 Welcome to Adventures in Small Business, a collaboration between the United States Small Business Administration, Hawaii District Office, and its resource partners. My name is Dennis Kwok from the Veterans Business Outreach Center of the Pacific. The ThinkTech, I mean, Adventures in Small Business is a collaboration, and we showcase small businesses here in Hawaii. Today, we have Mr. Alex Simpson from Southern and Pacific Lending Group. Alex, thanks for coming on the show. Yeah, of course. Yeah, it's pretty cool to have you here. We just met, Alex and I just met, and what we're trying to do is kind of get into financial tips for small businesses. And maybe before we go into that, I want to ask you about yourself and your background when you came to Hawaii and your experience in the military. Yeah, absolutely. So I was born and raised in Nashville, Tennessee. I'm one of six kids, middle child. My parents, they own a farm out there. They're still running it today. I went to college in Florida, and that's where I joined the ROTC program scholarship with National Guard. And then in 2012, when I graduated, the Hawaii Army National Guard picked me up to buy helicopters for them. So that's when I moved out to Hawaii in 2012. And was soon sent off to flight school, which is on the mainland, and then married my wife, who I met in college, and then we moved out here together. Oh, very cool. So obviously, being in the National Guard part time, you have to have a civilian job to parallel that with. So I had various civilian jobs until two years ago when my brother, who started this company on the East Coast, offered me a partnership to do work with him. And then eventually, we decided to develop a Hawaii market, which turned out to be a great opportunity for us. And Southern Pacific, can you talk about what you guys do with particularly? Yeah, absolutely. So we are a commercial loan brokerage firm. We specialize in finding financing for small business owners to grow their business. We're very flexible with the products that we can secure for them. We also have the industry experience that allows us to get things done that maybe a normal broker wouldn't be able to do. OK. So your most popular, I mean, so you're a loan brokerage. You're looking, working with small businesses, trying to get them the best kind of financing out there. What are the terms in terms of loan amounts that you guys work with? Yeah, so our range is from 10,000 up to 10 million. Wow, that's a pretty big range. Obviously, I would say the most common loan amount we're looking at is below 2 million because we are helping mainly small businesses and they will usually fall within that category. OK. Are there any specific industries that you see more in Hawaii as opposed to maybe your brother sees out in the East Coast? Yeah, our portfolio is pretty mixed. But typically what we'll see is industries that traditional lending institutions would consider high risk that they really don't like lending to even if their financials are good. So those would be food industry and auto and construction. But in Hawaii, you have a lot of large retailers and government institutions. So that usually comes with regular cash flow cycles for a lot of small businesses, which is not ideal from a lending perspective because you're not getting paid every month by your clients. Government can take up to six months. There's always a lag, yeah, when you're working for a federal or even state. Right, so that's kind of a nightmare from a cash flow perspective. But those are large contracts and businesses can pick those up and grow pretty quickly with those. But from a lending perspective, those are tough because of that irregular cycle. Yeah, so in your experience, what kind of businesses would you like to work with? Are there specific industries or specific sizes that you particularly like to look for? Yeah, absolutely. Really, businesses we enjoy working with are smaller businesses. I would say that it becomes easier to help businesses out when they're doing over a million dollars a year in revenue. Although that's not always the case, so it will absolutely help out smaller businesses that are doing less than that. Usually a business with a strong foundation that's really seeking to grow and secure capital to grow their business. So we like to work with motivated clients that are ready to find options and creative solutions to get their business to the next level. So the VBAC of the Pacific with the organization that I run, we are very on the grounds and working with small businesses. And one of the biggest concerns that our clients have, or our business has, is access to capital. And that is a big unknown for a lot of them. And the reason is that traditional lenders, a lot of them, they don't like working with startup. Is that something that you see in your organization as well? Do you see more risk working with startup companies or companies that are getting started and don't have any kind of historical data? Yeah, so obviously startups are considered high risk within the lending realm. So yeah, so you're right. Traditional lending institutions will not like to do startups, even if it is a SBA-backed loan. So we work with a lot of startups. Yeah, we see that a lot. Those can be somewhat strenuous because you aren't working with an established business that already has revenue. And then typically the only way to get financing for those businesses is to go through an SBA loan program, which is a great program because they do startups. And without that, you would see a lot less startups, most likely. But that process can be pretty strenuous and discouraging if you're just starting to start your business. Right, of course. And talking about starting your business, when you started, or actually your brother, he's the founder of the S&P. Yes. OK. When your brother started the business, I mean, what was his motivation? I'm pretty sure you guys talked about it. You being a partner, I'm pretty sure you had some say in how this business was formed. Is it was finance or economics, something that you or small business lending, that's something that you're passionate about? How does one helicopter pilot go into lending or commercial lending? Yeah, I mean, it really all started with my brother. He was a business banking officer for a US bank and a fifth-third bank. And he was working at those banks. And obviously, traditional lending institutions, they have very strict underwriting requirements, especially for business lending. So he was turning down a lot of small businesses that were pretty healthy and just needed the extra capital to grow, which was, I'm sure, discouraging for him. So he decided to go off and start his own firm and essentially take the experience he had and