The word “loan” often gets negative reactions from people as it implies debt, but knowing and understanding how it works in business acquisitions can prove very useful. This is one simple method that the rich use to get richer, and Steve Lasiewicz, the Senior Vice President and SBA Sales Manager at Busey Bank, shares how you can do it as well. Steve shares with host Domenic Rinaldi what you should be spending your time on learning during a business acquisition to ensure a smooth and successful transaction. Steve also discusses both the seller and the buyer’s side in an acquisition to provide an insight on what to do if you ever find yourself standing on either side.
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Steve Lasiewicz: Business Acquisition Loans
If you want to know what it takes to secure a business acquisition loan, then you landed in the right place. I will be talking with Steve Lasiewicz who heads up the SBA lending unit for Busey Bank. I have known Steve for years. Over that time, I’ve had the opportunity to work with lots of bankers and I can easily say that Steve plays in the big leagues. Steve has that unique combination of expertise in deal-making. He can help parties navigate difficult obstacles during the loan process to secure great outcomes. Steve has been in banking since the early ‘90s and he’s seen and done it all when it comes to loan origination and funding. Steve, it’s great to have you here and excited to have you share your knowledge with the M&A Unplugged community. Welcome.
Domenic, thanks for having me.
Steve, not to embarrass you or anything, we’ve known each other for a long time and you’re one of the best SBA bankers I know by far. How did you wind up in banking and specifically SBA lending?
I never wanted to do banking. I graduated from college at DePaul University. I did what I wanted to do, which was to be a stockbroker. During the early ‘90s, the internet trading came along and killed the industry for stockbrokers who wanted to trade accounts for customers and the trading platform went away and so did I. I got a call from GE Capital. GE Capital wanted to hire me into the SBA division, teach me everything about the SBA, and off I went. I worked for GE Capital for about six months and learned the whole process. After six months, another SBA lender came along and they had heard what I had brought in already through GE Capital and went to go work for a company called Allied Capital. It turned into Business Loan Express, which turned into be the second largest SBA lender before the financial crisis.
Not only did you launch into SBA by default but then you land with one of the best déclassé companies in the world at the time, GE. What a way to learn and launch your career into SBA.
They knew how to teach you how to sell SBA lending and be able to bring the customers in with the best possible scenarios for what they’re looking for.
Back in the day when you say SBA lending, was it acquisition loans back then or were they doing different things with SBA at the time?
Primarily what GE was asking us to look for was equipment financing, customers that were looking to either refinance their current equipment or new equipment purchases. They would do some real estate deals back then, but little and business acquisitions weren’t even on the spectrum at GE back in the day.
When did you first start getting involved with SBA acquisitions? Can you remember where you were?Debt leverage used the correct way is what makes the wealthy wealthier. Click To Tweet
When I was with Business Loan Express, one of the head credit people when I was bringing in all these equipment deals said, “You’d have it much easier if you concentrated on acquisitions of gas stations and hotels.” That’s a third of what most SB lenders out there have in their portfolio is gas stations, hotels and restaurants. I started off lending to some gas stations and hotels. I became an expert in that industry and then economy hit a downturn. The hotel industry was heading down and I had to try and find a new niche.
One of the lending managers that we had out in California brought to the table business acquisition loans. I had never heard about business acquisition loans. I’ve been doing acquisition loans for real estate purchase businesses like the gas stations or hotels, but nothing where it was pure like a manufacturing company or a service business that wanted to sell the business to some third-party. That was my first introduction into that and it brought me back to my stock brokering days where we raised private equity for some small businesses. It got me back into what I loved to do and what I originally wanted to do with my career and got me over onto this side of the acquisition lending side with the SBA.
Let’s talk a little bit about SBA loans for the M&A Unplugged community folks that maybe are looking to acquire a business or recapitalized in some way. Let’s talk a little bit about the advantages of an SBA loan and what that brings to the table for an owner and for a buyer.
When I talk to customers, I let them see what potential is out there from a conventional standpoint and from an SBA standpoint. From a business acquisition, 90% of the business acquisitions that we see here at Busey Bank are under secured transactions, which means they don’t have real estate. They don’t have a lot of heavy equipment. They don’t have a lot of inventory receivables that a lender can take as collateral for the loan. A conventional loan is fully secured in an asset base. The SBA, which is the benefit of the SBA, allows you to finance under secured transactions and it’s mainly based on the cashflow of the business that you’re financing.
