
Jeremy Weisz 26:59
I knew you were gonna ask me that. Well, we’re working towards some of those things. But we haven’t gotten to that point on some of them either.
Ami Kassar 27:09
So the Uncle Joe question is an interesting question. And I like to ask it in my workshops, because it takes all the excuses away, oh, my God, I got this pot of money. And the only condition of it is I got to do the stuff that I’m not doing today. However, pretty quickly, you can come up with a shopping list. And the next question is, well, why are you doing those things? And the answer is why don’t have the money? Well, actually, with a good business plan, you could get the money. Okay. So, but part of the problem with that Jeremy in our community. And we have this problem. Also, it’s not me preaching.
It’s that entrepreneurs have a very difficult time really understanding their business models, and the drivers in their business models, and have a very difficult time making forecasts and projections. So one of the workshops I love to teach is a growth Lane workshop. We don’t have a lot to help a company build a velocity matrix. And the idea behind the velocity matrix is you track how much money you spent last year, making investments in your business. So this is not money you spent because you had to its money you spent because you want it to money you spent trying to grow and innovate and evolve and grow. Number Ones number is different.
Most people don’t know that number. Say your number is a quarter million dollars. I’m making it up. The next thing I asked in that workshop is okay. Well next year, if you were to triple that number, and invest 750 instead of 250, what would you do with the money and where would it take you? And then I asked you to prioritize on cut it from 750 to 505 100 to 250. Understand what the financing choices are for those things, and then make a plan going forward. Where people can start getting assessed is they’re not really clear at their forecasts and projections. And that’s a challenge I continue to wrestle with, about how to help entrepreneurs with that. Many people don’t really know, the drivers, the economic drivers of their business model, you’re going to spend more money in marketing and advertising.
What do you have a good handle on that for at least a thesis about what that could do for you? And what the dominoes might be. So if you did that, or decided to risk some money, trying that, you can measure it against a hypothesis.
Jeremy Weisz 30:42
I mean, you’ve helped some Shark Tank businesses, it makes me think of Shark Tank, because sometimes they will ask, well, what are you gonna do with the money? Right? And the people have to answer what’s been some things you’ve seen, in your experience from us, you see a little different side of the Shark Tank businesses, some of them come to you.
Ami Kassar 31:01
As well, I be for Shark Tank as a show. Decrease. I think I call it the Shark Tank myth. And we teach kids that the only way to build a business or the cool way to build a business is to get a famous investor behind you. And I would love to see an SBA lender on Shark Tank, or somebody who knew the loan markets, they certainly would never let me on, they don’t like me. To say, way too a second. We lend you the half a million dollars. You can keep control of your company than to take a lien on your house. So you can sell 40% of your company to Mr. Wonderful over there. Or I’ll lend you the money. You can 10 years to pay it back. And I’m going to take a lien on your house.
What do you want to do? Not in all scenarios, are there lending options for those companies, sometimes equity is the only option for those companies. And I think it would be good education, for the listeners to even hear that for the viewers. As I’m out here, I don’t see a viable lending option. So that’s the lump in my beef with Shark Tank. We had Lopes clean up a bunch of Shark Tank messes. And our experience, at least from the limited portfolio we’ve helped with, is that the investors largely disappear. Not really haven’t really been there to give the support and love that they pretend to that might not be the case with all scenarios. That’s the case as we’ve had in one particular case.
And I think this is important for people to realize one of the investors had higher than 20% stake in the company. And if you take on an investor or an angel or anybody that has a higher than 20% stake in the company, you’re not going to get a loan without them willing to be willing to personally guarantee the debt. And usually they’re not. So in that case, to save that company. The entrepreneur had to go back and convince the shark to take a haircut in their equity. So the company could get debt because he wasn’t willing to do it. Ironically, he was never allowed to talk to that shark. He could only email him. I don’t know about you, but I don’t think you have nuanced long-form mentoring conversations over email with one-word answers.
Jeremy Weisz 34:45
So yeah, that’s really interesting. So someone has more of a 20% stake they need they actually have someone signing in personally guarantee which they’re probably not going to want to do I imagine.