bring in the flexibility of working with a portfolio of lenders who could do a lot of things that one traditional institution couldn't do. He was very successful even in his first year and he wanted to work with someone who he trusted. So that's when he reached out to me. I never had an interest specifically in small business lending, but I loved finance and economics. And when he told me more about the kind of clients he was helping, it really got me thinking that I could do something that I really enjoyed, also helping a lot of clients at the same time. Yeah. And it really is when you work in actually, you know, economic development or lending, there is kind of intrinsic value in that, helping small business community that you live in. So you being in Hawaii, how has that, I mean, it's very, very different market, my assumption from the Tennessee market. Yeah, absolutely. So, you know, our East Coast market and the Hawaii market is definitely, there's a lot of differences. I would say in Hawaii, you have a lot less options. Obviously, you know, I work very closely with the local banks to help their clients out and they do a really good job with what they can do, but there's usually not too much gray area when you're working with the bank as far as business lending. They, their underwriting requirements are very specific and very, very strict. So, yeah, we do see that it is a little bit harder to get financing in Hawaii, business financing. You know, sometimes a client will come to me after they've been turned down by a few different banks. Luckily, we work with national lenders, most of them are out of the mainland that can do a lot of really unique things to get a business competitive term. And is there, are there, I mean, when you go and work with small businesses and they're not, let's just say that, you know, their lending profile isn't very strong. Sure. You know, do you say to them sometimes, hey, you know, it's just not even worth it. I mean, do you have to turn down small businesses sometimes? Yeah, absolutely. I mean, that's something we run into every once in a while. So, you know, I don't like wasting anyone's time. So, you know, right off the bat, I like to ask a few questions in the consultation and I'll let the client know, hey, there is possibility to get something done. I might need some extra documentation to review or I really can't help you right now. But we have a bunch of referral partners that we work with that, you know, say, you know, if it comes down to certain issues, say it's a credit issue that we can refer out to to help that client get into a good standing to be able to, you know, secure capital for their business. Oh, that's nice. So, it's kind of a holistic approach and you ask them to, you know, you work on them as a better client. Yeah, absolutely. To make it bankable more. Absolutely. And you say that you have a lot of partners out on the mainland. So, all the underwriting is done in the mainland. Yeah, I mean, we pre-underwrite everything. When we source a deal to one of our lenders, our approval rate is 95%. So, we're very meticulous about what kind of financing that's good for the client and who we're going to place it with so that they get competitive. We're gonna take a little short break and we will come back. Yeah, we'll take a short break and then we'll come back in a minute. Great. Aloha, I'm Stan Osserman. Stan the energy man every Friday here on Think Tech Hawaii. If you're really interested in finding out what's going on in energy, especially here in Hawaii, but also all the way around the world and especially if it has to do with hydrogen, look into Stan the energy man every Friday, 12 o'clock, Think Tech Hawaii. Be there, aloha. Hi, I'm Rusty Kamori, host of Beyond the Lines. I was the head coach for the Punahou Boys varsity tennis team for 22 years and we're fortunate to win 22 consecutive state championship. This show is based on my book, which is also titled Beyond the Lines and it's about leadership, creating a superior culture of excellence, achieving and sustaining success and finding greatness. If you're a student, parent, sports or business person and want to improve your life and the lives of people around you, tune in and join me on Mondays at 11 a.m. as we go Beyond the Lines on Think Tech Hawaii. Aloha. Welcome back to Adventures in Small Business. I'm Dennis Kwok. I'm here with Mr. Alex Simpson from S&P Lending. Just continuing our conversation, Alex. Working with small businesses, very similar. I mean, we have very different jobs but we both work with small businesses. What are the biggest kind of challenges that you see with small businesses, especially in terms of lending, kind of mistakes that make, they make. What do you see in your kind of experience? Yeah, so from a lending standpoint, there's really three big things that every lender is going to look at. Time and business is one of those. So typically a traditional lending institution is going to be very apprehensive about lending to a business that's less than two years time in business. Obviously, if you just started your business and you're within that timeframe, there's really nothing you can do about it. When it comes to making mistakes in small businesses, when you have more than two years that I see that can restrict a business from getting a loan that they need would be that they decide to restructure or rename their business and they form a separate entity now and reorganize. Sometimes that's not a problem if they don't change the name too much, but if they do do that, lenders can look at that as a new business even though the ownership's the same, what they do is the same and that will basically restart their clock for time and business. So we see that quite often. Yeah, and we see that too, especially when let's say a business, they change their entity type too, like they want from LLC too, let's say a C corporation, vice versa. We'll see that kind of clock reset. We see that too. Any other kind of challenges or kind of mistakes that you see often and you're like, oh, this is something that you guys should try to avoid? Yeah, so the second category that lenders will look at is personal credit and that's probably the most important. And a lot of people don't know that personal credit weighs so heavily in not just lending in general, but definitely business lending because they think, oh, this is a business, why would they look at my personal credit? And what a lender is looking at is, hey, their personal credit's really good, that means their whole life, they've paid their bills on time and they're responsible. They're probably gonna run their business the same way and that scoring model's very developed so lenders feel very comfortable using personal credit