The SBA rules for buying a business are changing in 2026. Here’s what buyers and home service operators need to know.
Jack Carr sits down with Alan Peterson from First Internet Bank to break down the latest SBA 7(a) changes, including how buyers can finance up to 90% of an acquisition, new equity requirements, seller financing, and changes affecting minority investors.
They also cover how sellers can stay involved for up to 24 months after closing, strategies for navigating licensing when buying HVAC, plumbing, electrical, and other skilled trades businesses, and new Quality of Earnings requirements for larger acquisitions.
Plus, Alan explains one of the biggest opportunities for existing business owners: using SBA expansion financing to acquire another company with potentially 0% down when the deal qualifies.
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Inside This Episode
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• Buying a business with an SBA 7(a) loan
• Financing up to 90% of an acquisition
• New 2026 SBA equity requirements
• Seller financing and transition rules
• Licensing strategies for home service acquisitions
• Quality of Earnings and business valuations
• SBA expansion loans and potential 0% down acquisitions
• What buyers should know before making an offer
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Connect
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Jack Carr
https://x.com/thehvacjack
Alan Peterson
https://alanfib.com/
Owned and Operated
https://www.ownedandoperated.com/
The 7A program will finance 90% of your project. 10% needs to come from you. Which is, in my opinion, one of the biggest generational wealth opportunities of my lifetime. Sellers are willing to work with you when you're the right guy, when they know that you're not gonna throw Janice in the back office out on the street day one.And I think that helps with the deal too, right? I need to work with firms that are gonna tell me when there's bad news. If it was a crappy deal, I'll tell you to run. What are some of the ways that these deals are still getting done that are fine with, with banks and the SBA? The path of absolute least resistance isWelcome back to Owned and Operated. We have an awesome episode for you today. John is out, and Alan Peterson from First Internet Bank is in. What's going on, Alan? Man, those are big shoes to fill, Jack. Uh, not a lot going on on my end, man. It's great to join you and see what's going on on your end, touch base on everything SBA, and quite a bit going on right now.Yeah. For everybody who's new listening, Alan has been working with us for the last two years as kind of our source for everything SBA. He is the man, the myth, the legend in the SBA world as an awesome SBA lender who focuses... I mean, you do everything, but- Yeah ... a big portion of your deals are home services, right?Yeah, the, the vast majority are, uh, home services, and then I'm seeing more manufacturing these days. But, uh, yeah, I'm s- I'm still 70% skilled trades, if not higher, y- year to date as well. Yeah, and I mean, it's so, uh, I can't undersell how important it is to get a lender if you're thinking about doing a business acquisition through the 7A program or a business expansion to go with somebody who actually does home service deals.Like, ask your lender. If you're not working with Alan, even Alan, ask him. Yeah. Call him and say, "Hey, how many, how many home service deals have you done in the last year?" Because it, it dramatically changes how the bank is willing to work with you for the actual individual deal, but, like, for the next 10 years potentially, right?Yeah, exactly. It, it, it's huge. Um, dude, Alan, there has been so much change since we last talked at the SBA. Yes. Yes. Um, let's, I mean, let's go through some of it. Yeah. But before we start, I just wanna shout out, like, again, it's been awesome working with you. Uh, like, what, what are some of those really neat changes that have come through?Yeah, I mean, honestly, Jack, it's exciting. Uh, the good news is you and I talk all the time, uh, but with these changes, I have never been more popular in my life, okay? Uh, my inbox right now looks like a CPA single mixer, but nobody wants to buy me dinner. You know what I mean? They just wanna know what's going on, and they want my pipeline.Uh, it's funny, y- you know, when you think about some time that's gone by- When there was the last rule changes, you know, it was interesting our timeline. You and I got to connect right around that time too, and you think about from then until now, you know, we've had listeners of yours, uh, turn into business owners, and that's been super, super rad.Uh- Oh, yeah. Part of the reason I get excited about joining you and-- But effective October first is the SBA update, okay? And what's important to understand, guys, is that that is based on your SBA authorization number, okay? Um, I don't wanna get too into jargon, but it does not mean as long as you apply by October first.At the date of this recording, it would be-- it, it might be a little challenging, uh, but still possible to get that in. Um- With all the changes, right, there's some that I really, really like. There's some that I think, in my opinion, people are creating a little bit more excitement, a little more outrage, right?Like, "Ah, they're doing this." But if you look at it, Jack, I mean, I don't know if you had a ch-- I know you follow this space pretty closely. Yeah. What did you think of the updates, man? I mean, I think, freaking out about any of it, to be honest with you. No, I think that in, in most cases, almost all of these updates are focused on making sure that the buyer is in a better spot with the lender and that the lender is in a better spot with the SBA.And so, yes, they're, they're tightening. B- I mean, 'cause we, we both saw for anybody who ha- Yeah ... hasn't heard about it out there, right? The, the default rate in March went up a little bit. Yeah. And so they, they, they ratcheted down a little bit. Uh, but they didn't do it in a way that I think was overwhelming or overburdening.I think that they just tightened some of the loose ends that they, that they think that, uh, the defaults are kinda falling through. W- Yeah. Do you think... Do you say that's accurate? Yeah, it's totally accurate. I mean, the, the reality is you, you got it spot on. On March twenty twenty-six, early default rates that were recorded up to then in the, the most recent ventures, four point eight percent.And you might think, "Ah, four point eight percent, man, that's not bad." I mean, we're talking about eight billion with a B dollars in annual acquisition financing. I mean, SBA seven A is how Main Street gets bought. Uh, and