Ep #1 "What Should We Be Doing To Get A Commerical Loan?"

Intro &Outro Voice-Over (00:13):

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Jacquelyn Jackson (00:47):

Hello. Welcome to today's podcast episode. It's on commercial lending. I'm your host, Jacquelyn Jackson, a loan broker with TDJ Equity Funding in Frisco, Texas. We want to welcome our guest today, Mr. Philip. He's a commercial loan officer from Texas, and Philip has over 21 years of banking experience. So let's dive into the knowledge and wisdom for this episode. Hello, Mr. Philip. Thank you for being our guest host today. Please tell our listeners a little bit about yourself and commercial lending.

Philip Brewer (01:22):

Well, thank you, Jackie. It's certainly a pleasure to be here today. I appreciate the invite and the opportunity to share with you and your listeners.

(01:31):

So yes, I've been in the industry for 21 years. The last 13 of those years have been with the same company. But when I'm not doing banking, I am a husband, a father of four, and passionate about serving my community. I try to stay as active and involved in giving back, volunteering, and creating those opportunities for my family as well. So just a little bit about me.

(01:57):

Commercial lending. So what is commercial lending? The simplest answer is it's loans for businesses. What we look at there is borrowing in the name of the business, using the business's cash flow, and business collateral type, but it could be any loan. So whether you're looking to buy a commercial building or equipment, maybe you're just needing some working capital to help get through some growing pains for your company. Whatever your borrowing need is, if it's in the business's name, using the business revenues and collateral, that is commercial lending.

Jacquelyn Jackson (02:37):

Okay, thank you. And that was a great definition of commercial lending because many people and some of our listeners have indicated that they don't understand what's commercial lending compared to. I have to use my personal credit to get certain things started. So I think hopefully, with our inside additions, that we'll be able to enlighten that, and especially with this show today, that we should be able to enlighten them on actually how commercial lending works. So let's start out with this. To ask you a question, what is the most important factor for borrowers when considering funding options and why?

Philip Brewer (03:10):

Yeah, no, that's a great question. And just circle back to your previous comment, looking at the personal side. Depending on the business type and the structure, that personal information could be very important in how we look at a deal or underwrite a deal as well. If you're an owner operated business, you being the owner, you being the one who's responsible for the business and repaying, how you handle your personal affairs is something that we take into consideration as well. So while we may be looking at the strengths of the business and can they afford to borrow the money, that business is only as good as the person running the show. So that personal credit does come back and have some importance, as well there.

(03:52):

But to your question, what's the most important factor? For my organization, we are a cash flow lender, and so I think one of the things that borrowers may look at often, they think that they've got a great amount of equity in whatever it is they're purchasing, or that asset has a lot of value. And they feel like maybe, just what they're purchasing should justify what they're asking to borrow. But at the end of the day, even if you're getting a great deal on whatever you're purchasing, we've got to make sure you can afford the payment. So cash flow is the first thing that we look at, on whether or not the business can afford this debt.

(04:35):

So in the simplest terms, without us adding back deductions or any other type of accounting factors, we could look at certain taxes or interest, that sort of thing. We can add that back into the income. But simplest matter, if you're looking to borrow and you're trying to figure out if you have the cash flow to support it, we want to see what is your net income and is that net income enough to pay the debt? So if you're showing losses, those could be realized or through your write-offs. If you're showing losses, that's going to make it difficult to be able to borrow money.

Jacquelyn Jackson (05:14):

Okay. And that's definitely something we see as loan brokers. So what you were saying when you mentioned the personal credit, I guess definitely want to talk on that, as far as a lot of people believe that, "If I have a business, I have a tax ID, I filed, I'm an entity, then my personal credit doesn't matter." So you're saying, we're talking about commercial lending, that credit actually plays a major part with that, right?

Philip Brewer (05:36):

Correct. Credit does play a factor in that. I don't know that I would say it's a major factor, and the same as if you were buying a home or something along those lines. But what we look at, different people call it different things. I'll say the three Cs when we're looking at borrowing. So cash flow, which we already covered. The second would be collateral. That would be something to secure the amount that you're borrowing. But the third one is what we call character. And so that, credit plays a part of that, if there's anything in your background.

(06:11):

So even as a business, if your business has been subject to a considerable amount of lawsuits, maybe from disgruntled employees filing, that sort of thing, that speaks to the character of the business and how it's run. So we take those things into consideration. Even though the business itself may have the funds, the person again running the business, are they paying their personal debts? Are they taking care of their responsibilities? Are they taking care of their people? That all speaks to just your character as a business owner, which is very important.