You were brought in to Busey Bank years ago to build up their SBA unit and early indications are you’re doing a hell of a job over there. Tell us about your approach at Busey to the market when it comes to SBA loans, what you focus on, how you help buyers and sellers.
The first thing I concentrated on was setting up the back office side of the bank, making sure we had enough underwriters, enough closers and staff to execute on transactions. We hired a senior credit person right here in Schaumburg, Illinois in my office. We hired closing people to take care of all the closing side and all these people, 100% of them are 100% dedicated to SBA. We set the back office up first and then I went out and started bringing in the sales team. We had 3 or 4 people that we’re bringing in SBA loans to the bank back in 2017. I’ve increased that to nine people. We’re set up for a cookie-cutter transaction that comes in, can get underwritten right away, get approved, hand it right over to a closer who’s only doing closing, take care of the closing from start to finish, then execute on it afterward.
Steve, talk about your focus on the market. Are there particular industries that you’re focused on or are you industry-agnostic? Is it more about the nature of the deal and the parties in the deal?
When I did my due diligence to come to Busey Bank, which was my biggest concern leaving a larger national bank and US bank, I wanted to make sure that the credit box was wide open. When I talked to the senior credit officer here at Busey, I asked him specifically, “What industries do you not want to lend to?” At first, he said there was nothing that he wouldn’t lend to. Construction companies, restaurants, gas stations, hotels, typical industries that most banks steer away from, he was willing to look at those transactions.
It was about a half-hour conversation. I stood up, I was walking out the door and he said, “Steve, there is one industry we don’t want to finance.” I said, “What’s that industry?” He came back and said, “We don’t want to finance any golf courses.” I said, “I can live without lending to golf courses as long as everything else is open.” From a concentration standpoint, from my division, I would say 70% to 80% of what we finance had been business acquisitions. It’s either partner buyouts, its third parties buying out another entity or some transition from one person to another.
I want to come back and talk about partner buyouts because that’s a unique opportunity through the SBA. I’m going to park that for a moment. For the M&A Unplugged community, understanding what it takes to get and secure an SBA loan is important. From the bank’s perspective, do you have a checklist or items that matter when somebody comes to you with a deal and says, “I would like to get a loan to acquire this business?” Do you have 3, 4, 7 things that matter from the bank’s perspective?
Here’s what we look for. When I’m looking at a business acquisition, I look at it from both sides. I look at from the buyer’s side, I look at from the seller side. From the seller side, and the information I get from the seller, I’m looking at the trends of the business. I’m looking at how reliable are the numbers that I’m looking at, the financial statements, the tax returns. I’m looking at what expertise, what knowledge is needed to run and operate that business. The last question I usually ask the buyer of the seller, “Why is the seller still on the business?”
From a trend standpoint, what am I specifically looking for? I’m looking for cashflow and revenue. Is it going up? Is it going down? Is it flat? Is it stable? Is it unstable? Is it what we call predictable? Is it one year it’s $500,000 in cashflow and then the next year it’s $1 million and then the next year it’s back to $500,000? Is it $500,000 three years ago, $600,000 two years ago, $700,000 last year, and it’s on pace for $800,000 this year? That’s what I’m looking for from a trend standpoint.
How reliable are the numbers, the financial statements? Have they been cleaned up already? Meaning, is the seller still taking out a lot of personal expenses from the business? Are we relying on a lot of add-backs? Are the numbers accurate? Does the balance sheet add up? Do all these things add up? The cashflow, is it easy to read and understand? The add-backs that are there, are they verifiable? They know that they spend about $12,000 a year on a credit card for personal expenses, and they want us to trust the seller that those expenses are going away with a new buyer.
The expertise and knowledge to run the business, are there barriers of entry into that industry? Do you need specific licenses to run the business? Is it equipment-intensive? Is the product or service that they offer proprietary or can anybody sell it? Why is the seller selling the business? Is he selling it because he’s retiring? Is there a family feud going on and the family wants to buy out one of the family members? Does he have other businesses that he owns or is he tired and wants to get out? Sometimes you hear from the seller, “I started this business. I never knew it was ever going to get this big. I don’t know how to run and operate a business this big. I feel uncomfortable. I want to get out.”
For the M&A Unplugged community, if you’re an owner of a business and selling the business on the horizon somewhere, Steve has laid out some important things. Because some of the things you may be doing with your financials are fine for you and the way that you run the business, but they may not be fine when a buyer needs to take your package to a bank and try to get a loan. You need time to work on those things, that doesn’t happen overnight. You’re going to need a year, maybe two years to make sure that you get your house in order. The statistics, Steve, are not good from that perspective. There are a lot of surveys out there and the last one that I saw, 75% of owners don’t prepare for a sale or a succession. A lot of opportunities for owners to clean up their books and their records and get the business in good shape so that it’s smooth sailing when a buyer comes along.
