Fueling Growth: Finding the Right Capital at the Right Time

Intro: Broadcasting live from the Business RadioX Studios in Atlanta, Georgia. It’s time for High Velocity Radio.

Lee Kantor: Lee Kantor here another episode of High Velocity Radio and this is going to be a good one. But before we get started, it’s important to recognize our sponsor, Business RadioX. If you’re a coach or consultant who is tired of selling and ready to lead by serving, set up a call with Stone Payton at book Stone phone.com to learn how to give local leaders a voice and become the premier connector in your market. Today on High Velocity Radio, we have the Chief Operating Officer with Kapitus, Ben Johnston. Welcome.

Ben Johnston: Hi. Thank you very much for having me.

Lee Kantor: Well, I am excited to learn what you’re up to. Tell us about Kapitus. How are you serving folks?

Ben Johnston: Sure. So Capitus is a small business lender and we provide financing in the form of loans, factoring products, lines of credit and equipment finance across all 50 states. We’ve been operating for 20 years, and we really look forward to consulting with small businesses to help them match the right opportunity that they need to finance with the right style of financing for them.

Lee Kantor: Now, when you’re saying small business, how are you defining it? Because, you know, a lot of times people think a small business might be a mom and pop, you know, on Main Street. And then but to the government, that could be a, you know, a 500 employee manufacturing plant. So how do you define it?

Ben Johnston: Uh, small businesses for us tend to be anyone with about half $1 million in annual revenue on up to $25 million in annual revenue. They could have they could just have have 1 or 2 employees, um, up to a few hundred. We really don’t have an upward limit, but they tend to need to be large enough to have real revenue and recurring revenue in order to be a good customer for us.

Lee Kantor: And then do they have to have a brick and mortar or can they be online businesses?

Ben Johnston: No, absolutely. You can operate in any way, shape or form, as long as you have a strong recurring revenue and a need for growth capital.

Lee Kantor: Now, how has kind of the small business financing, uh, evolved, especially now with maybe the higher interest rates?

Ben Johnston: Yeah, it’s a, can be a challenging time for, for small businesses out there, especially given that, uh, rates are rising. Um, but there are many different types of products available and many different lending institutions that are there to serve small businesses. So we always advise small businesses that it’s really important to have multiple financing relationships. You know, every small business owner has a business checking account, most likely at a local bank. And we think it’s really important to have a relationship with the lending managers there. Um, but, uh, there are often times when banks aren’t going to be able to serve the needs of small businesses as quickly and as succinctly as what they need. And therefore, it’s really important to keep some non-bank lenders in, in your relationship arsenal as well, so that you can, uh, are able to access capital in a wide variety of products as quickly as possible.

Lee Kantor: Now, do you mind educating our listeners a little bit about these different financial institutions? You may you mentioned kind of the neighborhood bank, but there’s also maybe a, um, a community bank. And then there’s organizations like yours. Can you explain kind of what each one of those are and then how you fit in and how you’re different than the others?

Ben Johnston: Sure, sure. So, you know, you’ll have your local bank, you can have a regional bank or, you know, on up to a money center bank. Most of those banks will service small businesses in a similar manner. Um, they’ll often require collateral. They’ll often require a significant time in business and a meaningful, uh, business plan showing profits, historical profitability and growth. Um, they will often provide the cheapest capital available in the market and may be, uh, may be able to offer you SBA, uh, insured loans as well. Um, but that process tends to take a significant, a significant amount of time. And so there are non-bank lenders that can move more quickly, albeit at somewhat higher rates. But many of them have really matured their processes, their product offerings to now provide lines of credit and equipment finance, um, in addition to, uh, working capital products and shorter term term loans. Um, in general, non-bank lenders will move a little bit faster or quite a bit faster than banking institutions. Um, they often will not require collateral for certain types of loans or limited type or limited amounts of collateral relative to banks. Um, but their pricing generally is a bit higher than, than where the banks are going to come in.

Lee Kantor: Now a lot of times, um, financial institutions ask for personal guarantee. Can you talk about what that is and should a person do that or not do that?