Jacquelyn Jackson (06:45):

So, we say commercial credit. What do you think should be, that the minimum credit they should look at, coming and having to even start the commercial lending business? What should that credit score look like, you think, in your opinion?

Philip Brewer (06:59):

At least with my organization, we don't necessarily have a set credit score, but I would say you would definitely want to be probably mid-sixes. In that the credit score, it tells a story, but not the whole story. So really, even if the credit score was a little bit lower, if there's not anything negative, you don't have a bunch of slow pays, you don't have collection items, you don't have bankruptcies.

Jacquelyn Jackson (07:26):

That's good to know.

Philip Brewer (07:26):

Those types of things are what's going to really, we're look at much more closely. But maybe you just haven't used a lot of credit. Maybe you haven't established a lot of credit, so you haven't gotten that score as high. We wouldn't look at that score as singular, as a disqualifier. We look at the big picture.

Jacquelyn Jackson (07:45):

At the bigger picture, and that's great because with commercial lending, you're usually dealing with assets, like you said, the commercial building itself, that'll be along with that. But that 650 or that credit score is more of a credit profile, is basically what you're saying. It's the whole thing basically.

Philip Brewer (08:00):

Correct.

Jacquelyn Jackson (08:01):

And I think that's something our listeners have to be aware of that you do, like you said, it's a score. We do take that in consideration, because it's a character thing as well. But the thing is that you need to understand, it's the whole profile. What type of credit you have, how you been using it, have you been responsible? Say any negative things. So that's something people have to look at, because you can have a good high score and you only got one item on that credit. That might not be something a lender would, from my experience, would like to put money on to get, to do that with you, so to do a loan with you. So we have to take that in consideration when we dealing with that. And the best way, I guess, is actually talking to your commercial lender about the details of it, and letting them let you know, exactly what you need to look like, right?

Philip Brewer (08:43):

Oh, absolutely. Every lender has different criteria and so it's tough to speak holistically to all lenders about their specifics. But yeah, I would say, if you've got any borrowing need for your business, it's definitely worth talking to a commercial lender, and just finding out. Or, talk to you.

Jacquelyn Jackson (09:04):

Exactly.

Philip Brewer (09:05):

That has relationships with commercial lenders, right?

Jacquelyn Jackson (09:07):

And that would be great. So we do have a credit profile document that we can send people. If you're interested, you can definitely email us on that and we can get that to you. We'll have it on a site on the landing page where you guys can pull it up. And it's basically, just telling you what your profile should look like. Just to start with the inquiries, the negativity. They don't understand, inquiries weigh a lot on your credit scores and a lot on you looking for money. I mean, lenders do look at it some, like I said, it's all about the profile. So I think that's a good thing for you to mention, as well as for us to have a document where that'll work.

(09:39):

Okay. Let's go over some more questions. And these questions are from our listeners that we have had, our clients have come in and asked us. So they wanted to make sure that we deal with these type of questions when we're on our podcast today, with Mr. Phillip, and that's what we're doing. So our next one is, "Are there any funding opportunities that you've seen, that's been especially successful for borrowers recently?"

Philip Brewer (10:00):

Yeah, I would say here in, I mean, probably the last nine to 12 months, we've seen really, I would say, an increased demand in working capital. So lines of credit, companies that are in a growth phase and they're needing additional capital to help continue that growth to scale up the business. One of the things that we've probably seen a little bit of a decline in is in the commercial real estate, given the environment that we're in. Interest rates have gone up, values are still kind of shaky a little bit. Are they going to come down more? Have they stabilized? Looking at values of real estate. So I think that combination of the two, people have just held off a little bit on buying new buildings.

(10:52):

One of the things I will say though is we haven't seen much of a decline in rental rates. So people who are leasing or renting space, even though the real estate market has softened slightly, they may not be seeing any relief on the rentals. I think once people have, I think, gotten comfortable with where rates are now, it's been a little bit of a sticker shock. But I think once people are comfortable and especially if they don't see any relief in the rental or lease rates, I think we'll start to see more people revisiting the commercial real estate. And because it could still, truly could be cheaper to buy and own your building than paying what some of the lease rates are.

Jacquelyn Jackson (11:33):

Exactly.