The bank financing and the tests that come along with that is usually how many times have I ever seen transactions where the borrower wants to put 50%, 75%, 100% down. It’s few and far in between. They need bank financing and the only way you can get bank financing is if the numbers add up and you can justify the numbers that you’re telling us the cashflow of the business is.
It’s not even a matter of need many times. With the interest rates being what they are and the terms with SBA loans going out ten years or more if there’s real estate involved, it’s advantageous for buyers to secure a debt facility on the business. It increases their cashflow, increases their odds of success long term if there’s something that happens in the business. It makes a lot of sense on many levels and being able to secure a loan is key for the transaction.
Leverage used the correct way makes sense. It’s what makes the wealthy wealthier because they know how to use debt the correct way. Leveraging debt for buying a business is nine times out of ten probably the smartest way to go.If all businesses hit their projections, they would never fail. Click To Tweet
Let’s take it from the other side. From a buyer’s perspective, is there a checklist or some things that you look at when they bring a loan opportunity to you?
Yes. The first thing I ask the borrower when they come into my office is, “What’s your experience at running and operating a business?” Listen to what their story is. When they’re walking in here with the purchase agreement or walking in with a letter of intent saying, “I’m trying to buy this business.” The first thing is to know and understand the business that you’re buying. Other key questions I’m asking and talking about is your equity injection. Where’s that coming from? Post loan liquidity. How much money do you have after your equity injection? Do you have a business plan put together? Do you have detailed projections? The last thing I ask for, which is what we assume in all business acquisition loans is your personal credit. I assume every single person that walks into my office has good, if not perfect credit.
Is there a benchmark on that, Steve?
I would say 680 or better usually from the majority of the partners that are buying it. Do you have experience in owning and operating the business? Is it a transferable experience for that industry? Have you ever owned or do you currently own a company? Understanding the business that you’re buying, do you understand the cash cycle of the business? What I mean by cash cycle is, if I owned a gas station, I buy gas from the supplier, I put it in the ground, someone comes up with their car, fills up $20 worth and hands me $20. The cash cycle is I pay the supplier $20 to put $20 worth of gas in the ground, somebody comes to me, pays me $20 for it.
The cash cycle is a day or so for that transaction versus like a manufacturing company, the cash cycle could take 30, 60, 90, 180 days. I’m buying a product and I’m converting that product into what my end product is, then I’m going out and selling it. When I’m buying my inventory, how long does it take to convert it into what my end product is? From when it’s my end product, how long does it take me to sell that product? Once I sell that product, how long does it take me to collect the cash from whoever bought that product from me? That’s important for a buyer to know because that’s how much working capital they’re going to need. Let’s say 60 days. I need 60 days of rent principal and interest payments in my fix costs of running and operating that business.
Steve, do you guys help buyers with this phase understand and will you provide working capital lines to them that are sufficient to operate?
Yes. My team of sales guys that are here average about fifteen years in SBA. They know and understand small business. They know and understand what potential problems a buyer is going to go through. We want to know that the buyer understands the business. We can assist them along the way in understanding what the full cash cycle would be of the business from start to finish and then what kind of working capital they would need.
Lines of credit then come with our business acquisition loans, if that cash cycle exceeds how much money they’re going to have in the bank as permanent working capital for the loan. The equity injection where’s that coming from? Is it coming from the borrower himself or herself? Is it coming from a family member or are they raising equity? Any one of that is important to know and understand upfront. Post loan liquidity. This is one of the most important things that happened after the financial crisis. Banks are required to figure out how much postal and liquidity the borrower has after the loan closes.
If I buy a business nowadays, for math purposes, let’s say a $1 million business, $300,000 in cashflow. He’s required to put 10% down, so he puts $100,000 down. How much does the borrower have in the savings account after he made that $100,000 equity injection? Does he have a month? Does he have two months? Does he have six months? Does he have twelve months? Typically, we like to see three months of liquidity in the bank. If there are any hiccups along the way, the borrower doesn’t fail right off the bat.
When you look at that, are you looking at household income? If there’s a spouse or significant other, or are you isolating the borrower against that loan, how do you look at that?
