Stephen Speer is the Founder and CEO of eCommerce Lending. His company has funded over $275 million in online business acquisition loans, making it the number one source for e-commerce business acquisition financing. eCommerce Lending is also the exclusive recommended lender for nearly all the top online business brokerage firms in the country.
Stephen has been featured on multiple interview platforms, including Show Me the Nuggets with Joe Troyer and Truth About Exits with Coran Woodmass, among others. He currently lives in Florida with his wife of 25 years and their four children.
Here’s a glimpse of what you’ll learn:
- The differences between e-commerce lending and acquisitions versus traditional brick-and-mortar acquisitions
- Stephen Speer explains what differentiates eCommerce Lending from other financing options for acquisitions
- The types of buyers that are ideal for eCommerce Lending and how Amazon sellers use the company’s services
- Stephen talks about the businesses that are currently in high demand
- How buyers can become more competitive in order to acquire businesses in short demand
- Stephen shares which type of brokers you should work with and the requirements for SBA financing
- How competitive is it to buy an e-commerce business now compared to 15 years ago?
- Factors that may disqualify you from buying and selling businesses
- Stephen’s thoughts on the entry of new buyers into the acquisitions market and the behavior of existing clientele
In this episode…
When looking to buy an online business, one of the best decisions a buyer can make is to hire a firm that understands the current market landscape. This lending team should know the ins and outs of selling on different platforms and be able to evaluate the overall health of the business.
The experts behind eCommerce Lending know very well what it takes to acquire an online business. With years of experience under their belts, they catch what most traditional lenders miss when evaluating such businesses—and, because of this expertise, they also offer invaluable advisory services to the buyer. So, what do you need to know before buying or selling an e-commerce business?
Stephen Speer, the Founder and CEO of eCommerce Lending, joins host Joe Hansen in this episode of the Buy Box Experts podcast to talk about how to evaluate an online business before an acquisition. Stephen shares his best practices for SBA financing, the benefits of getting pre-qualified before an acquisition, and why buyers should hire a due diligence firm to dig deep into the businesses they intend to buy. Stay tuned.
Resources Mentioned in this episode
- Buy Box Experts
- eCommerce Lending
- Stephen Speer on LinkedIn
- Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game by Walker Deibel
Sponsor for this episode…
Buy Box Experts applies decades of e-commerce experience to successfully manage their clients’ marketplace accounts. The Buy Box account managers specialize in combining an understanding of their clients’ business fundamentals and their in-depth expertise in the Amazon Marketplace.
The team works with marketplace technicians using a system of processes, proprietary software, and extensive channel experience to ensure your Amazon presence captures the opportunity in the marketplace–not only producing greater revenue and profits but also reducing or eliminating your business’ workload.
Buy Box Experts prides itself on being one of the few agencies with an SMB (small to medium-sized business) division and an Enterprise division. Buy Box does not commingle clients among divisions as each has unique needs and requirements for proper account management.
Learn more about Buy Box Experts at BuyBoxExperts.com.
Welcome to the Buy Box Experts podcast we bring to light the unique opportunities brands face in today’s e-commerce world.
Joe Hansen 0:18
Hey Joe Hanson here one of the hosts of the Buy Box Experts podcast. I have Stephen Speer with me. He’s the founder and CEO of eCommerce Lending. His lending career spans 27 years. His company eCommerce Lending has funded over $275 million in online business acquisition loans, making it the number one source for online business acquisition, financing, and the exclusive recommended lender for nearly all the top online business brokerage firms in the country. Stephen has been featured on multiple interview platforms including show me the nuggets by Joe Troyer, and truth about exits with Coran Woodmass, among many others. Stephen lives in Florida with his wife of 25 years and their four older children. Welcome to the show, Stephen.
Thanks for having Joe.
Just a quick note, this episode is brought to you by Buy Box Experts. Buy Box Experts takes ambitious brands and makes them unbeatable. Big brands hire them because of one word, holistic. When you bring someone on to Buy Box Experts, you receive the strategy optimization and marketing performance to succeed on Amazon. We’re the only agency that combines executive level insights with expert tactical performance management and execution for your Amazon strategy. So let’s get to it. Stephen, I’d love to jump in right away and understand how you get started with eCommerce Lending?