that's the reality of it. If you can get a hundred percent seller-financed deal on a business that is worth ask, please let me know.Um, you know, alanfib.com. I take-- I, I've taken worse town leaves than that. Um, but, you know, the, the challenge i-is this. I mean, you're right. Entrepreneurial optimism and risk-taking is the coolest thing about the United States of America, right? I mean, it's, it's... My family owned small businesses. Uh, we were not in the trades.Uh, we were in, uh, cash-only bars and restaurants in Scranton, Pennsylvania. And- Yeah, buddy. Yeah, we were selling-- Yeah, you know, real car lot. These were not used cars, Jack. They're pre-owned vehicles. Yeah. All right? Um, but anyway, I lived in Florida for, for a while now, here in Tampa. Um, and, and the reality is everywhere I talk to, "What about the SOP?What about the updates?" It's really... I mean, this batch to me is getting more of that like, "Oh, no," than even the last batch, and it's to protect people, Jack. I mean, the defaults tell the story. Um, and I believe that most of these updates, if not all, are sincerely not to protect the gov, not to protect the billion-dollar institutions making these loans that the government backs, so they take on more risk.I promise you, it's also to protect these guarantors, these buyers, whether it's me- Or our friends at JPMorgan Chase SBA, uh, who I use because I don't think they do SB... 'cause Jamie Dimon doesn't need to do government guaranteed lending. Um, but dude, like, it's, it's the truth. The PG is no joke, and these guardrails- Yeahin my opinion, further protect you from doing something maybe you shouldn't. The, the mo- the most people are upset, Chad, honestly, are guys I know that wanted to do micro PE funds and, you know, back people at with any exposure to anything but writing a check for fifty grand and hoping to get rich. And you, you spring those checks enough places, winners out, the winners beat the losers.And, and, and you're doing well with really limited risk to yourself. Nothing wrong with that strategy. I know smart people who've done it, but I know some people that really got jammed up when they were the ones signing on the line under those scenarios. You've probably been pitched a dozen AI tools a day by now, and most of them sound really great until your team actually starts using it.The one that I continue to come back to is Avoka. They built their platform specifically for contractors. It handles inbound calls, follow-ups, texts, web leads, dispatching, and even CSR coaching all in one place. If you're on ServiceTitan, the integration is rock solid, no duct taping together five different tools.What I also like is they're realistic about what AI can and cannot do. When a customer needs a person, Avoka has twenty four/seven live transfers built in, so nothing's gonna fall through the cracks. And the payoff is that contractors are seeing hold times disappear and booking rates increase by as much as thirty percent.If you're serious about using AI to book more jobs, check out Avoka at the link below. And so, so with that, dig into that a little bit because I know that's where- Sure ... I think one of the biggest SBA changes is, is revolving- Yeah ... around kind of the search fund- Mm-hmm ... model of, hey, there's a bunch of guys that are backing me as an operator.I put a little bit in. What- Mm-hmm ... where the-- what's the change regarding that on how you, much equity or how much capital you need to put into a deal personally? Yeah. Yeah, absolutely. So if it is your, uh, first time tuning in or maybe you have limited exposure, uh, to SBA, the seven A program it-- will finance ninety percent of your project.Your, your project includes the business you're buying, any working capital that you need. Um, you know, I always do a line of credit so you have access, but you're not paying unless, unless you need it. Uh, closing costs, equipment if you want to carve that outside of the APA. All of that isthe project, okay? Ten percent of the project Needs to come from you. The bank's gonna make a loan for ninety, okay? Um, keep it five of that ten. Let's use easy numbers 'cause again, shout out Scranton, Pennsylvania, and the Penn State satellite campus I got, uh, through because my mom knew somebody. Uh, anyway, uh, two percent of that would be fifty grand.Million-dollar project, hundred grand needs to come into the deal. Fifty thousand dollars of it can be from a seller note on full standby for the life of the loan. That means that no payments are to be made, are not due until the loan is either paid off or refinanced out. So secondary market data would tell me it would be abnormal for you to have an SBA seven A loan with no real estate, a ten-year term for a whole decade.But the reality is the seller potentially is waiting for A decade, right? For you to, for you to pay them back. Um, but sellers do it all the time. It's very common, especially when you have built a case why you're the right person for this business. And people tease me like, "Oh, that legacy stuff is cheesy."Dude, talk to, talk to my clients. It's not cheesy. It's how, it's how it's getting done, straight up. Uh-huh. I think we did- So- We did a big section of that on LARPing as a PE. Yeah, and it's a PE- It got some good traction. Well- Go LARP as a private equity company. Go LARP as a pr-private equity company. I'm not gonna bring up how you had a LinkedIn view from someone from a firm that we had name-dropped, making up the name of XY Capital.Yeah, yeah. I viewed your LinkedIn. Uh. Anyway, let's keep it moving. But the reality is sellers are willing to work with you when you're the right guy, when they know that you're not gonna throw Janice in the back office out on the street day one because that's what PE is gonna do. I got buddies in PE. I know you're not all Darth Vader, but a lot of you are.So, um, the reality is that's how you win. What do we do with the other f- the other half? Well, before this update, that five percent, or even the whole 10 percent, could have come from silent, you know, minority investors, right? Mm-hmm. Very often they weren't so silent, to be frank. Um, but the idea would be, "Hey, I'm gonna guarantee this million-dollar deal, this $900,000 loan.The 100 grand is gonna come from this fund, okay?" Now, half of the money... Okay, so let me, let me unwind this. 10% in, 5% seller note. You gotta bring 50 grand in. Twenty-five thousand of that has to be your money. It has to be yours. It cannot come from anywhere else. If you have a rich uncle that wants to give you cash and a gift letter, that Don hunts.Maybe, yeah. If you have a rich uncle, let him know. I'm still looking for one as a 40-year-old man. It's not my