Ami Kassar 34:55
They won’t do it. So you’re precluded. Once you take them in and faster want to invest faster. Start with more than 20% of the company you’re precluded from taking get, you’re likely going to be precluded from debt unless they’re willing to personally guarantee or you’re going to be precluded from debt That involves a personal guarantee.
Jeremy Weisz 35:14
I mean, what’s some other examples? You mentioned in this, we’re talking about Shark Tank here, but I’m sure it applies across the board, when they come to you, and you had to clean up some Shark Tank scenarios, what some examples of kind of the cleanup and what that looks like?
Ami Kassar 35:32
That’s the right word. But I think what people have to realize is that debt markets change, and companies change and needs change over time. I just had a call with a EO member who’s expecting his business to triple this year. He wasn’t profitable. He was about to break even last year. And he expects to really triple this year, and he’s working capitals tight. Currently, he has two lines of credit. And he probably needs to move to an asset based lending facility, that will lead to him as a percentage of his inventory and a percentage of his AR, which is not just swallow, because it’s going to be more expensive than his current credit.
But he probably has to suck it up and do it for at least 12 or 18 months, and move to this type of facility. Before he can go back to regular lines of credit. Believe students see that two or three years ago. That’s a scenario coming. And it’s okay. But if you’re sweating payroll, I’m gonna bite you, Jeremy, I’ve had many months of sweating payroll in my life. And when you’re sweating, payroll ensures how to concentrate on anything else. So making sure that your company has the right debt instruments so that you can flourish and concentrate on health and growth and strategy and moving forward and partnerships. Is the right thing to do. He didn’t want me to make payroll on Wednesday. Oh, you’re concentrating?
Jeremy Weisz 37:39
And there’s obviously you know, I know you’ve mentioned things as far as someone’s whether it’s acquisition or hiring. And there’s definitely options out there. There was another there’s a business you help. I’m wondering, what are some of the things you did there, it was a trucking business.
Ami Kassar 37:57
David Klein, our trucking company out of Northern California. And high school dropout started fixing trucks. Now he’s actually retired and his son’s running the business they have about, I think, a fleet of about 300 trucks. And do you know what his dog’s name is? Dog says two years from very simple, clean, everything’s good. And in that case, he was about to enter into a big job. And cash flow is going to be very, very tight. And so we used a lot of these trucks, some of his real estate, and we amortize them out on a 25 year note. And we were able to improve his cash flow by like a million dollars a year, which really helped him push through that job. So there are sometimes financial tricks that you can do to help business through scenarios like that.
Jeremy Weisz 39:20
First of all, thanks for sharing your journey. Thanks for sharing your lessons. I have one last question. And before I ask it, I just wanna encourage people to check out multifunding.com to learn more. There’s lots of amazing resources there. You can go to their learning center, they blog, podcast, he has books. My last question is some lessons you learned from your dad and the immigrant mentality.
Ami Kassar 39:50
So I was born in South Africa. Super cool. I went back to Cape Town last year for the first time and I think three years ago, I took my wife there, I went for Ito’s Global Leadership Conference. And I actually get to go to synagogue there and sit in this my grandfather’s seat that still has his name on it. Same synagogue where my parents got married, it was a super, maybe one of the most spiritual experiences I’ve had. But growing up in England, we moved to the States when I was eight, and growing up in an immigrant community, with a bunch of people trying to figure out how to get their businesses up and running and off the ground and moved to the States.
Clearly, there were some invaluable lessons in that. My dad, who sadly passed away about four and a half years ago from colon cancer, was an ophthalmologist for a long time. And I think so many of the lessons I learned from him about how you treat patients and how you take care of them. We tend to think of ourselves as lone doctors. I’m not suggesting when you have someone’s eyesight on your knife. That’s kind of like what we do. It’s not a fair comparison. But we follow the same philosophy, the same level of care, and making sure people understand their options. Our whole philosophy and our company is to treat people like we would want to be treated. And my lights turned off a couple of times. When I was building my business, easy to give advice. It’s harder to follow it. And I don’t want to die any blocks.
Jeremy Weisz 41:40
Ami, thank you so much. Thanks for sharing the stories and journey everyone check out multifunding.com and more episodes of the podcast and thanks, Ami and thanks, everyone. We’ll see you next time.
Ami Kassar 41:52
Thank you Jeremy for having me.
