How do banks determine whether to lend you money or not? Learn the steps you can take to get qualified for the business loan you need to turn your dreams into reality.Sign Up to Watch
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-What's up, Thrivers? Daniel McKenna here, and today we are here with the incredible David Nilssen, and we are talking about how do I value my business?
Don't know who David Nilssen is? David Nilssen is the co-founder and CEO of Guidant Financial. Guidant Financial has helped to connect small business ownersand those who have start a business to over $4 billion of capital that has been used to create over 60,000 jobs throughout the United States. He's kind of a big deal.
Today you'll learn how to value your business and everything you need to look at to determine the value of your business after you start a business. You'll also learn what you can do to increase that value.
Now we're not going to tell you how to decrease it. Then we'd have to change the name of our company to Wither 15, and the paperwork just isn't worth it.
David, I appreciate you letting me be here, my friend.
-Thanks for having me.
-Real quick, we're in your board room of Guidant Financial. How many folks work here at Guidant Financial?
-We have about 85 to 90 people.
-And it looks like it's a highly motivated group. I got here this morning. I met Paul and some of the teammates. It's really neat. You have a screen up there where it shows, I guess, the top performers on the screen, kind of ESPN graphics?
-Yeah, we track all of our major metrics, and we've tried to do in a way that's fun. And we use some tools that display them in ways that are relevant to some of our team, so like the sports center dashboard is one that we really like.
-I absolutely, just so you know, that was like Christmas for me seeing that. I was so excited how you did it because each person looked like they're like an ESPN athlete up there. It was really neat how you guys did that.
-Yeah, they get to manage their own profiles and everything.
-Did you see that somewhere else, or this is your idea?
-No, it's actually a tool. I couldn't tell you the name of it, but it's a tool that we subscribe to.
-I love that. It blows my mind. So anyway, I want to ask you here a real quick question. I think all the Thrivers want to know from coast to coast, all around the world, and even in Dubai, apparently, as of this morning. You're a great American. You're a super citizen of Seattle, so I have to ask you this question. In your mind, if Detlef Schrempf-- Detlef Schrempf of the Seattle Supersonics-- and Sam Perkins at their peak, at their prime, were to get together in a one-to-one dual, one-on-one dual in basketball, who would have won?
-Easy. Detlef Schrempf.
-Yeah. I mean, Sam was a great ballplayer, good shooter, but Detlef could dribble, play D, he's got an outside game, he's got an inside game. He's a strong person, yeah. Hands down.
-Are you a friend of Detlef?
-But he's an amazing basket player.
-All right, all right. Well, now we're going to go ahead and get into the good stuff, like my kids when they secretly get into all the Halloween candy when they think we're not looking. We're getting into the good stuff here.
And so just to give the Thrivers a little bit of a context and before we get into these rules, can you share with the Thrivers how many small business owners you've been able to help get funding over the past years?
-Yeah. So we started the company in 2003. Since that period of time, we've helped about 10,000 entrepreneurs in all 50 states to invest $4 billion into small business, and today, those same businesses employ about 60,000 Americans.
Does that word "billion" seem overwhelming to you, where you go, wow, we've really done that? That's got to feel good.
-Yeah, it's fun. I mean, I think we want to have an impact. We want to see small businesses be successful. And I'm an entrepreneur. Small business has been a big blessing in my life, and so it's fun to see that we're helping other people or playing a small part in helping other people to start and then get into business for themselves.
-As I've got to know you and met some of your staff, it seems like the number of 60,000 people that you've helped create jobs for seems like the number you're most excited about. It seems like that's--
-It is. It's about impact, right? And one of the things that we think that's really exciting about our business is not only are we helping individual entrepreneurs, but we're actually having an impact on our economy. You think about 60,000 jobs. That's a huge number, and it's something that we're proud of.
-Well, I want to ask are these things. These are basically the most important things that banks consider before giving you a loan, and I'd really like to ask you what are the most important factors in your mind that you feel like banks say this is what they're going to consider when giving you some money?
-Yeah. So we work with hundreds of lending sources across the country, and so I probably should take a step back and say it depends on the type of financing you're looking to deploy, the stage of the business, so on and so forth. So when we talk about these general concepts, they are they're just that. They're general concepts.
-So first thing that they're going to look at first is the business plan. Is this a business that we think can be successful?
Second thing that they'll look at is the financial qualifications of the borrower. That's everything from income to assets to credit.