reality. Maybe it's yours. If you get that going, previously, you know, you could still have investors, Chad, but previously, you could break them out in distributions. That's gone. The- Yeah ... minority investors cannot get paid Until the loan is retired, okay?They can take tax dis-distributions, like, to cover their taxes. That's it, though. And will there be workarounds? I'm sure there are. I'm sure there will be. There's always going to be the creativity, right? Uh, around all of this. But the reality is rolling the dice with a Gov Bank program probably isn't the best idea.Um, you know, just my two cents on it. Yeah. And, and so I mean, I think that's a very, very good take on it. And again, like we said, I think it, again, to protect the individual so that you're not guaranteeing, uh, nine hundred K and have zero dollars in, and really not should-- you probably shouldn't be running this business- Rightbecause you don't have the experience or whatever, but you've- Yeah ... got a check from a bunch of investors. Right. Uh, like this really ties you into that more so than the personal guarantee would. Mm-hmm. Um, so I, I mean, I think it's a great move. I, I think it's, uh, applicable to the reasons why. Um, but that, that's one of the bigger ones that I saw come through.Mm-hmm. What, what are some of the, the other items that you saw on the SBA seven-A? 'Cause I think- Yeah ... dovetailing, the, one of the m- interesting ones is, uh, having to revolve around, like, speaking of sellers- Mm-hmm ... how long the seller can stay on and- Yeah ... and the importance of the seller staying on. Yeah. No, that's, that honestly is the second one, in my opinion, that affects this world directly, uh, the entrepreneurship through acquisition model.I mean, previously, the seller-- So the rule, these are the rules, right? At a total change of ownership, the seller may not be an employee nor officer of the business post-close. However, they may be an advisor or a consultant, paid or unpaid, depending on how good you're at negotiating. Before it was, uh, for a period not to exceed twelve months.Today, it-- or October first, excuse me, it's going to be out to twenty-four months. So now you have the seller is able to hang around for two years, and the immediate thing is that that, that gives, that de-risks the opportunity, man. I mean, it really does. You're talking about the biggest thing we're always worried about is transitions.That's why we are harping on things like true experience, right? Like r- what, what have you done that's adjacent to this or truly transferable to what you're doing? And maybe the answer is not that you've turned wrenches. That's okay. But have you meaningfully managed budgets, people, operations? Do you have some grit?Do you have a story to tell? Those are the folks I help every day. You know what I mean? Yeah. Um, but you have to, you have to kind of keep things in perspective, is that we are trying to protect you from yourself in some cases. Um, and when we're looking at that for twenty-four months- It also helps with licensing, Jack.I mean, how many times a day do people ask you about licensing strategies when they're buying their first deal? Almost every day is I hear some-- a question in regards to licensing, and I have a question for you on the back end of this- Yeah ... because I got a crazy one in the inbox, and I think that it's, uh, applicable.Yeah. So, okay. Well, I'll tell it now. Uh, so I have one, uh, and excuse you if you're listening, I don't think you're crazy. I think that the bank is crazy behind y- whoever you talk to. Um, but I got a question saying that the SBA required that the person was, who was licensing with the old owner. It was a- Mm-hmmHVAC company. The old owner was going to stay on in a consulting role and QA the license. Mm-hmm. Uh, and they said that they wouldn't do it unless the owner had a PG, even though he's just a consultant, he sold the business, he has no assets in it, has no equity, uh, but he has to PG the business Due to, uh, holding the license.What i- I- is that a SBA rule? No. No, it's not. No, not even close. Yeah, yeah. No, it's not. And that's like going back to the initial conversation is I was like, "Hey, buddy, talk to Alan." Like, this is not... Like, you need to talk, even if not Alan, talk to any other- Discreetly ... lender. Yeah. Like, 'cause that- that's not a, that's an internal banking rule that they're trying to get comfortable around- Yeahyou not holding license. Yeah. And, and, and every situation's unique, but the rule to masters, right? The SBA rule's non-negotiable. Bank overlay, far too often by well-meaning folks with no malicious intent that do what I do, misrepresent their bank policy for SBA policy. The SBA does not have set rules or guidelines around licensing.Now, ensuring the continuity of the business operation to generate income to repay the loan, that's good business sense. That's prudent- Yeah ... lending, right? That's what we're tasked by doing. How we get there, that's where the creativity of this comes into place. I mean, I'll be honest, Jack, every buyer's a little different, but a lot of folks, I mean, heck, dude, I just did a deal in California, and the individual needed a license.That was gonna be four years of direct industry experience that they needed, right? But for him to sit- California's a rough state- It was ... rough state for licensing. It's, it's rough, and the reality though is I've seen a lot of good deals get done in California still. It's a big state. There, it's a large economy.And there's some, you know, this is an interesting world because, you know, my buyer's like, "Alan, what are we gonna do?" You know? And, and, and what we've discovered is that in California, the, he had a, an education they counted. He just had a bachelor's in business, not in any specific trade or anything, not even, uh, project management, Jack, right?Not even construction management, just- Not construction management, yeah. Yeah, you know, just a business degree that you get, like, when, when, when you don't know what else to do, and you, uh and you're twen- and you're 18 years old. Um, th- but he had gotten- Alan doesn't mean that, guys. Alan doesn't mean that.Oh. He said business degrees are well worth it. You guys are awesome. Don't listen to anything he said. Every penny, every penny. I mean, I started as an English major 'cause I knew how to read and write. I am not judging anyone, okay? And I switched to business because I was 19, and that's what I thought I should do.It worked out well for me. I'm sure- Worked out ... it worked out great. It worked out great. Um, but they counted it, Jack. Like, so he didn't have an MBA, so I would have to fact-check myself