Ben Johnston: Sure. Well, you know, a personal guarantee just basically, uh, is what it sounds like. Uh, if you have a business and you want to take out a business loan, uh, it is often required, uh, if your business is under a certain size, uh, that the owner of that business or, uh, multiple owners, if the business is owned by a number of different people, uh, will have to, uh, pledge that they will use their own personal assets to stand behind the loan should the business falter and be unable to pay it. Um, it’s a pretty standard request across both the banking sector, uh, and the non-bank lending sector. Um, however, you know, you may, as you mature as a business be able to demonstrate the financial health over multiple years, and potentially over multiple economic cycles that may allow the business to stand on its own without the need for a personal guarantee.

Lee Kantor: Now, you mentioned speed. Can you give us some context on when you’re saying fast versus slow? Like what, what does that kind of equate to in time?

Ben Johnston: Sure. So at capital, we try to make a credit decision in under two hours. Uh, and if the small if the small business is ready to transact, um, we can often fund same day or next day. Um, and that that’s probably the faster end of the range, um, for more involved products and products where collateral will be required. Um, that can take a bit longer. So an equipment finance process may be a bit longer than a straight working capital loan. Um, but when it comes to, to banks, you can often expect a process that will stretch on, um, from weeks to months, uh, as, uh, due diligence is performed and a number of documents are collected, uh, and a credit committee is formed to ultimately make a decision on those loans. So, uh, it all depends on the institution, the process, and the size and purpose of the loan. Um, but there are many non-bank lenders who have been formed, um, to, to help bridge that market between, you know, traditional bank lending and the needs of the customer.

Lee Kantor: Now, if a small business owner is listening right now and they’re contemplating, um, getting some financing, what is kind of the the pre-work they have to do to be ready to even maybe fill out the application to be prepared. Uh, you know, so that it doesn’t take, you know, all of a sudden it’s, oh, you need this. And now, now you got to go search that. Now I need this now I got to get that. Like, what are, what are some of the paperwork that’s, uh, needed in order to, to execute on something like this?

Ben Johnston: For most non-bank lenders, the application isn’t too strenuous. Um, you know, you’ll need to give over some basic information about the business address, uh, time and business type of industry you’re operating in. Um, and some, some personal information, uh, you know, name, address, things like that. You know, you’ll need a business. Ein. Uh, and you will need often 3 to 4 months of bank statements. Um, now, you know, the opportunity to provide, uh, those statements through a link with plaid or or some other type of electronic. Uh, bank statement, uh, um, technology that can take those that can. Kind of directly process those into the lending institution. Um, is available. Um, so it’s, um, typically, you know, some very basic information can launch the application. There may be some requests for proof of ownership in the future. Um, or, you know, some other form of additional identification required throughout during the process. But by and large, it’s, you know, fairly straightforward pieces of information, um, that will allow you to qualify.

Lee Kantor: But it doesn’t require like a business plan.

Ben Johnston: Um, not for most of your small business lenders. Um, if you went to your local bank, they very well may request a business plan. Um, they may well request, uh, financials that have been prepared for a number of years, uh, historically, uh, and they may want to spend some, you know, one on one time with you really understanding your, uh, expectations for the business and, and how it will grow. They may also be looking to understand what type of collateral they could use to secure the loan that they’re given, whether that be real estate or equipment, um, or, you know, some other form of collateral. Uh, and they may probe more deeply into your personal assets, um, to see, uh, if they can validate the strength of that personal guarantee. Um, so those processes can stretch on a bit longer. Um, but at the end of the day, they may be able to provide a longer term, uh, and potentially a larger amount of money at a lower cost. So that’s the benefit of being able to, um, have a longer time horizon and be able to provide that additional documentation.

Lee Kantor: Now, what about an SBA loan? How does that differ than a, just like one of the loans you’re describing?

Ben Johnston: All right. So an SBA loan will typically be given by a bank as well. Um, often they are ten year loans and they, uh, will carry, uh, they’ll carry interest rates probably in the high single digits to low double digits. Um, they will be, they will be insured by the SBA and therefore, um, that allows banks to make, uh, make them available to a broader range of small businesses than the bank’s credit policy might otherwise allow them. Uh, to be made available to. Um, so it is a long term, fairly low cost, uh, capital product. Uh, that is, that is, um, government guaranteed up until a point. The government shares the risk with the bank. Uh, and so they are great options generally for small businesses to secure long term financing, um, to help them grow their business. Um, there’s certainly less expensive than putting equity into the business, which is often an alternative to an SBA loan. Um, but they take time and, and require, uh, require a personal guarantee and require collateral in certain circumstances.