And then the last thing is really, I would say, more of kind of an industry or opportunity analysis. The banks themselves are in the business of lending capital, and the way that they do is by making sure that they're taking as little risk as possible. So the things that they're going to look at are the things that are going to de-risk the investment for themselves.
-I hear business owners still say, well, the bank doesn't even want to take any risks at all. And that's what you're saying, yes, that's true?
-That is true.
-OK. So when we're talking about the business plan, I want to kind of deep dive a little more into that. What should I include on my business plan if I'm going to go meet with a bank? The bare minimum-- what do I need to have in my business plan?
-Well, there's a lot of business plan templates out there, right? Even at the SBA, they've got a business plan template. I think the Score has a business plan template. But on those are generally the same things. They're going to look at, who is the team behind this? What relevant experience do they have? What are the individual or-- excuse me-- what is the industry opportunity and how are they going to play into that?
A competitive analysis-- do they really understand who they are going up against in the marketplace that they intend to go out with? They're going to look at the projections. Are they making reasonable assumptions as far as revenue, cost of goods, so on and so forth?
CLAY CLARK: Now, when you look into the financial qualifications of the borrower, you're just looking for a decent credit score and a decent credit history or what are you looking for when you said financial qualifications?
DAVID NILSSEN: Yeah. So a little bit of-- definitely credit-dependent. So they're going to look most-- anytime you're looking at debt, credit is going to play a huge role in that. Collateral-- they're going to want to see that the individual's got some collateral for the bank to take as security for the loan. So a piece of real estate would be an example of that. If you own a home and it's got some significant equity, it's likely the bank is going to look at that as an opportunity to de-risk the investment by having security on that home.
-Now, I want to sort of break down some of these words in case people are not 100% sure what they mean. The collateral is what secures the money you're borrowing. It more or less says if you don't pay this money back, we're going to take this stuff.
-Well, "take" may not be as accurate. What they're going to get is a position on that home. So for example, you buy a piece of real estate tomorrow and you get a mortgage. The mortgage is granted to you based on the fact that the security for that loan is the underlying asset itself. So I'm getting a mortgage because I can have a position on your property. It doesn't mean that I can necessarily force you to sell it, liquidate it, and take my money away, but it means that when you do, I have a claim against some of the proceeds.
-And let's say that, right now, I'm a business owner. And I see this all time. That's why I want to ask you. A business owner, they say, well, I have some collateral. I've got a lot of collateral. I've got some Ping golf clubs, pretty sweet. And I've got a Jeep. Put the spinners on it. It's pretty sweet, pretty sweet-- got the furry steering wheel. I've got a speaker system. I've got a pool table. I've got a light that says, Bud Light in neon and a Brett Favre signed football helmet. I've got some stuff.
What is collateral and what's not collateral? Can you kind of say-- and it's broad brush. But what kind of stuff is not collateral and what is collateral?
-Yeah. So again, depending on the lending product itself, whether it's an SBA loan, a securities-based transaction, really two primary forms of collateral, any and all real estate and securities. So stocks, bonds, mutual funds.
-Real estate and securities.
DAVID NILSSEN: Yep.
-No Ping golf clubs. Really killing the--
-No golf clubs.
-You're killing the dream.
-And definitely not a Brett Favre autographed football.
-Really? You're not a Brett Favre guy?
-Really? Did you just want him to stay retired or did you just wish he wouldn't have played football altogether or what are your thoughts?
-He's a great football player, just not my guy.
-OK. Yeah, every year, it was like a man soap opera. I would wait. I'd be like, is he going to come back? Is he going to leave? I don't know. I just-- kept me in that emotional turmoil every year. I'm glad he retired because I just emotionally couldn't handle it anymore.
-Yeah, him and Elvis.
-Well, Elvis might come back, too. So we'll talk about that in another episode.
Now, industry analysis-- I think everybody believes their industry is great. And I'm going to give you one example that recently has just been blowing my mind. There are a lot of people-- there's men and women who are doing it, but primarily a lot of women, who are wanting to start these gourmet bakeries to sell cupcakes for $2.00 a piece.
And I remember sitting one time going, how many cupcakes does one have to sell per day to pay all the payrolls? Well, they sell 1,000 a day, that'd be $2,000 and they can't be making more than 80% profit on these. I'm doing the math. And it seemed like one by one, all the cupcake businesses I saw just evaporated. Oh!
Just blowing up-- they're not really a very profitable deal. I'm sure there are cupcake businesses that make a lot of money. But as far as an industry, does the bank kind of go, well, cupcakes, that's a bad industry. Or does each leading institution have an industry that they sort of have a certain prejudice against, where they say, we don't lend for cupcake businesses.