on if it was the MBA angle or just the bachelor's, but I wanna say it was, it was- I think it was just the bachelor's. I think it was just the bachelor's.And Jack- Yeah ... it knocked out Three years of the required- Mm-hmm ... four years. So month 13, right? This, th- day 367, he can sit and take the exam himself after 12 months. The seller was gonna hang around. Now, in that case, we still had a, um, minority partner that he brought on. He gave equity to the key employee.This was the estimator. This is the guy making sure we were pricing right. This was the seller's left hand, right hand, I don't remember which one. Yeah. But you get it. And ultimately- Yeah ... but we got the deal done. Now, with two years, Jack, that is gonna significantly Ease a lot of these scenarios where, "Hey man, I can sit in month 12.I've got the seller for 24 months. I've shown- Mm-hmm ... that I can put this together. I'm training, I'm doing... You know, show me something that you're working in that direction. I'm not promising you that I'm gonna approve the loan." You, you know what I mean? But the reality is, you're in a lot better footing with two or four years of support.You know what I mean? Yeah. So that's a great thing, in my opinion, that really benefits the buyers and especially for your audience a- and the folks I deal with in the skilled trades. So with o- along that same vein- Yeah ... just because it's, it, it is the question that I probably get asked the most out of any other question, it's talking about, uh, strategies for obtaining a QA if you aren't- Yeahable to have a QA. Maybe it is, hey, Chicago, Illinois- Yeah ... you need four years of, to become a master plumber, but you wanna buy a plumbing agent- or a plumbing business. Yeah. Uh, what are some of the ways that these deals are still getting done that are not, again, I'm not- Yeah ... talking gray area or black area, but that are really, um- Mm-hmmlike- No, they're fine ... they're above bar- Yeah ... that are fine with, with banks and the SBA. Listen, everything we do is gonna be ab- above board, honestly, and not just because, uh, my boss who, who you met, Gary, uh Listen, no- Listen, the reason- ... the, the reason I preface that is not because anything that we do or is below, but the reason I preface that is just because I think that the initial idea is that when people who don't understand the industry come in and, and they, they're trying- Yeahto get the license, they feel like this is- Yeah ... slimy or gross, and it's like, no, this is just how the business works sometimes is- Exactly ... if you don't have the license you need someone... That's why there's a QA process. Exactly. And, you know, the reality of... Okay, the last one I coached, right, like two weeks ago, that individual, what they chose to do, and this was at my advice, we had talked for the first time, like ja- like nine months ago, I think.And because he, he didn't know where to start, and, where you start is a conversation. I got them a buyer prequalification letter. You know, obviously for, you know, your folks I don't... That's free. You know, you get me as an advisor ongoing or whatever. And, you know, what, the, the point is, we looked at, we kissed a lot of frogs trying to find the right deal, right?So we fi... But I advised him, I said, "Listen, brother, what you need to do is find a business. Refine your search in a way where we find the business that has someone else that can qualify-" Or, or be able to qualify within a reasonable amount of time. So if you've got the seller and a bunch of folks that have...are not as tenured or experienced or quite frankly, they're not-- they, they don't wanna do it, right? So for whatever reason, maybe, maybe we refine our search to where there's a little bit of a bench. In this example, we, uh, he had brought in the estimator for the one percent. So this was the... Like I shared earlier, this is the s-exact same story.This is the exact same playbook, uh, to the listeners, right? If, if you can pull this off as the easiest way. One percent to them structured in a way where they might, might fire the majority, the actual borrower, the ninety-nine percent post-close can buy them out at tomorrow's value. So you're protecting your equity long term when you do the aggressive roll-up and PE exit in five years like everyone on Instagram is trying to do.Um, you know, and, and when you look at it that way, the one percent, there's a couple things to, to consider. One, our guy only had a date scheduled to sit, okay? So the one percent person was able to take the exam, but we were still able to get comfortable because they had significant experience, and they were literally going to be sitting thirty days post-close.It was just where the calendar of the, of the testing worked. It wasn't offered all the time. So as a bank, we made a common sense decision. We did that. The seller was gonna be there for a year anyway as a backstop for the qualification. We figured if this guy can't pass this exam in twelve months and he's been with this company- Yeah, after like three or four tries on this, then there's a problem.Sowe haven't seen payroll reports. Maybe he was... He, he was the key employee, okay? And thankfully, he, he passed on the first try and, and they're doing well. But that's, that's a, that's a playbook and, you know, there's a lot of different, like, smart strategies that I get excited about, but I wanna go in order. I mean, as far as the licensing guys, twenty-four months is gonna, is gonna ease it up.Have a plan, have a strategy. If you don't have a license, you don't have a, a partner with a license, there's ways that we can talk about strategy to make sure you'll be compliant. The last thing you wanna do is waste ninety days of your life and find out you can't get something done. I, I don't... I-- it's not a good- Yeah, exactlyfeeling when that could happen. Yeah. So, okay. So yeah, there's still a few ways, right? You can still now- Yeah ... use the, the old owner. Yeah. There's no weird PGs or anything- No ... at least with some banks. Uh- No. The one, the one percent guy, by the way, we don't make him... I don't wanna speak on behalf- No ... of our We've never had them need to PJ, okay?So if things change overnight- No, it's way too small to PJ. It's 1%, yeah. So, so old owner can stay on- Yeah ... for the two years. You have to have a plan after within that time period to get a new- Right. Yeah ... uh, but coming into that understanding that it is a possibility. Mm-hmm. Second is picking a, a qualified person- Mm-hmmon staff who can get it at the time of transition or kind of around the time of transition. Yeah. Uh, the other ways that I've, I've historically heard is you come into