Lee Kantor: Now, does Capitus do that as well, or are you? Stay clear of that.

Ben Johnston: We we can help small businesses secure SBA loans. We are not the SBA lender ourselves, but we have partnerships with a number of SBA lenders and can help small businesses, uh, work with those lenders and obtain the financing they need.

Lee Kantor: Now is capital is just primarily a financier, or are you also kind of trying to serve the small business ecosystem and partner in a variety of ways?

Ben Johnston: Yeah. That’s right. We, um, we are absolutely looking to provide capital, um, through a number of products that we are capable of lending ourselves, but at the same time, we are Um, looking to help small businesses secure the form of capital that they need, whether it be, uh, you know, even if it’s not something that we lend ourselves. And SBA is a really good example of that. We also partner up with, with mortgage providers to help small businesses obtain mortgages. Uh, and we are, you know, exploring a wide range of products that may be useful to small businesses, um, that we can continue so that we can continue to grow. Um, the opportunities, uh, that small businesses are looking for right now.

Lee Kantor: Now, you mentioned that, um, the ideal client is a business that’s generating a certain level of income. Uh, how do you help, uh, like, say maybe an executive just got laid off and they’re like, I want to buy a franchise. Could you help with the financing of that, or is that kind of outside the scope and you would find a partner for that?

Ben Johnston: Um, there are non-bank lenders who focus specifically on franchise lending and, um, for a, an opportunity to sort of lead the acquisition or the financing of a startup, uh, franchise, uh, those types of lenders might be better fits and we could help customers get connected, uh, with those type of specialty lenders that specialize in franchises and maybe have real relationships with a number of, uh, of different franchise organizations, um, out there. However, we definitely have helped, um, provide additional working capital to owners of franchises who maybe they recently completed an acquisition and, uh. And maybe they own several franchises and are growing them, but they need a little bit of additional working capital in order to continue to grow and finalize the, uh, the acquisition and the business plan that comes out of that acquisition. And so when a quality business with strong cash flow needs additional, uh, needs some additional working capital, that’s where we step in and can help.

Lee Kantor: That’s kind of your sweet spot where there’s already kind of a proven entity that just wants to grow faster. That’s a good conversation for you to have.

Ben Johnston: Uh, you know, a great example is, you know, a contractor. So we, we have many, many relationships with small to medium sized contractors. And, you know, often they’ll have a crew and then they’ll see an opportunity in their market to take on a big job, and they bid for this job and they win it. Well, they win it, but they don’t quite have the capacity to do the job just yet. So they need to hire new people, hire, bring in a, buy a couple of additional trucks, buy some raw materials to get going on the project. Um, and they’ve got a great business going already, but they need some quick growth capital. And if they wait for weeks to see if they can get the capital, you know, from their local bank, then they’re probably not going to be able to execute on the bid that they just won. And so, you know, here’s an opportunity for us to, to work with them to, to build that business. Similarly, we have a number of doctors and dentists. And, you know, it’s typical a doctor’s practice may have five doctors and they decide to bring on a sixth. Um, the doctor comes in and it’s taking a little bit longer for that physician to come up to speed up. And we need to cover some working capital shortfalls that are occurring within the business. Um, but, but the momentum’s there. Well, you know, that’s an area where, uh, we can step in and help and provide some shorter term working capital to help them bridge through that, that more challenging time period, uh, until their acquisition has been fully realized.

Lee Kantor: And so you work a lot with the trades as well, like, like you mentioned. So, so that could be like a plumber, Hvac.

Ben Johnston: Hvac, those are, those are great businesses for us. Probably a third of our book, um, is between, you know, those type of specialty trade contractors and, uh, and then general contractors at large.

Lee Kantor: Yeah. I’ve been interviewing a lot of those folks, and those are kind of the millionaire next door kind of folks that they’re just kind of grinding, you know, not making a big show of things, but just getting things done and making some money.