We look at the global. We’ll look at the husband and wife, or significant other in the transaction. If you have outside income that’s coming in, you can take that outside income and offset the personal expenses. If there’s excessive personal income from outside, you can even offset the personal liquidity from the business liquidity from the business standpoint. The fifth point that we had was a detailed business plan with detailed projections. I’ve never seen projections that don’t work, which is always amazing that I would think that no business would ever fail because if every business hit all their projections, they would never fail. People need to understand exactly where their projections are coming from. Typically, what we ask for is a month-to-month projection for the first year, then we ask for two additional years of projections for the business operation.
That’s smart because it makes people think through the month in and month out what that business can do, and they might even be surprised. It’s important especially for businesses with seasonality or businesses where they’re not going to get paid upon delivery of services. Is there a business plan template or format that in your years of doing this that you recommend to people if they don’t know where to start?
The small business administration has what’s called the SBDCs, which is a Small Business Development Corporation, and they’re throughout the country. In Chicago, we’ve got one downtown. A couple of the community colleges have SBDCs within the community colleges. It’s offices that are set up to help small business owners take care of projections, take care of business plans, they can do some research for you.
There’s a great show that’s on CNBC, Billion Dollar Buyer. It’s about a billionaire who said he wants to make sure that the American dream is still there and he leaves his Kush lifestyle and with $100, he’s trying to grow a business into $1 million business within 90 days and he’s at day 85. He’s using the SBDC in Pennsylvania and it goes through within that program how good and how much help they offer to small business owners and it’s a great resource that everybody has right in their backyard.
That sounds like an awesome show. Having been exposed to the SBDC and I’ve spoken in front of owners and buyers many times over the years, they’re a tremendous resource. You’re absolutely right, that’s a great call.
I’m hooked on it. It’s like Shark Tank. It’s the next Shark Tank because it shows somebody who builds and develops a business plan from start to finish. I’m interested to see if it’s worth $1 million at the end of the show, there are 3 or 4 more episodes left.
Steve, is that it from the buyer’s side? Your last one was credit, which was personal credit. There’s 680 or above in clean credit.
Those are the things that we look for from the buyer’s side, from the seller side.As a buyer, make sure you work with a lender that has experience in the industry. Click To Tweet
You had mentioned partner buyouts. We’ve been involved in a few of these in the middle of negotiating, but it turns out that the SBA has a tremendous program for partner buyouts and they look at that in a unique way. Can you talk a little bit about that?
Partner buyout is different than a business acquisition. If you and I were 50/50 partners of a business, I’m ready to retire and you’re not, if it’s a business acquisition where some third party wants to come in and buy out our business, the minimum down payment has to be 10%. With a partner buyout, the SBA considers the equity that you or I have in the business as the equity that’s needed for that transaction. If our business combined is worth $1 million, let’s assume it has no debt right now for math purposes, my equity’s worth is $500,000, your equity is worth $500,000. A $500,000 loan can be done for that transaction to buy out the partner that’s ready to retire.
Essentially, it’s 100%. You’re loaning the remaining partner 100% to buy out their partner.
Working capital, usually what happens in those situations is whatever the cash that’s in the account, you split it up 50/50. It might leave a strain on the operating business but what happens is we can come in and potentially lend them additional permanent working capital then give them a line of credit on top of that.
We’ve seen more and more of this in the last couple of years. Our involvement has been helping the partners understand the value of the business, what’s the number so that they can agree on something and helping them negotiate through that. What you offer by providing a 100% buyout is outstanding. It’s a great tool for partners that are looking to do something like that. You’re taking a 50,000-foot level on lending and SBA lending. If you were to put a bow on how people should approach and look at SBA lending, looking at it from a different level, what advice would you give to buyers and sellers other than the checklist items?
From a buyer’s standpoint, you have to work with a lender who has experience in the industry. When I was at one of the largest banks in the country, I educated all my bankers about the SBA program, and then they went out and tried to sell SBA to customers. They would be the first line of fire out there, but they knew 5% to 10% of what I know. They’re trying to sell a product and, in the end, it never worked that way. The first thing you have to do is find a lender that knows what they’re talking about, knows the SBA program up and down, left and right, knows the rules and regulations. Every October 1st, a new standard operating procedures manual comes out for the SBA and there are changes every single year.
What is that thing like, 40,000 pages?
It puts me to sleep every night. It’s probably 550 to 700 pages. A paperless industry. When I got into the business in 1999, they said, “We’re going to be paperless within the next few years.” The packages keep getting bigger and bigger every year. Finding a lender that knows what they’re talking about is the key. The structure is important in business acquisition. Getting the right structure for your deal that’s acceptable to you as the buyer but it’s also acceptable to the seller. Who cares what the lender says if it’s not something that’s agreeable to both the buyer and the seller. Finding that lender that knows how to structure a transaction upfront, knows that that structure is eligible for SBA financing is probably the number one key component in finding and successfully closing an acquisition.