the deal with a partner preexisting- Oh, yeah ... who has some level of ownership. Okay. Um, and then, I mean, tho- like, I, I don't wanna beat the dead horse here 'cause I don't feel like it gets much crazier than that.It's really just finding someone who can qualify- Yeah ... and then bringing them on staff, whether that's equity, if they're going to be your, your technical partner and/or- Mm-hmm ... even just payroll with a very- Yeah ... very small equity or no equity at all to be- Yeah Uh, just an employee that whole time Yeah, all, all of the above, right, i- is certainly, you know, allowed by the SOP.And I like that you brought that on, though. My favorite way, the, the path of absolute least resistance is if you proactively have somebody. I had a guy out of Texas who's, um, in plumbing i- is, is his discipline. And, you know, he had helped... He came in and helped qualify this deal, but he was gonna be a minority partner, not stroking a check, but actually advising, actually providing- Yeahvalue. We've used him for more than one deal. Can't figure this out. We know him, and their pay doesn't agree, Jack. You know what I mean? Yeah. Like that, like, that... And remember, my first client that found him was posting in a Facebook group specifically- Mm-hmm ... for... And, and they're like, "Hey, you know, we're just looking for some mentorship.We'd love the opportunity to speak with a master plumber. We're trying to get on this journey, and we'd love the opportunity just to pick your brain about things that we might not be anticipating, anything we should look out for." And then I thought it was awesome that someone in a senior role would share that experience with them so freely.They hit it off so well. That conversation wasn't a hard one. It was a, "Hey, sweat equity, really great equity. We're gonna sweat. You're just gonna, you're gonna help us make sure that what we're trying to do is making sense. Oh, and by the way, we can legally operate the business," so. Yeah. And I think that helps with the deal, too, right?Yeah, yeah. Uh, coming into a brand-new deal, especially like using your example, plumbing- Yeah ... this individual, if they've worked at a m- high to, medium to high level of management, understands the differences between the types of plumbing, construction- Yeah ... remodel, service, what is, what isn't- Yeahcommercial versus industrial. W- Yeah ... like, all of these kind of intricacies and nuances to specific businesses. So now y- you come into this business buying it, and not only do you have your license, it's no longer a question- Right ... but you also have, uh, like, somebody who's on your team. Again, now back- Yeahto kind of full circle, making sure that this deal is a good deal because- Yeah ... like, you want, you want to succeed, you want it to thrive. Yeah. And it doesn't even have to be a giant. It's just, again, like you said, some- Yeah ... level of consulting- And, and here- ... and making sure that you're not, you know, shooting yourself in the footsomebody who knows the stuff that you are not going to think about, that you're not gonna know. Someone who's gonna tell you maybe you don't need a fleet of wrapped vans, and you can actually do the same with the, the smaller Ford Rangers with a cap on it. Ford Maverick, yeah. A Maverick. It's even starting- Alan watches my content.Alan watches my content. You know what I mean? You, you saved a ton of money doing it that way, and it was g- Yeah ... you know, the same outcome. In fact, a better one. I mean- Yeah ... I want you to know that, though. You know, not, not, not even, you know... And, and, and I do, by the way, it's good. But the, the, the reality, though, is These, that's kind of, that, that mentorship's awesome.Now listen, if you don't have that, that's all right. There's still a lot of great stuff. You can listen to, to you and John, right? And, and also do your own thing and find somebody qualified. But the, the, the message I'm trying to convey, and I'm using too many words as standard for me, is there's a way, right?If you've got a great- you've got a drive, you've got a real story, let's talk about it. You know what I mean? And, and you'd be surprised that there is a way, uh, when we find the right deal. Awesome. I, I agree. I think that hopefully people listening, that answers the question pretty plainly for them. Yeah. Um, and so that, that's a big one.I think that that expanded, again, your optionality- Yeah ... uh, the SOP expanded your optionality for that specific item. Are there any other, uh, I guess big ones that you can think of? There's some small ones, so I, I'm gonna knock out one of the small ones real quick. Like the- Yeah ... the 1.15 to the 1.25 DSCR, debt to- Yeahservice income ratio stuff. Yeah. Like n- there's a lot of things in there that, uh, that's something, but it's not really relevant- Yeah, but- ... to most listeners just because- Yeah, it just doesn't- ... most weren't getting on 1.15s anyway. Ever. So that's, that's- Right. Yeah. Yeah. So that's like saying you're no longer gonna get a mortgage at 3% tomorrow.Yeah, but you- Yeah ... weren't gonna get a mortgage at 3% anyway, so- It's, it's not gonna happen ... it's not, it's not a thing. Yeah. Um- It's, it's not gonna happen ... but that being said, there, there's, there's like one, I think one more that I can think of, big item is, i- do you have any more besides... I, I'm gonna jump ahead and say the, um- Yeahthe QOE. Is there any more outside of the QOE that are kind of relevant to the conversation and the average listener? No. Not, no, that's, that's a big one. And, and honestly, there's a lot of people that are really excited about this quality of earnings thing, right? And, and the, the reality is for deals 3 million and above, I was always advocating strongly for unbiased third-party financial due diligence from a credentialed firm or individual.That has always been my take. I mean, I'm not personally gonna guarantee a loan for $750,000, for a half a million bucks, let alone 5 million, unless I'm at least getting a cash proof, which, um, you know, to break it down plainly, it's the exercise of tying the business' bank statements to the profit and loss report to see exactly what's what, right?So, you know, that's not new, Jack. What's new and has people excited is that the bank needs to order the report. So- The guidance is- So if- Yeah, go ahead. If a bu-- yeah, if the business, if you're buying a business over three million, like Alan said before, like I did a QoE on a business that was seven hundred and fifty thousand in revenue.So like, again, it, it's worth it at the smaller levels. Almost all banks are gonna require some level of it. Yeah. Yeah. Uh, it's not overly