Philip Brewer (11:33):

So I think that will come back. I think we've seen a little bit of a dip there. I think it'll come back. But what's been really strong is that working capital, which speaks really well, at least here in Texas, North Texas in particular, the economy is still strong. We've got a lot of macroeconomic indicators out there, that I think got a lot of people spooked, especially if you watch a lot of news stations, but at least here locally and our micro look on the economy, it's been strong. And like I said, businesses are growing. They need capital to continue to grow. So that's what we've been doing a lot of.

Jacquelyn Jackson (12:12):

That is good. And, that is wonderful to know that's what's happening. So let me ask you this. On this commercial real estate, we have clients come in and they're kind of confused about what's commercial building, and what's real estate compared to. They want to do a rental house. Because if somebody's doing an investment home, that's not your thing that you all do pretty much. You all do what, mainly the buildings. What types of buildings? Can you let people know what that entail? When you say commercial compared to, when people say like investment homes and stuff. So tell us what's the difference with that and what you all do with that.

Philip Brewer (12:41):

Right. Yeah, so for us, it's really a matter of who's going to occupy the space. And so if you were looking, you could have a business that owns residential properties, but those properties are going to be occupied by consumers, by residents. So for us, again, not all lenders, but for us, that doesn't fit into our commercial bucket.

(13:07):

So what we're looking for is space that's going to be occupied by the business. And so you could think about people in the service industry. Doctors, dentists, professional services, accountant, people that need to have an office for their customers to come in that need space. You could think more industrial manufacturers, distributors, people that need warehouse space. That would fall into that line of thinking. Actually, just spoke to someone this week, that's looking to buy a Montessori school. Again, that business will occupy that space. So if you're really looking at a commercial real estate, what we're looking for is, will that business occupy the space?

Jacquelyn Jackson (13:52):

Okay. Which is definitely a difference from you buying property and doing a single family home and renting it out.

Philip Brewer (13:58):

Correct.

Jacquelyn Jackson (13:59):

That's what people have to understand. Commercial lending is more on what you are talking about today, and they kind of run it together when they're looking. So that's great and something to know. Then we had another question that came in and they asked, "What would be your top funding tips for our listeners and why?"

Philip Brewer (14:16):

Okay. I would say, really understanding what type of financial documents a lender would be looking for and making sure that you have those documents readily available, that they're current. So things like a profit and loss statement, a balance sheet, accounts receivable. So if you're waiting to be paid for goods or services that you've provided, and that could take 30 days to get paid, keeping track of that. If you had those on a month-to-month basis updated, that would really be ideal. But I would say kind of the worst case scenario, at least keep that information up to date quarterly.

(15:04):

If you don't have the expertise or the time to keep up with that, it's definitely worthwhile to consider an investment of hiring someone, whether that's someone on staff, or a bookkeeper or a CPA that will keep track of that. I think a lot of times people will think, "I have a CPA," and the CPA will handle the taxes, but they may not be keeping up, current financials up to date throughout the year, unless you specifically asked for that. So definitely understand what we're going to look for, what we need as a lender, to make sure you can support the debt. To understand if you have any other debts out there, what kind of collateral you have. All those things are captured on these financial instruments and keeping those current is going to be huge.

Jacquelyn Jackson (15:49):

So basically, what you're saying, that it's important to have, when you say financial, you're saying like P&Ls, profit and loss, and you're talking about the balance sheets. So you're basically saying, it's important for businesses to have those things. Even though you deal with your CPA, like you said, once a year, you still should have financially where you're standing at, especially when you get ready to come to a lender. How do you look? So you're saying that and I think that's some great advice, because a lot of people don't really think about financials until they need them, or just getting loan. When really you need to get those things together on a monthly or quarterly basis, just so you can be aware of where you standing. And how much your on goal, on point to make the money you want, and how much you're not on point to make that money. So I think that's something great and that you mentioned that we definitely need to do that as well. Okay.

Philip Brewer (16:36):

Yeah, you're spot on, Jackie. It's more so than just what does a lender need to see, but I mean, how are you going to truly understand the success of your business if you don't know ...

Jacquelyn Jackson (16:47):

Your numbers.

Philip Brewer (16:47):

What you're making, you don't know your numbers, right? So if you truly want to grow your business and be successful, you got to know the numbers.

Jacquelyn Jackson (16:53):

You do. And something else I want to say, you have to realize too, a CPA is a preparer, unless you got one that's like a financial guy or whatever. And they are preparing your taxes every year, but it's what you do throughout the year determines what your taxes going to look like. And that's why I try to tell them that, the lenders, banks have to see that you can afford an additional debt. So how are they going to see it? By your words? You're going to write on a napkin and just give it to them. No, that's what financials are really, really important to have.