to qualify businesses. Unfortunately, when you have less than two years time in business and it's very hard to secure capital, you start using a lot of your personal finances to fund your business. So sometimes that's inevitable, but that can lead, kind of dig a hole for small business owners because now their credit utilization is very high and their personal credit score is now very low because of that for various reasons and now they're able to get competitive financing because they have more than two years time in business but now they can't because their credit's lower than what the underwriters wanna see. So that's something we see a lot of too is not separating personal and business finances is a big mistake that businesses will make. And to put it down to the spot, what is a good credit score in the eyes of SMB lending? Or what kind of credit scores would you like to see? Yeah, absolutely. So we can typically get financing for clients who are as low as 600. Kind of the traditional threshold for banks is gonna be 680, sometimes more than that. I would say ideally we like it to be above 650 because when you start dropping below 650 that's where you really start losing options as far as types of competitive loan product. Yeah, for sure. So 650, yeah, that's what I'm matching up for. Yeah, but we can, yeah, we'll go to 600. Yeah, I mean, that's a big challenge for a lot of small businesses. Any other kinds of challenges that you see and maybe not fiscal challenges that they make but other kinds of challenges that you, when you work with small businesses? Yeah, absolutely. The third and last category that lenders are looking at is cash flow. So obviously if you're a startup, you don't have cash flow, right? But you have projections, so that's good. But what we do see in businesses that are doing some good revenue that start to grow is they don't secure capital in anticipation of growth. So kind of what you see is a business that wants to grow is that they'll take two steps forward and then three steps back because they decided to grow quickly but they didn't have the capital to ease their cash flow. So then they put themselves in these very tight cash flow situations and then they start having to shed business that they picked up during their growth period and then they take those steps backwards. So I think it's very important for businesses to secure some kind of credit facility or loan prior to growing so that they can ease their cash flow and not have to cut back if they grow too quickly. And in your portfolio, do you guys have more lines of credits or my term loans? Yeah, I think probably mostly term loans, although lines of credits are obviously very popular product. However, once your credit score drops below probably 640, you start losing options for lines of credits. And what is, I mean, I'm pretty sure you being on the same point, what is your vision for S&P lending? Where would you like your portfolio to go? Would you like to expand to other markets and are you currently working on the other islands outside of the world? Yeah, so we help clients in all 50 states. We only have physical presences in Nashville and Hawaii and we are really good at what we do and we have a great book of business on the mainland and in Hawaii and I think as far as growth, I think we're just kind of happy doing what we're doing right now with the team we have. Sometimes it's better to stay small, I think. Yeah, okay. Very unique markets that you guys chose. It's not the big markets, but that definitely means that. And you being from Tennessee, how have you adjusted to living here? Yeah, I mean, I haven't lived in Tennessee since I was 17. Oh, okay, so it's been a while. But I love Hawaii, the weather's great. You have kind of the Florida beauty without the humidity, which is great. And then obviously the island's beautiful, the people are very generous and very welcoming. The food's amazing, which is really, yeah, kind of my weakness. You know, before we started the interview, you were saying that you're thinking about or getting out of the US Army National Guard. Yeah, yeah, absolutely. It's been a great experience and I've really loved my time with the Hawaii Army National Guard. I really wanna focus more on my family and taking care of our parents. Very cool. Maybe spend more, I mean, because you do this maybe part-time apparently, or full-time, full-time, okay. So any other kind of tips for small business owners that you can give? Yeah, absolutely. Just from a lending perspective, I think expectation is very important, depending on what you're trying to do with your business and the amount of capital you need to grow. It's very important to kind of understand what is out there and what banks or other non-traditional lending institutions are gonna look for. Okay, are you going to, I mean, for S&P lending, do you have a physical office here or do you mostly do your meetings online or? Yeah, it's all, I have a home office, but yeah, so I'm just out and about meeting clients face to face, which I believe is kind of the cornerstone of our business is forging those relationships and really helping people at that level. So how long does it take for a loan to get processed with S&P? Yeah, depending on what you're looking for, we can fund it in as quick as three days. Obviously, depending on the loan amount and what's going on with your business, it could take longer, three to four weeks. And that's one of the kind of challenges that we face is that a lot of business owners, they have to complain that it takes so long for them to get funding. When they're looking for money, sometimes it might be at a crucial stage in their business life cycle. And an SBA loan is really a great product for businesses that are having trouble with other lending institutions, but the SBA program from start to funding takes three to six months, so that's also another. And that's what I kind of wanted to touch on with expectations is you gotta understand some of these things take longer than you'd like. Yeah, no, for sure. Just to wrap up here, we do really appreciate you coming on the show. And I actually love hearing perspectives from the lending perspective too, because being in the economic development, one of the biggest challenges is actually capital for a lot of small businesses. So getting that perspective is really good. And I hope that the VBAC of the Pacific and we get to work together. We work with a lot of local lenders. It's always good to have other options and it's good to have you in the wine market. I really wish you a lot of success. Thank you Dennis, I appreciate it. Yeah, thank you for coming on the show. My name is Dennis. Thank you for joining us on Adventures in Small Business. We'll see you soon. Aloha.