Defending the SBA 7a Loan Program

So recently, a certain high-profile member of the U.S. government started to come after the SBA and specifically a program called the 7 program out of the SBA. He may also own an EV company and a rocket company and may run a department called DOJ. And fundamentally, looking at the data and what he saw, I fundamentally disagree with a lot of the ideas he had and criticisms he had around the SBA program. The SBA 7 program is a beautiful thing for this country. And just as an anecdote, every Canadian that I talk to is super jealous that we have programs like the SBA 7 program that do what it does, which is it helps businesses that would otherwise not be tradable, in other words, sellable or buyable by somebody else. It helps normal people step up and buy those businesses. And the impact is huge because the fundamental challenge is when you have small, tiny businesses, it's very difficult to figure out how to finance and trade those unless you're somebody that already has money. So for example, if you're a trust fund baby or you have rich parents, they could help you go buy a business. And let's say this is a business that generates $400,000 a year in profit. In other words, $400,000, it will probably trade for $1 million to $1.5 million or maybe a little bit more in terms of total price if you were to go buy that. The reality is most Americans don't have access to that kind of money. Actually, very, very few Americans have access to that kind of money. But in a place like America, it's really important to be able to allow somebody who comes from modest means or the middle class to find a way into business ownership. And secondarily, like, how do we solve for people who own a business like that, but they don't have anybody who wants to take it over. They have no kids. And also they need to kind of liquidate and sell that thing so they can go live their retirement and take advantage of all the kind of value that they built by building that business over decades. It's where the 7 program steps in. It originally came from World War II and the idea that post-World War II returning GIs, we need to figure out ways that a lot of these businesses that existed could transact. And over time, the program grew to where it is today, which is it creates a path for business ownership for people who want to get into franchises, who want to become McDonald's owners who want to be buying plumbing companies, HVAC companies, insurance brokerages. All these types of businesses would otherwise not be financeable, and you couldn't get anybody to finance these businesses if the SBA program didn't exist. And what's beautiful about the way it's structured in terms of SBA, and one of the magical things when the government partners with private enterprise to make something change inside of our economy. So in this case, what happens is local banks are SBA lenders. They are folks that support this SBA 7 program, and they will offer loans to borrowers who are trying to buy a business. And normally these are businesses that would be very difficult to underwrite. They're very small, and because they're very small, they're risky. I don't know if you know the stats, small businesses are much more likely to fail than bigger businesses. And sometimes they don't have a lot of assets that banks like to see and their regulators like to see in order to make those loans safe. And so this is where the SBA steps in by being a partner and a backstop for these banks. And in exchange for asking the borrowers to personally guarantee these loans, meaning personal guarantee, meaning they're putting all of their assets at risk by, borrowing money to buy this business, by asking for that personal guarantee, the SBA on the backend, in exchange for putting some specific regulations in the way these loans get underwritten and doled out to people, like, that creates a partnership. And the bank, the borrower, and the SBA create something that otherwise wouldn't be financeable and is now financeable, and you can get a loan on it. And today, this program is pretty awesome. The failure rate is really low. I'll put some links to some stats below. Because fundamentally, when somebody puts all of their assets and on the line where you're gonna be losing everything if that business doesn't work out. And secondarily, where the bank shares some of the risk. So they're helping underwrite these deals and loans to make sure that they're good loans and they're not gonna fail. And then the SBA steps in, like the whole thing just works to enable a level of like liquidity in our small business entrepreneurship that other countries just don't have. And they're jealous about it. Again, these Canadians that I talk to are like, "Man, I wish we had something like that in our country." They don't. The other reason small business is like crazy important. Most people don't realize this. Half of the jobs in the United States are from small businesses. Half. They're not working for AT&T. They're not working for Microsoft. They're not working for Amazon. Half of those jobs are people that are small businesses. And a program like SBA and the 7 makes it to where we can have a thriving market in these small businesses to where people can own them, retire, sell them when it's not right for them. They can buy into one and create the economic mobility they want to have around all that. It's awesome. Is the program perfect? No. There's clearly times where people get in over their head with loans they probably shouldn't have done and shouldn't have borrowed the money. There are times where fees get really high. You know, you're paying a big amount of fees for underwriting and all this kind of stuff with the banks. You know, all those are valid criticisms. But in my opinion, like as somebody who's dealing with small businesses and people who are trying to make their own way in this country and become entrepreneurs, like we would be totally insane to think anything but good about this program. And it's actually the stories of two of my partners and co-hosts on my podcast, Acquisitions Anonymous, that have opened up my eyes to the impact at the ground level of the SBA 7 program. And number one is my podcast co-host, Bill D'Alessandro. He got his start buying his very first e-commerce business focused on kind of the pet space through an SBA 7 loan. And he had come from a privileged background and he had come from a great job where he was working as an investment banker and he struck out on his own and said, I'm going to make this happen. And he wouldn't have been able to get that first acquisition he did and the first brand that he bought without the SBA. Fast forward to today, he eventually bought 9 more brands, and just last week he sold his business. Like, his life has totally changed, and Bill became somebody who's going to be continuing to be the type of American dream that we want to have here in this country. One is my other podcast co-host Heather Anderson. She actually works with people who are going out to find SBA loans to try to buy a business. Visocap.net, I think, is the accurate one, but we'll put a link to it. And, uh, if you're interested in kind of pursuing this and you want to own a business yourself, but you don't have the capital to do it, this is the way to make it happen. There are risks with it. You got to personally guarantee some loans and you got to really commit to the whole thing. But it gives a path to people that are really determined. And I think that's the best thing that we want to keep going in America. Like, this is a place you can make it. You just got to make it happen and have more grit and more hard work than the next person. And frankly, that's the America I want to live in. All right. Let me know what you think below. Catch you later for more hot takes about the SBA and different programs and crazy stuff that I hear out of Washington. Talk to you soon.