(17:22):

So I think that's something we definitely want our listeners to understand. It doesn't matter what type of business you in, you should have financials, or what's going on in your business. Because people realize, "Well, I'm not making a lot of money so I shouldn't worry about that." But if you been in business for a year or two and they're going to ask for taxes and all of that, you should have that stuff. You need to get it. So I think that's great that you mentioned it, so they can.

(17:43):

So they moving on to the next question we have is that, "Would you recommend any links to our listeners, giving them information about funding opportunities and things like that?"

Philip Brewer (17:53):

Yeah, absolutely. Two of the better links out there, one is the sba.gov and I think you're going to provide this to the listeners here.

Jacquelyn Jackson (18:04):

Yeah, we're going to provide that till they can see it.

Philip Brewer (18:06):

Sba.gov. What's great about their site is it has dedicated pages and links and information from figuring out how to form your business, from formation, what entity type all the way through, how to grow it, how to obtain credit funding, to working all the way through the business. Now you're ready to sell the business. So they've got information really through any phase of that business lifecycle on their website.

(18:37):

And then those who are here in North Texas, and they probably have these all over, but I'm only familiar with our group in North Texas. But the Small Business Development Corporation, and that is a division of the SBA, but they also, most of the groups partner with local colleges. And so that group will get you one-on-one access with a person, a business advisor, someone you could take either your business plan, "Hey, here's where I'm at, I'm stuck, I've plateaued, I don't know how to get to the next level of my business." They actually provide advisors who can give you counsel, can give you advice, can mentor you through that process. So really great resource as well.

Jacquelyn Jackson (19:21):

Okay. And like you said, and we will be noting this in our broadcast where people can see it. And also, like I said, the website, it's sba.gov is one, and then the other one, like you said, in North Dallas, is the www.collinsbdc.com. Okay. For those that are listening to us. But like I said, you'll be able to see it on the screen, on our video as well. Okay.

(19:44):

So moving on to the next one. "What is your call to action with our listeners?" We actually have listeners that are real estate investors, business owners, entrepreneur, and they're actually starting out. So what would you think would be a call of action for them to do today?

Philip Brewer (20:02):

Yeah, no, I love that question and I'm going to answer it. In this business, running a business, getting access to capital, growing with all those, it's still a very relational business.

Jacquelyn Jackson (20:20):

I agree.

Philip Brewer (20:22):

And so the call to action would be, if you don't have a banker, if you don't have an attorney, if you don't have an insurance agent, if you don't have a CPA or bookkeeper, you need to go find those people. You need to find people who understand your business, what you're trying to do, that can see your vision, that will really be willing to partner with you. But every business owner should know who these people are in their life. Don't wait until you need a loan to find a banker. Don't wait until you're served a lawsuit to find an attorney. Don't wait until it's tax time to go reach out to a CPA, or a financial professional. So it's important to have those relationships. And if you don't have them, that would be my call to action. You need to get to know some folks in those industries.

Jacquelyn Jackson (21:09):

You need to get to know them. And I mean, this is wonderful, your answers, because they need to get to know them as soon as possible. Again, people will fall into where, "I don't have the money to pay for them." Well, like you said, you don't have the money to pay for them and you don't have them now, but when you need them, it's going to be a whole lot more that you're dealing with. You get a chance to kind of interview people and see what works with you, who matches with you, because that's what you need to do in business, especially with attorneys. I mean, I actually found out that there are different types of attorneys when it come to business. So you have your tax attorney, you have your corporate attorney, then you have the one to deal with contract negotiations.

(21:45):

So when you call people, they may say, and this is an inside thing here that I'm going to tell my listeners. That when you call an attorney and ask about doing certain stuff, they might not specialize in it, but it's money. And they like, "Oh, well I can go and do that on the side," compared to you getting someone that specialized in that. That's a difference. And people don't understand that with attorney, there are different types of attorneys. So I think that's really important, because like you said, that's something you want to have anyway, not wait till when you actually need it.

(22:13):

Same way with your CPAs. You may have one that just do tax preparation and they don't actually do the financial part, as far as discussing it and helping the goals you're trying to make, the money you're trying to grow. Some of them will work with you and grow, but some of them will not. They're just tax preparers. And mostly, business owners don't realize the difference because, "Well, he's a CPA, I thought he would do." No, look at the setup. Look how he's set up and he'll let you know what they're actually dealing with.