Stephen Speer 1:46
Well, I mean, I got started with lending online businesses for business acquisition. roughly five or six years ago, I had a client come to me, who was looking for more of a brick and mortar acquisition, which I was heavily involved in at the time. And he said he By the way, I came across this online business that seems really interesting. Do you finance online businesses? Meaning businesses that sell their products online? I’m like, I guess I know. I mean, I buy online and I don’t see why not. So I researched it and was able to determine by way of, you know, underwriters, etc, to determine that I was able to finance businesses that were in the online space. But I soon learned that the online space was a very different landscape than traditional brick and mortar business acquisitions. So I learned very quickly and soon, you know, as we rolled out eCommerce Lending Inc, soon became the fortunately and very Thankfully, the lender of choice for virtually all the online business brokerage firms in the country.
Joe Hansen 2:59
So let’s dive in there. Maybe you said it’s different from your traditional kind of lending. explain to you how that’s different.
Stephen Speer 3:06
Well, there are a lot of different nuances. I mean, if you go to a traditional brick and mortar business acquisition lender and say what’s FBA, they would have no idea what’s FBA is or what’s free PL or what straw, even dropshipping A lot of people don’t know what that is. And obviously, I mean, that’s the, that’s the nuts and bolts of online selling. So, that’s one nuance: the fact that inventory is being held by Amazon, that’s another very large nuance, you know, often you know, in the traditional business, in the traditional business model, you know, the seller has the inventory at his warehouse or her warehouse. So, um, there were definitely a lot of differences between the two fields. I mean, from the outside, they look very similar, but they’re really different, kind of, like between alligators and crocodiles, they look the same, but they’re really not the same. Same goes with the online business space. So it’s, it’s, it was kind of a learning curve to learn how Amazon fulfills, fulfills the orders and holds the inventory and, and kind of grew that out. And we’ve been very successful at it. And really enjoy it first and foremost. And, you know, that’s one thing when, when I turned 50 a few years ago, I wanted to do something I really enjoy. And it allowed me to really hone in on on this sector of lending. And I enjoy my job each and every day.
Joe Hansen 4:36
Awesome. So let’s talk a little bit about what differentiates you from the other financing options for acquisitions. I mean, with the market being so bullish over the last basically 10 years since the economic crisis that we ran into the financial crisis, and I wouldn’t I would even say remaining bullish considering that the market is as high as It is and there’s still acquisitions going on amidst record unemployment, and a pandemic, like, I’ve seen a lot of offers for acquisitions out there to help people acquire businesses. So what differentiates you from some of the other financing options available?
Stephen Speer 5:18
Well, I think first and foremost, in terms of financing options, there really only, you know, there’s really only two ways of acquiring an online business. And that’s, you know, no financing, meaning paying cash. The second is, is obtaining a loan that’s guaranteed by the SBA. And there’s really no other type of loan available in the marketplace for business acquisition. Because there’s really no tangible asset. There’s no there there. There’s no, you know, other than inventory, there’s no brick and mortar, there’s not a building that is being used as collateral for the acquisition. So it’s really limited to SBA financing. And what is SBA financing? Well, first, I’ll tell you what it’s not. It’s not a loan, that’s, that’s funded by the SBA. The SBA is simply the insurance company or the guarantor of that loan. And in exchange for that guarantee, the lender is able to really be a lot more risk averse and not risk averse, but allow a lot more risk in terms of that financing, because they have a guarantee by the government in case of default. So it’s been a great program over the years, and especially in the business acquisition space, because again, it’s simply the only way of acquiring a business through finding financial means.
Joe Hansen 6:42
What is your target demographic? What are the types of buyers you’re looking for?
Stephen Speer 6:47
I mean, a couple things that we look at. First off, what we generally do with our buyers, once they’re referred to us, is that we pre qualify them. So there’s two things that we look at in terms of buyers and pre qualify the buyer. And then as they get pre qualified, once that is solidified, we also are able to be able to determine the businesses that they’re looking at if the business that they’re looking at is eligible for financing. So let’s start with the buyer. We look at business acumen. And depending on price point, Joe, it’s not necessary for most price points, it’s not necessary for the buyer to have direct online business experience, meaning experience running an online business. Oftentimes, if he or she has, has a strong skill set, transferable skill set, that’s good enough. Now, when you do get to the higher price points, you know, 234 million $5 million, then a skill set needs to be a little bit more direct skill set, as opposed to indirect. So those are some of the things we look at. Another thing we look at is we look at the liquidity of a buyer or buyers. Oftentimes, you probably know this, oftentimes, when someone goes into acquiring a business, it’s done. Oftentimes with groups meaning two or three people buying a business as opposed to just one individual. So we look at the personal liquidity of those people or that person. So that’s the second thing. And we look at other things like credit and some of the more common things, but really, those are some of the things and once they are able to identify business, for acquisition, we are very careful to make sure that buyer is the right person to acquire that business. Sometimes, even though the business qualifies and the buyer generally is qualified for business acquisition, the type of business he or she’s trying to acquire doesn’t match. Or perhaps it’s a situation where a buyer is really qualified for a million dollar business, but is looking to acquire a $3 million business. Well, that’s not a real match. So those are some of the things we look at. But we’re able to take a consultative approach with our buyers to make sure that their profile matches the type of business they are trying to acquire.