Steve, we had a deal that we closed. To illustrate your point, the buyer had a previous relationship with a banker, even though we had a banker lined up on the deal and we knew what the structure could be, the buyer was insistent that they wanted to go to their banker, who clearly didn’t have a lot of experience in this world. Sure enough, two months later, they came back to us and they didn’t get the loan. We then promptly walked them over to the banker that we have been working on that particular deal with and two months later, we were at the closing table. Your point is right on. Throughout the transaction, involve people who understand M&A transactions every step of the way, attorneys, accountants, brokers, lenders. It’s going to make for a better transaction and also maybe help you walk away if you need to walk away. There’s that side of these deals as well.
It happens many times where a client has a good relationship with a bank or a banker. That banker has no idea about the SBA program, the rules and regulations. He thinks he can get a deal done because he heard from his SBA specialist within the bank that they can do business acquisitions with 10% down, then you find out 60 days later that bank doesn’t do business acquisition loans above $500,000 or $1 million. Because Busey Bank is a business acquisition lender from the SBA perspective, I know and hear through the SBA great finds who’s doing what and who’s not doing what.
Finding out that a regional non-bank lender who was doing up to $5 million in business acquisition financing is only looking at business acquisition loans $1.5 million and under is important for me. When a borrower comes to me and says, “I’m talking to you and I’m talking to this other lender,” I can point to them and say, “I already know this lender, that lender, and this third lender at that firm. I’ve confirmed with them that they’re only looking at business acquisitions up to $1.5 million. Your purchase price is $3.5 million. They’re not going to be able to get it done.”
That’s important information, knowledge and understanding. There are a lot of lenders who want to do the business acquisitions $500,000 and under, it drops off. There are some other lenders that will go from $500,000 to about $1.5 million, but there are only a handful of lenders that want to do that $1.5 million to $5 million range. That $1.5 million to $5 million range might be 5 or 6 lenders in the entire country that want to do those. Trying to find a lender in your market that wants to do those transactions is tougher and tougher every day.
That’s what makes you such a good banker, Steve. It’s nice to see what you’ve built over at Busey, they made a great decision when they brought you in to head that up and certainly bearing fruit for everybody. If folks in the M&A Unplugged community wanted to get in touch with you, how could they reach you?
They can reach me via email at [email protected] or they can call me in the office at (630) 237-2605.
Steve, thank you so much. It was great to have you here and that was some awesome information.
Thanks for having me, Domenic.
To summarize a few things M&A Unplugged community that Steve brought up, he hit some key things from the seller’s perspective. Your business, when you take it to market, when a buyer comes in and makes an offer is most likely going to need a loan. In order for your business to be financeable, you need to care and focus on a few things. What are the trends in your business? The numbers, your financials, are they reliable? Are they consistent? Are the numbers in the balance sheet accurate? Inventory. Networking capital, which is your current assets minus your current liabilities. Are you ready to sell the business? If you do bring it to market, are you prepared to go through the pain of having to work with somebody and their banker to get the deal done?
On the buyer’s side, Steve brought up some great points here. Make sure that you’ve got the experience that can be transferable and relatable to the industries that you’re focused on. Understand where your capital is coming from and how much money you’re going to have leftover after the transaction. Banks are going to care about this. Know that you’re going to have to present a business plan with projections. Steve brought up the SBDC, Small Business Development Corporation. They’re in every major city, tremendous resource. I’ve personally had the opportunity to work with them. I highly recommend. These are great people, they’re volunteers, but these are successful X business owners who can help you navigate through all the various pieces. Even after you make an acquisition, there are various people that can help you understand how to market, anything that you need. They’re a great resource.
I hope you enjoyed this episode. If you would like to learn more about the process of acquiring or selling a business, please visit our website at SunAcquisitions.com or feel free to reach out to me at [email protected]. I look forward to seeing you in the next episode of the show. Until then, please remember that scaling, acquiring, or selling a business takes time, preparation and the proper knowledge.
About Steve Lasiewicz
SBA sales manager, where we specialize in owner-occupied commercial real estate, equipment, and business acquisition financing.
In my career I have funded over $350 million in SBA loans, and growing every quarter. I can be reached at 224-500-1264 or [email protected].