Ben Johnston: Especially in this economy, because, you know, there are a lot of difficult things going on in this economy for small businesses. But on the flip side, you have a tremendous amount of investment happening in the AI economy. And in those areas where data centers are being built out there, there’s a huge demand for electricians, for plumbers, for Hvac. I mean, each one of those is a huge component to a data center. Um, and then at the same time, you know, there’s an energy boom going on and cost of energy is way, way, way up. But that means the production of energy is incredibly important in this country. And so again, the construction of that, of those energy producing facilities and, you know, everything going out in on in the oil and gas field. Um, a lot of those skill sets are incredibly important to the growth in the US economy. And so we’re seeing, we’re seeing a lot of demand for growth and capital in those areas right now.

Lee Kantor: Yeah. But they’re not getting the headlines.

Ben Johnston: That’s true. They’re not getting the headlines. But it’s um, you know, it’s, it’s, it’s a really lucrative business and a great career for those who are looking to, uh, you know, grow into the more blue collar side of the economy.

Lee Kantor: Yeah. There’s, they’re not going to be replaced by AI anytime soon.

Ben Johnston: I highly unlikely, I think we’re a long way away from the, uh, from the, the robots coming in and fixing the plumbing in our house.

Lee Kantor: Not, not today, not this year. Um, is there a story you can share that maybe illustrates the impact that working with you guys, uh, can make on an organization? Don’t name the company, but maybe share the challenge they came to you with and how you were able to help them get to a new level.

Ben Johnston: Sure, sure. So, you know, one of my, one of my favorites, I think it’s a, it’s just a really typical story of, you know, someone who, who works with us, there was a guy who, uh, ran a very successful. Landscaping business in his community. And, you know, he had, he had a decent, uh, sized business and he ran it like a top. He was really on top of his business and, um, and, and, and was growing. And then another competitor in his town, um, did not have the management skills that he had and was struggling, and ultimately decided that he needed to put the business up for sale. Uh, and so this, uh, successful landscaper wanted to, to purchase the business. And he did, but it, uh, he used up all of his working capital and all of his buffers in order to make the acquisition. Um, and he, he had kind of penciled out the numbers and the numbers maybe didn’t, uh, didn’t materialize quite as quickly as he is as he had expected. Uh, so he needed, you know, a couple hundred thousand dollars to bridge him. Um, as he was coming into his busy season and he needed to upgrade some equipment he needed to hire, bring on some additional staff. Uh, and so our capital helped him do that. And then, you know, as he moved into the summer months when his his revenue really started to rise, you know, he was able to, uh, take on all those new customers, service them well, and the profits from being able to do that, you know, vastly outweigh the cost of the capital, um, that was required in order to do, uh, in order to make that acquisition a success.

Ben Johnston: And so, you know, for growing small businesses, maybe it’s a restaurant that needs to do some upgrades of their facilities leading into the, uh, into the busy months. Um, maybe it’s a contractor bringing on a new job. Um, but that’s, it’s opportunistic capital to take advantage of an opportunity that is often fleeting. And therefore you need to act now in order to take advantage of it. Another one was just before the tariffs went into place. Uh, a couple of years ago, uh, there was a wine importer and he saw the tariffs coming. Um, but Independence Day wasn’t here yet, and he had an opportunity to take down a big shipment of wine from France, uh, to, uh, fill up his warehouse. And so he took some capital and he took down, um, you know, a couple of large shipments from overseas, got them in before the tariffs and, uh, was able to then sell that wine, um, from a much lower cost base once the tariffs went into place and, you know, had the ability to compete in the market where others might not have had that ability. So there’s another good example.

Lee Kantor: So if somebody wants to learn more, um, either connect with you or connect with Kapitus, what is the website? What is the best way to do that? It sounds like that if they want to apply, they can do that all online.

Ben Johnston: Yeah. You can apply online@campus.com. Um, and you can go to kapitus.com and, uh, and request a consultation with one of our, uh, reps as well. They’d love to sit there and talk to you about your business and, and help you think through your capital needs.

Lee Kantor: And that’s kapitus.com.

Ben Johnston: That’s right.

Lee Kantor: Well, Ben, thank you so much for sharing your story today, doing such important work. And we appreciate you.

Ben Johnston: Thank you very much for giving me the opportunity to tell it. I really appreciate it.

Lee Kantor: All right. This is Lee Kantor. We’ll see you all next time on High Velocity Radio.