(22:38):

So I think all of these important, have an insurance agent and having that relationship with a banker. Like I said, with you being a commercial lender, you guys give us so much information, because you want to give out the loans, but you also want to make sure they can pay for them. And that's where the relationship starts, that if they can't get anything with you now, and if they can listen to you today, then down the road, they can get something from you later. So that's what we hoping everybody's picking up with doing this with commercial lending, that you can get to the point of where you need. Okay, that was great. So let's talk.

Philip Brewer (23:08):

Yeah, that's why I say, it's relationships, right? I mean, so build those relationships and even if it doesn't solve your immediate need, you're going to have the connections and the support to get you there. And you mentioned some people will shy away due to cost. Most of these professions have all levels of cost built in, based on what you need. So you could pay a really high fee, but most of them have kind of a la carte services as well. So it might be surprising to see how affordable some of these things would be, to have these people in your corner.

Jacquelyn Jackson (23:44):

They do and they do even monthly fees. I know, I had an attorney that I dealt with on another level, found out they had a monthly fee that they clients pay them to do everything that need to be done. I mean, the fee was, I think like $200 a month and I was like, "Wow, that is neat." So instead of you giving them $5,000 retainer, you just pay every month and when you need them, you have them. So there are attorneys that are doing that. So you all can just check it out and see what's out there, but it's there. So it's about relationships and like you said, start before you need them, and I definitely agree with that.

(24:15):

Okay. So we're going to go to the next question is, we are dealing with one of the funding advice. "What funding advice do you think is most important for listeners? I know we said building the relationship is most important, but can you tell us why you think that is so important, again, just so we can reiterate that?"

Philip Brewer (24:36):

Yeah, well, it's like I said, it is a relationship business. And so really building relationships and again, not being transactional, not just finding someone who can do a good job for that need, but someone who's willing to really get to know your business. And again, see your vision, your dreams, someone who's willing to provide advice, someone who's willing to, as you mentioned, "Maybe I can't help you with a loan right now, but can I help connect you with someone that's going to help your business." Building those relationships. So again, I think too often it's discounted the importance of those relationships.

Jacquelyn Jackson (25:17):

I agree.

Philip Brewer (25:21):

And understandably so, because I think you're running a business and you've got 17,000 balls in the air at any given time. And when you're thinking about, "Do I have an attorney to check this contract?" It's just down the list of priorities. But if you can build those relationships, you can take the time to invest in those relationships, it will pay huge dividends over time.

Jacquelyn Jackson (25:47):

All right. Time, invest in a relationship. Totally agree. I totally agree. Well, we're going to get down to our final questions that we would like to ask you. Do you have any final words of wisdom that you would like to share to our listeners?

Philip Brewer (26:02):

Yes. So one thing that I have seen repeatedly throughout my career is people wait until the last minute to try to borrow money. So don't wait till the last minute. Don't wait until you've already signed a contract and you need to increase your inventory, and now you're 30 days out from needing something and you need funding for it. Borrow the money when you don't need it, especially if it comes to things like working capital, a line of credit, that can be readily available to you when the time comes up. Again, think ahead. This is where maybe some of the relationships have come. You should start your year, kind of knowing what you're wanting to do, where you're wanting to go, if there are contracts you're trying to achieve, get to, if you need more space. So again, don't wait until it's time that I've outgrown my space and I don't even have a cubicle to put my new hire. You should get the space beforehand.

(27:03):

So, just think through what you want to do. Don't wait till the last minute. That's when cash flow's tight. Revenue could be down. It's absolute. And then that puts your lender in a bind as well, because we want to try to meet your need. We want to try to give you what you need to be successful, but we may not always be able to meet the timeline. Or like I said, something could have changed in your financial picture. You're coming to get money because you had a down quarter. Well, that down quarter may now disqualify you from getting the money that you could have gotten the quarter before. So, just keeping that in mind, knowing where you want to go, planning in advance. And I would just say, borrow when you don't think you need it, would be my final advice.

Jacquelyn Jackson (27:53):

Well, that sounds like some great advice. Everything else that you've mentioned to us today has really been awesome in getting, enlightening us a little bit more on the current commercial lending area.

(28:02):

Well, that will conclude our episode. I want to thank our guest, and if you would like to contact us, please email podcast@tdjequityinsidersedition.net. Again, thank you, and everyone, please take care.

Intro &Outro Voice Over (28:17):

We hope you enjoyed this episode of TDJ Equity Funding Insiders podcast. If you'd like to be a guest or get in touch with us, please visit our website at tdjequityllc.net/podcast, or email us at podcast@tdjequityfundinginsiders.net. Until next time, take care.