new, but the, the nuance that has changed is that once it's over three million- Right ... it is now required, and it's required by the bank now? By the bank. Like, the bank has to order it?Correct. So the guidance that we're hearing, and this is as of September ninth, uh, twenty twenty-six at four PM, 'cause they might issue what's called a technical update, and they're trying to now to e- make that more clear and to ease that. There's some really smart people championing that with the SBA directly saying, "Hey, man, we gotta figure out what this is."The misconception in my view is that people are saying that they cannot select their own provider, that the bank is gonna dictate who is running through the numbers. Now, the reality is, again, some banks might, okay? The way that we are looking at it today is that if you have a credentialed experienced with this kind of, you know, exercise, with the quality of earnings, that as long as there's like a-- they're credentialed to have reasonable professional liability insurance, we just have to order it.The email comes from, from us. The engagement comes from us. The report is delivered to us. Now, reliance letters and things like that, Jack, which that is where it gets a little bit dicey because there are a lot of quality of earnings providers that will give you this labor that they've done, you know, sometimes thirty days on this stuff in a beautiful deliverable, and at the end there's an asterisk and says, "Yeah, but like, you know, it is what it...You know, maybe it's real. We're, we're not sure." You know? My, my guy gives them eighteen thousand dollars and they can't promise me it's real. That, that's where it gets, that's where it gets dicey. And but the way we're looking at it right now is that if they're legit firms, they're credentialed, they have, uh, licensure, and we can rely upon their numbers, absolutely, use your guy.We don't wanna dictate that. We go around the campfire, what I saw on Twitter today, were people saying, "Well, the, the bank is just gonna do this crappiest option." That is the most ridiculous thing in the world. One- The bank is not paying for this, you are, okay? The bank does not-- The economics of it do not benefit nor it defaults the bank.We credit that towards your equity objection, and I can get into that later. It goes towards your down payment in simple terms. But why would the bank put at risk their portfolio? They're gonna lend three million dollars and they're gonna use-- they're not gonna use somebody legit. That-that-- It's, it's foolish.There's a lot of people that are excited about all of this, and most of them are the smaller quality of earnings providers that are now emailing me saying, "We're gonna prioritize our lead flow to people that use us for..." Gunnar, you know you sent me... I mean, and, and I don't do that. I don't dance-- I'm not dancing for cake crumbs.Like, I need to work- Yeah ... with firms that are gonna protect my buyers. I need to work with firms thatare gonna tell me when there's bad news, okay? There is not-- This isn't a seller's game. I work well with sellers. I'm a CEPA. I'm a certified exit planning advisor. Look at me, I can talk both sides of the table, right? Yeah. But I am a W2 employee of a bank that works for my career exclusively. If it was a crappy deal, I'll tell you to run.You know what I mean? I don't need the transaction, dude. I, I did ninety million bucks last year. I don't need to chase a crappy deal. I wanna protect you because I want your next one. Man, that... And that's the truth. Yeah. And so, I mean, that makes sense to me, right? I, I get, I get the un... I don't wanna say uninformed opinion, but I get the other side of the opinions that, hey, there's some kinda kickback.This person's going to get more deals- Yeah. ... or something from- How do you know it's just me? Yeah ... I know, I've... Something from this. But the reality is, like- Yeah ... am I going to sink an entire company doing crappy deals because I wanted peanuts versus like, hey- Absolutely ... I wanna make sure that this quality of earnings is solid.Yeah. This is a real company that is really- Yeah ... intaking money so that my portfolio stays stout. Yeah. And, um, I would assume that most would, uh, try to push towards that camp. Well, well, to, to be honest- There's the potential, right? But- Before we g- Yeah. Before we totally move on from that, I just wanna share that the reality is that it's not, it's not October first yet.And to the people that I- Fundamentally disagree with today. I see where they're coming from, Jack, right? You know what I mean? You have to be, you know, whatever. But let's not forget that business valuations have always been completed for the benefit of the bank, engaged by the bank, and would still, you know, dictate what we're gonna ul-ultimately lend on.You know what I mean? Um, now that's even further. I don't know if you caught that one too. If the, if the business valuation- I did not ... they-- Okay, so listen to this one. If the Q and we cash-- if the Q and we cash flow- Oh. Oh, yeah, I did, yeah ... you know what I mean? And the business valuation, right, they both need to match the purchase price of the business, not the loan amount.Not the loan amount. So you can't just say, "Give me a million bucks for this business. I'm gonna borrow a million bucks. The business is only worth seven fifty. Rich uncle's gonna kick down a quarter mil. Bank exposure's..." No, dude, we can't. They're now are not gonna allow you to overpay. The only way that you can do that is going to be an adjustment or a seller note on standby, um, or, or, or whatever the case may be.But there's a way around that too, if you want me to really blow your mind with some great strategy. Let me know when you're ready for it. It doesn't have to be right now. Jeez. Yeah, no, that, that's a different topic. Uh, just so that we can get to any of the, the last ones, we'll go into like the idiosyncrasies of like- Yeahall the strategies behind, um- Oh, I have so many, dude. I've been thinking about this since it dropped. I'm just like, "All right, wait a minute." But we can always... You know what I mean? So- Yeah, exactly. Um- No, that's awesome. I think those are the big three that I, I saw come through. Big time, big time. Um, I don't think it's that big of a change, and again, if anything, I think at the end of the day it protects the buyer.Uh, and worst case, even if that last one doesn't overly protect the buyer because- Mm-hmm ... of some kind of shady dealings with a specific bank, you probably shouldn't be working with that bank. You should be working with Alan from First Internet Bank- ... in the first place, and then you can avoid all that mess.Um, but