Joe Hansen 9:23
So in essence, you’re kind of a matchmaker. And so are people coming to you without an intended acquisition? Or do they always have a business that they’re wanting to acquire? And then they come to you for financing?
Stephen Speer 9:38
That’s a very good question. Joe, almost exclusively, they come to us before they even identify business to acquire. And that’s absolutely imperative because if they’re out looking for businesses to acquire, most competent Business Brokers will not really work with them until they have been pre qualified with a lender. So oftentimes they come to us beforehand, including, I mean, we generate a lot of a lot of clients on our own without referrals, they find us online, they find this through various things that we participate in as a firm. And the first thing we do is prequalify. That client and and in most cases, or a lot of cases, we do refer that buyer back out to some of the competent Business Brokers that we do work with on a regular basis.
Joe Hansen 10:36
So how are Amazon sellers leveraging your service? Are they using you almost as a vetting service, let’s say they have something in mind, or they’re looking at potential opportunities to grow their business, and they come to you to make sure that they’re qualified. And they say, Okay, I can grow by acquisition, versus I want to just grow through organic marketing.
Stephen Speer 10:57
That’s a really good point. Amazon sellers oftentimes come to us, as they, you know, they’re, they’re scaling their business, but they really feel like they get to some point where, you know, let’s, I had one case, recently, he wanted to buy his company competitor. And we actually were able to finance our clients acquisition of his competitor, not only his competitor, but a larger competitor. So he was growing by way of acquisition, which anybody can tell you, that’s one of the best ways to, to grow that out. As a matter of fact, one of our very good referral partners, Walker dyball, over at quiet light brokerage, he actually wrote a book called build, buy and build, which, by the way, guys want to read book to read read that one, it’s really good. But he explains how it’s so much that you get rid of a lot of heavy lifting, by building by buying, and then building as opposed to trying to build your own business over time.
Joe Hansen 12:02
So have Amazon businesses in any way changed the landscape for your e-commerce acquisition? Or is it this? Or is it business as usual for you?
Stephen Speer 12:15
I would say I mean, has it changed? I mean, there are a lot more opportunities for a seller in terms of selling his or her wares on Amazon. But as a whole, a lot of our clients, I mean, yes, there, they tend to be Amazon intensive. But they also are able to have other sales funnels to be able to drive business through. So from a lending standpoint, we’re working with hundred percent Amazon businesses, we do a boatload of business acquisitions in that space, where we really step in with Amazon sellers is actually when they go to exit their business to sell their business. And that’s one thing that we do with with a lot of sellers, not this Amazon sellers is that we are able to take, consult them on exit strategies, making sure that their business that they plan on selling, you know, qualifies for financing, if anything needs to be done with the financials to make them more appealing upon their exit. Oftentimes, do they have commingling going on between different businesses. So we’re able to, to kind of guide them and as well as their accountant, and oftentimes and business broker to be able to really lay the path or exit. So we do have to help Amazon sellers in that respect.
Joe Hansen 13:37
Sounds like you’re taking a pretty strong advisory role for a lot of your clientele or potential clientele. Did you have a lot of business experience prior to eCommerce Lending or do business partners that led to being able to get that sort of strong advisory services?
Stephen Speer 13:57
I mean, I’ve been in business for, you know, nearly nearly three decades, as you can tell by my gray hair. And I’ve owned businesses, I’ve sold businesses, I’ve done a lot of that. So I just use my own experience and also being you know, we don’t consider myself just another lender. I mean, I’ve been doing this a long time. And, and we really do take an advisory role with our clients. And that’s really I mean, back to your question earlier, what differentiates us, that’s one of the main differentiators and that’s why people come to us is that we’re not just someone lending money, we’re actually, you know, we do take an advisory role and use our, you know, many decades of experience, including my staff, bill that Devin, our senior vice president of lending, also has 25 years experience in lending as well. So we’re, we’ve seen just about everything.
Joe Hansen 14:50
What sort of trends are you seeing, are there certain types of businesses that are in higher demand right now? Are there certain things? Is that there’s just too many of them on the market.