-Some do. Yeah, some do. We see some banks that don't want to take on transactions in fitness because most of the value is in the equipment and the equipment loses value very fast. Or I should say, most of the investment is made in the equipment and that loses value very fast.
So you see some that do that, some that say, hey, we've got too much investment in this one category. So we're going to stop investing because as a portfolio, their loan portfolio, they want to make sure they're diversified, kind of like a mutual fund would be. And if I've got too many self-serve yogurt franchises in my portfolio, maybe I need to move somewhere else.
So you do see a little bit of bias against certain industries, but it's typically not solely based on the fact that they have a belief that nobody can be successful in this industry because contrary to your example a minute ago, one of my very closest friends owns seven cupcake businesses here in Seattle.
-In my face.
-And she's massively successful. But I've seen the same thing. I've seen others sprout up and go away right away. So I think it a lot of times has to do with the individual, not the business itself.
-So now, how many lending institutions do you-- I'm not looking for a specific number, but at Guidant, you guys work with what, hundreds?
-Hundreds across the country. Yeah
-So the main advantage of working with your group or groups like yours is you'll kind of do the due diligence and the research to figure out the lending institutions that have an appetite for that kind of industry?
-Absolutely. Yeah. So one of the things that you look at with small businesses, our client is a Main Street American small business owner. So that's somebody who is investing somewhere between $100,000, maybe upwards of a million dollars into their business, not typically a lot larger and not typically a lot smaller.
So for that reason, these are hyperlocal deals. The cupcake business, that's a deal that's being done right here in Bellevue, Washington or in Tulsa, Oklahoma. But sometimes, bringing a national lender that isn't going to be the right deal. Sometimes, it's a regional lender. Sometimes, it's a local lender.
But small business loans are hard to obtain. So oftentimes, people will go into their own bank because I've got a relationship with Bank of America, Chase, or whoever else and I'll get denied on my first request. And then, I have no idea where to go from there. So where we step in is to help them analyze, based on this type of business and this geographic territory, we help to identify two or three lenders that we think may want to consume that loan and give them an opportunity to negotiate with them.
-I have noticed that one thing in the world of entrepreneurship that's tough is if you're a business owner and you have employees. You've got five or six employees. And you go apply for the business loan and you get told no. You really don't want to tell everyone about it. So you kind of want to keep it on the hush.
But you personally feel like, oh my gosh, if no one's going to lend me money, maybe this isn't in a good idea. Or you start all the emotion and all the-- what would you say to the business owner who's maybe applied for loans at their local bank right now and they got told no, just no. Not really much of a clarification, just no-- what would you say to that person? Would you say, hey, call someone like us and we can look for options for you? Is it normal to get rejected a few times before you get a yes?
-It's not uncommon for a bank to say that they don't want that specific loan. So the idea is to talk to the lending sources before you take the time to put together the formal application. So for example, we'll use your cupcake example. I've got a gourmet cupcake bakery that wants to get a loan or someone who wants to start one of these bakeries. We may float that idea, the general opportunity, in front of two or three banks to see who's starting to bit on it.
If I just push it to one lender and they haven't said, yes, I'm interested, then just by sheer-- we would expect that in most cases, the interest level is going to be low. But if we're giving them this opportunity and they're coming to us saying, no, we're interested in learning more about this, then gradually that's going to go higher. Then, our job is to make sure that the entrepreneur has thought through all of these different aspects so they're best presented to the bank.
-Now, final question, totally not banking-related, but something I think that really might even be more important than how to get funding to run your business, which is the lifeblood of your business, the cash is-- do you feel like Nirvana or Pearl Jam was a better band? You're a Seattle guy. If you had to choose, Nirvana or Pearl Jam?
-Neither are really a genre that I spend much time with, but I would probably go with Nirvana.
DAVID NILSSEN: Yeah.
-OK. What is your genre of choice.
-Well, so I'm a Motown guy.
-Really? You're an R&B guy?
-Boom. That's huge. Awesome. I love Marvin Gaye. You like Marvin Gaye.
-Really? Awesome. OK. Now, I feel we just got closer by about 2%. All right. Well, dude, I appreciate you sharing with us about some of these things that we need to think about when going out there to get a bank loan. And I just appreciate you taking the time to mentor Thrivers, because I know a lot of times, people don't get a chance to sit down with the head of a massive company like yours and pick your brain about all these nuances. So thank you more than you know. I appreciate it.
-Happy to do it.
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