overall in the, in the long sh- or short, like, um, I think that all the changes are in the right direction. I'm pretty happy with them. Yeah. And, and there's some new changes coming down the pike, you said? Is that the idea? Yeah. I mean, new changes, well, the... So the, the way, I think we're gonna see changes in general with how these deals get done, right?So the vast majority of Main Street acquisitions are done with SBA financing. As I mentioned, you know, earlier, that's just the reality of it. But what does this mean for folks ultimately? It, it's not that different, man. The, the, let me tell you, the deals that are actually getting done, the SBA loans that are actually closing, and they're funding, change of ownership is actually happening, are still fundamentally sound and strong.The deals that I've been closing, by the way, would close the same way if I had my SBA authorization number October 2nd, 2026, okay? Yes. This is the truth. It's gonna be based on transferable experience, adjacent experience, direct experience, partnership, personal liquidity, right? Do you have any cash left over?Yeah. Yeah. And so most of this, though, is for first-time buyers. I know that a lot of our listeners actually already own businesses. They probably already have an SBA 7. Yeah. Did they receive any benefits to the expansion loan? Is there any changes about the expansion loan? Mm-hmm. For those, quick rundown of the expansion loan is if you already have an SBA loan, you can expand as long as it's the same NAICS code- Mm-hmmuh, and it's within a reasonable distance. There's some, there's some fuel, few rules, call Alan about it, but generally, you can expand and buy another acquisition to grow your business. Yeah. Which is, in my opinion, one of the biggest generational wealth opportunities of my lifetime. Mm-hmm. Uh, specifically because you can also do that deal if you grew your first deal, your first SBA loan, enough, grew enough equity to cover the down payment of the second deal, it's a 0% down loan Is that- Exactlyam I, I'm not overstating anything? Not at all. And thankfully, those remain, those remain unchanged. So tho- those kind of expansion opportunities are really remarkable, um, you know, that you can buy in the same industry when ownership stays the same. Uh, they relax the language on defined geography. However, most banks still want it to make sense, right?Uh, maybe you're buying, um, outside of your footprint, but it's right... You know, it's within two hours, for example, wh-whatever the case may be. Um, but those deals are getting done still with zero down. Uh, they're easier approvals in a lot of cases, Jack, because your existing business, we're gonna look at the combined cash flow.The business that you're buying better stand on its own two feet, and we'll always talk about that, me and, me and the buyer. We'll, we'll strategize. We'll say, "Dude, are you sure you're comfortable with this?" And they say, "Yes, Al." I go, "Cool. I work for you. Let's, let's keep pumping." But, you know, it-- I'm not effective unless I'm objective.Hey, put that on a T-shirt. Hey. Right? But the, these guys are able to come in, Jack, with deal one for a million bucks. Let's keep using that example, right? Fifty grand out of pocket. They get a seller that understands they're the right person. They run the business for two years, okay? They're, they're doing well with it.Everything's good. They got stability, and they're looking for inorganic growth or commercial real estate, right? Um, they can do either of those with zero down. And that is really, really interesting because now you're buying cash flow, and then your EBITDA multiple justified at higher levels, as you guys talk about.You guys understand that very intimately. W- Your cash on cash return is based on $50,000, Jack. I mean, show me... I mean, yes, there's a PG. Yes, it can... You know, yes, there's more hoops in some cases. SBA does not have to be a four-letter word. And if you know what you're doing and you're working with somebody who is in the trenches that you are learning, you can...Dude, you can... Think about it. I mean, you can get a, a crazy exit. What? Buy and hold, put your kids in a better school than you went to, right? For 50 grand? Come on, dude. Come on. Sometimes they have to preserve the program. That's why the rules might have to adjust to make sure that crappy deals aren't gonna get done and tank this thing, you know?That's the truth. It's no tax dollars come in the SBA 7A loan program. That's why there's a guarantee fee. Like, so It's, it, it, it's still a great place when you're doing it the right way And that's the key. It's, you have to buy right, you have to be- Yeah, yeah ... there is a lot of risk, and I don't wanna over- Yeahundersell that. No. Uh, it is a risky option, but at the end of the day, uh, it, the... For me, I mean, I'm a SBA 7A user. I'm a great example of somebody who has successfully used it and exited out of the SBA loan. Mm-hmm. It is a wonderful opportunity for everybody out there. Mm-hmm. And the expansion loan is a wonderful opportunity.I mean, it is a wonderful program overall- Yeah. Right ... that, uh, has, it's changed many of my friends' lives that I know now that I'm in the industry with people- Yeah ... who own HVAC companies, and plumbing companies, and electrical companies, and almost all of them bought it in some level of SBA 7A. Mm-hmm. And, um, most, I, I don't think everyone except one, I know of one default out of, like, hundreds- Yeahof connections, so. Yeah. Um, sweet, Alan. Dude, anything else? Yeah, I mean, I would just, I would tell you this, okay? So with the rules, okay, this is a little bit of game here, right, for the listeners. And we c- and I- Ooh, I like that ... you know, would love to... I'd sp- Mm ... I'd talk even more detail. But Alan FIB, book a call, we'll talk about it.I don't care where you are in the process, alanfib.com, Alan Peterson, SBA. And that's one L. One L. A-L-A- A-L-A-N- Yeah ... A-L-A-N-F-I-B.com. It'll be below, linked, so that you guys can just click on it if you're on YouTube or wherever you listen. But- Yeah ... alanfib.com. It's, Alan, just so we're gonna do the pitch now. Yeah. It is a, it's a free resource for them to use, book a calendar- Mm-hmmlink with you- Yeah ... discuss, get, get pre-qualified as a buyer, which- Yeah ... it's different from a pre-qualified business, right? There's two different- Yeah ... things. Pre-qualified businesses are usually bullshit. Being- Yes ... pre-qualified by a bank is an awesome tool to use with a seller to show- Yeah ... that, hey, you have the funds, you have the, uh, proof of income statements, the, the- Mm-hmmproof of finance statements. Uh, so- Yeah ... it's a really important thing to do at some point in your journey to buying your first business. Talk to Alan, he'll give you that for free, walk you through a bunch of businesses- Yeah ... and what he thinks if you have a deal already on the table. Yeah. And I have some, I have some cheat sheets and stuff like that to help folks.And, you know, but also it's nice if, if, if helpful, I also have been known to make introductions to brokers that I know and who trust me, right? So I can say, "Hi, Ms. Broker, Mr. Broker, you know, please meet m- uh, my pre-qualified client. I'm working with them, they're looking for a business that is, uh, uh, X, Y, Z.Probably would love to be on your radar if that comes around." All of a sudden, do you think the broker wants to deal with business by sell? You think the buyers are sick of business by sell brother. The brokers, that's why we like that. No shade to my broker friends. Alan was- They kind of want them. That's itfor everyone listening, Alan was one of the keynote speakers at the IBBA, the International Business Brokers Association- Oh. ... in Milwaukee. Oh, Alan. So he does know a few brokers, by the way. I know a few brokers. He does know a few brokers. Yeah. Th- they're my friends and, and, and, and but they all like that.And it's because if you had 1,000, you know, y- you wanna talk about HVAC deals, there might actually be 500 NDAs sold, signed, excuse me. And of those, there's gonna be a whole lot of offers that are, "Okay, you want a million bucks? Here's my offer. $400,000. We're 100%- Yeah ... seller financed. Next." Or you get a banker that does this and knows, uh, that understands this, that you've done deals with before."Hey, do you have a listing for- My buyer here, because here's a document with my signature that says I'll lend him three million bucks if you do, right? Yeah. And the, the numbers have to work, of course. Let's not forget. But the brokers I know are-- they're-- they live on a place called planet Earth with their pricing as well.So we're off market. Show a seller, you're good to go. Anyway, that's the pitch on the prequalification and why it matters. When we're talking about this quality of earnings dictating the total valuation, when we're talking about, well, what are we gonna do if I offered three-- I offered four million dollars and the valuation came in at three point five million dollars.Now we gotta deal with a retrade, and it's the bank's fault and this quality of earnings provider that I picked, but you engaged, uh, whatever. Here's LBEA, okay? Maybe consult attorney. I know a lot of good ones for that too. I know they read a lot of the same ones, Jack. But the reality is talk to an attorney and not an attorney, here's my asterisk, okay?But what if we did this? My offer is for a million dollars, which represents X multiple of EBITDA, right? Or SDE or however you wanna dress it up. The number which is representing this multiple to be verified by financial due diligence and bank underwriting, the multiple stays the same, right? But the purchase price is not.Changes. It, it changes. You know, the, the, the price is floating here, but the multiple is not. So the seller goes, "Well, my numbers are real. My books are, are solid as heck. I got a great..." Then we got no problems, right? There's no retrade, it's an adjustment. And maybe you wanna put it in wording, "We will pay you 3 million bucks or whatever, 4 million bucks, which represents whatever, and we will pay less if financial due diligence will make underwriting come short that way."I don't know, maybe it comes up with 6 million bucks, you're still in the business. Maybe you wanna keep that to yourselves. Not an attorney. Look into that. But that's, that's a little bit of game there. But check- Well, this is, this is... For everyone listening, this is why you use Alan. Yeah. Um, because he's always thinking about this.Yeah. And this, this industry is as, uh, somewhat fluid in how you can, um- Yeah ... how you can work s- One of the hardest transitions for any home service business owner is moving from running jobs to running a business. At some point, the whiteboard or the spreadsheet or that group text that you guys are doing just stops working, and things start falling through the cracks.The office is gonna lose visibility into the field, and you become the bottleneck for basically everything. That's one of the reasons that I like FieldPulse a lot. FieldPulse gives growing home service companies one place to manage scheduling, dispatching, estimates, invoicing, job tracking, customer communication, and reporting.It has the tools you actually need to run and grow your business without the complexity of a bloated enterprise software that your team's just not gonna use. It's powerful enough to scale with your business, but simple enough that your team will actually adopt it. If you've outgrown the whiteboard and you're ready to build some better systems, check out FieldPulse using the link below.For a limited time they're offering 20% off your base subscription, plus 50% off premium support for your first year Always the best, uh, getting to talk to you. Um, always best having you on. We love these episodes. Any final thoughts for the audience? No, just, um, you know, I really... If there's... I move quickly, I talk too quickly.There may have been some nuance, um, that you're curious about, you're interested about. E- even if you're not positive that buying a business makes sense for you or if you're under LOI and you need to move quickly, any of those calls are my favorite calls 'cause I love what I do. I love this space. Uh, I've been blessed to work with so many awesome folks in these trades.I, I... Listen, I'm no expert, but I'll tell you what, I, I know where a lot of these landmines are, and I can point you in the direction of some really smart people that can help in different ways, too. Um, so if anybody's interested, shoot me a message, figure it out, we'll, we can talk through anything, and I'm excited to be here with you, Jack.And listen, my feelings were hurt when electrical guys didn't want my money, but I got an SOP update, baby. People can use me again. So anything you need, Jack, let me know, and I'm grateful to be here with you, um, and, and for all the, the opportunity just to talk about this stuff. So I look forward to next time very much.Awesome. Well, if you like what you heard, leave... Don't even leave comments below, just call Alan. He'll answer those comments 'cause I will probably not, unless it's an electrical comment. And, uh, go ahead, like, subscribe, share, just all the great things, and, uh, we'll see you next time. Thanks, guys. Thanks, Alan
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