Stephen Speer 15:03
You know, in terms of what I’m seeing in terms of businesses, I think the higher demand businesses or anything surrounding pet products, obviously, with people in under house arrest right now, throughout many parts of the country, pet products are big. And this in general nutraceuticals, or anything health related or wellness related, those are generally really good sectors. And, and in terms of being crowded in those sectors there’s just a lot of as those markets grow, there are a lot of opportunities for buyers to to obtain businesses within those growing sectors. So we do see quite a bit of that.
Joe Hansen 15:46
Well, what type of valuations are you genuinely seeing for the Amazon businesses that are required? Is it all over the place? Or all over the place?
Stephen Speer 15:55
I mean, it really, I mean, there are so many different factors, jokes, the general price points, in terms of how the multiples look like, it could be a lot of different things that affect what multiples we’re seeing. Obviously, SAS businesses have a lot higher multiple, but generally, it’s all over the place. It even depends on the sector, what they’re selling. And they’re just a lot of a lot of different variables that go into that.
Joe Hansen 16:25
Would you call it a buyer’s or a seller’s market for Amazon businesses?
Stephen Speer 16:30
Right now, it’s a seller’s market. Their inventory is pretty tight right now, Joe, and this is what we are hearing as a firm from our, our Business Brokers or intermediaries out there. And we have right now consulting, a lot of buyers, and a lot of buyers are, you know, not getting frustrated, but they’re they you know, I tell them, you need patience right now, because inventory is a little bit low. And they’re just absolutely a boatload of buyers, especially around the million dollar range of acquisition, as you kind of move up the food chain less and less buyers, obviously. But there’s a lot of activity. One question, I get a lot of how has COVID affected online sales? And based on, you know, the $50 million that we’re currently loans that we’re currently working on right now. Um, I can tell you, across the board, online business sales have increased. And that’s kind of driven a lot of buyers to hold off on selling their businesses. But, you know, we have plenty of plenty of sellers selling, but definitely inventories a little bit a little bit tight right now.
Joe Hansen 17:45
So if you’re one of those buyers that’s trying to be patient, it’s frustrating, how do you become more competitive in that sense of being able to acquire some of those businesses that are in short demand?
Stephen Speer 17:59
is just a great question. Fantastic question. And actually, I put a blog out there in the blogosphere. About that, I think three tips first and foremost, flat out and that very few buyers do this get pre qualified, absolutely get pre qualified. So for example, when they come to us, we pre qualify them, we provide them with a letter, and we’re very well known in the marketplace. So generally just saying that they’ve spoken to us, and they’re pre qualified works, but sometimes, some Business Brokers require the actual letter to be generated. So that’s first and foremost. Secondly, as I pointed out in my blog a couple weeks ago, get tight with a business broker, meaning get to know him or her, um, really, I mean, aspart, 15, or 30 minute consultation, and really dive deep on what you’re looking for. So when a business that meets that criteria, even prior to coming to market, that business broker, you’ll be the first they think of, to be able to give you, you know, sometimes they give first looks like a preview to a business that will be coming on the market. That’s absolutely imperative. So that’s, that’s number two. And third is making sure before you put a letter of intent in to make sure that you allow us or a lender to prequalify the business that you’re interested in, because otherwise you’re just wasting everybody’s time. If you’re going in with a letter of intent on a business that doesn’t qualify for financing,
Joe Hansen 19:37
Who’s looking at that pre qualification? I’m assuming it’s the broker. It’s the seller and lender who are there. Anyone else?
Stephen Speer 19:45
Really, I mean, that that’s pretty much I mean, definitely the broker and the seller. Third, you know, if you go in, especially if you’re going with an offer, without us betting that business, the first thing they’re going to ask you is are you pre qualified. At minimum, have you spoken to a lender, which really doesn’t hold any weight? But? And usually, yes, we were pre qualified for X amount, and we did it through eCommerce Lending. Generally, I’ve heard the Business Brokers really don’t ask for the letter, but maybe sometimes they do. They don’t know us but that’s really imperative. In back to getting really tight with a business broker, most we find that most buyers prior to me consulting them, they’re simply going on the Business Brokers website, they’re using their search engines, trying to find a business that may fit their their criteria, that is not the way to find a business, because everyone is doing it that way. And you’re just a number, you’re just one of many people doing it that way. So, you know, it’s absolutely vital to get to know a business broker and maybe a few Business Brokers that are successful, that do have the in on businesses that will be coming to market. That’s how you find a business, not by using search engines.
Joe Hansen 21:09
Now let’s talk about Business Brokers. Is there a difference between like a business broker on the buyer side versus the seller side? And who you should be working with? Her and our audience understand
Stephen Speer 21:21
that? That’s a great question. So most buyers, will, will get to know a business broker that’s representing sellers. So he’s more of a listing broker, for lack of a better term. But really they don’t, unlike maybe when you buy a house, they do work both sides, meaning they do consult buyers, and when they find a listing that might meet their criteria, then they’re able to play that match. And but there are Business Brokers out there that actually only generally the only represent buyers, meaning in their job, as a business broker representing a buyer is to find businesses, especially businesses that aren’t even in the marketplace that aren’t visible in play the match from that standpoint, but there are several I know a few actual Business Brokers that represent buyers. Generally, they do charge a fee. But it’s in most cases well worth it, especially in a hyper competitive environment, such as now.
Joe Hansen 22:32
Are there any other best practices, you’d recommend? Perhaps engaging legal counsel at a time or certain CPA firms?
Stephen Speer 22:41
Okay, I think the key is, as you begin your search, is to kind of surround yourself with the team. Hopefully, I can be part of your team, part of one’s a team. But definitely find an attorney that knows e-commerce, not just, you know, a family friend who happens to be an attorney, it’s imperative that you find an attorney that knows e-commerce that knows business acquisition. And we have a few recommendations. So if you need a recommendation, reach out to us, we’ll be more than happy to make that an accountant, definitely an accountant that understands that you’re going to be acquiring a business. And perhaps he can consult you prior to doing that to make sure that the way you acquire the business is the right, tax advantageous way of doing so. So definitely.
Joe Hansen 23:34
When would you recommend that someone use an investment banker or someone kind of a little higher up? Let’s call it versus going your route?
Stephen Speer 23:45
Usually investment banks? I mean, usually, are you talking about private equity then? Well, yeah,
Joe Hansen 23:49
so let’s say someone is interested in buying a company that’s 10 million. I mean, we talked about ranges from one to five, right? or buying one for 20 million? What would be your recommendation for them? Or? Or At what point does it make sense for them to kind of move beyond the type of lending you’re talking about,
Stephen Speer 24:08
you hit the nail on the head, generally at 10 million, there’s kind of, so we lend up to 5 million. And then there’s kind of what I call no man’s land between five and 10 million, where it’s too large for SBA and too small for private equity. We try to help fill that void by having some mezzanine financing available, which brings us up to about seven. But so basically, between seven and 10 million, it’s really hard. You might have some private equity firm interested in, but at the $10 million mark, that’s when you’re bringing in private equity. That’s kind of, you know, in terms of what it looked like, what the landscape looked like, that’s that, that sums it up.
Joe Hansen 24:48
Awesome. I’d like to take a moment to talk about some some so let’s get into the details here the nitty gritty like SBA specifics. So what is the percent down required for these deals? And does it vary by price? And then like what is needed versus recommended?
Stephen Speer 25:07
Okay, great question. Um, so first off in terms of what SBA what the bare minimum SBA requirement is, which sometimes is vastly different than what a lenders requirement is, is 10%. So 10% is the bare minimum requirement. Now, that 10% amount with that 10%, you’re leveraging 90% of the acquisition, as long as the business is able to cover that debt service, that monthly payment, by way of tax returns, meaning you look at the financials and the financials reflect a number that’s high enough, that says, Yes, this business can move on a continued basis and cover that debt service, then 10, to 10% is, is the bare minimum, generally, what I tell people anything from about a million to I’m sorry, any anywhere from our minimum, generally half a million, so anywhere from half a million to a million and a half. As long as the business cash flows adequately enough to cover the debt service, a 10% requirement, a 10%, down payment is required, or injection as a call, it’s called, once you move north of that, most of our lending partners are going to require more skin in the game from a buyer standpoint. And which can come from a seller note, that’s one thing that that we see a lot of, even though a seller notes not required, oftentimes, it definitely helps bridge that gap. And also a lot of our buyers like it, because if the seller has skin in the game, you know, to the future success, their continued success in that business. So instead of handing the keys to the kingdom to a buyer, they have a vested interest in the continuing success of that business. So oftentimes, we don’t even have to look at seller notes because they’re already included in the offer. But as you move up to 234 million dollars, $5 million, generally that injection or down payment requirement from the buyer standpoint, starts going up and can be anywhere from 1520, sometimes even 25%, depending on the business.
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