Demystifying Debt with Commercial Lender David Kennedy

Episode 61

Not all debts are created equal. There’s good debt that can grow and scale your business and there’s bad debt that can drive it to bankruptcy. David Kennedy of Parkside Financial joins us in this episode to tell us the risks and rewards of debts. If deployed correctly, debt can be a great investment for businesses. They just need to identify what assets they should have and the specific situation they need to be in before going to the bank and borrowing money. 

Let’s listen to David and demystify debts! 

[00:01 – 04:08] Opening Segment

  • Let’s get to know David Kennedy
    • His path as a commercial lender 
    • The services offered by  Parkside Financials 

[04:09 – 14:06] Risk and Reward of Commercial Lending

  • Should a company have debt?
    • David weighs in 
  • The risk and rewards of commercial lending 
  • David explains the 5 C’s of credit

[14:07 – 23:27] The Cushion You Need in Your Business 

  • Listen to David to know why their rates are attractive to borrowers 
  • The cushion that your business needs
  • Want some Amazon refunds? Check out Getida
    • Promo code: FTM400

[23:28- 34:45] The Bad Time For Debt 

  • Don’t miss this inspiring story from David
  • What is Parkside Financial looking for in a client? 
  • The situation when debt is dangerous to use 

[34:46 – 39:08] Closing Segment 

  • Get to know David more in the Fire Round!
  • Connect with David! Links below 
  • Final words

Tweetable Quotes:

“Debt can be dangerous when not deployed correctly.” – David Kennedy

At the end of the day, it’s not balance sheets that pay you back. It’s people that pay you back” – David Kennedy

Resources Mentioned:

Email DKennedy@pfbt.com to reach out to David and check out their website to know how you can leverage debts for your business. 

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David Kennedy 0:00
But at the end of the day, people do business with people that you like. So no matter what business that you’re in, whether it’s e commerce or your traditional manufacturing, whatever you are in a people business, and you have to deal with people all day, every day, and that’s just how it goes. If you have a good business model, if you have a good work ethic, if you are have the ability to really dive in, grind out when times needs to be there are acts there is access to capital, and whether it be from a traditional bank. And while we may be the ones that are, you know, the more conservative lenders because at the end of the day, that that’s how we make money as we’ve got to really get repaid. There are grants, there are venture capital, there are angel investors. But at the end of the day, it’s not balance sheets that pay you back, it’s people that pay you back. And so understanding who we are lending to is just as important as what we are lending on.

Intro 0:51
Welcome, everyone, to the Firing The Man podcast, a show for anyone who wants to be their own boss. If you sit in a cubicle every day and know you were capable of more than join us, this show will help you build a business and grow your passive income streams in just a few short hours per day. And now your host serial entrepreneurs David Schomer and Ken Wilson.

David 1:15
Welcome everyone to the firing the man podcast on today’s episode, we are joined by David Kennedy, who serves as a commercial lender for Parkside financial in St. Louis. David has been involved in all sorts of financing including mergers and acquisitions, commercial lines of credit and helping companies finance special project purposes of growth. Welcome to the show, David.

David Kennedy 1:36
Hey, guys, thanks for having me.

David 1:37
Absolutely. So excited to be here. First things first, tell us a little bit about yourself and what led you to commercial lender at Parkside financial,

David Kennedy 1:45
good question, a series of events that are not perhaps typical, but I’m a native of Jupiter, Florida. And so found my details a little bit backwards, coming up here to St. Louis from Jupiter, which is sunny South Florida. I went to college, met my wife in college, finished my undergrad in Kansas City in molecular biology, originally came to St. Louis to go a medical route and go chiropractic school. And that lasted 24 hours. And then I came home to my wife of about eight days. And I said yeah, I’m not going to do that. I’m going to get my MBA and so got my MBA at St. Louis University here and got connected with Parkside, kind of through that almost eight years ago now.

Ken 2:24
Excellent. So David, can you tell us a little bit about Parkside financial, and how you and your team can help entrepreneurs grow and scale businesses?

David Kennedy 2:32
Yeah. So parks, I have a bit of a unique story as well. And then when it comes to from the entrepreneur side, we were founded about 1213 years ago, April of 2008, by industry experts, guys that had been doing this for 2030 years, and then decided they wanted to kind of move out on their own and start a small bank in April of 2008 was right when the world was changing a little bit. And so we are still, to my knowledge, the last Chartered Bank in our seven state territory. So basically, when when we started, after that, it became a Hey, if you have money and a team of people and you want to start a bank, go by a bank, instead of starting ones, they haven’t issued any more charters since then. So but if you can think about the perfect time to start a lending institution is when one or the other lenders are bogged down with bad loans. We didn’t have any loans at all. So therefore, we didn’t have any bad loans. And so we’re able to kind of grow phenomenally in those first couple years more than we ever would have expected. And the focus with Parkside is we are a we’re a business focus bank, a commercial bank, we don’t do home loans, car loans, any of that personal lending, we really only focus on businesses. And the majority are within within about an hour’s drive of St. Louis. So if you think about from April 2008, we started at zero, we had raised, you know, about $22 million to start the bank. Today, we’re about $700 million in assets. And what that means is still a community bank, by all intents purposes, but we focus on businesses really with about two to 5 million of revenue up to about 5060 70 million in revenue is kind of the sweet spot for us.

David 4:08
Now I want to get into debt. And you hear a lot of people say debt is bad, for instance, like Dave Ramsey, he is all about zero debt, paying off all your loans. And that always isn’t the best option. Right? The fundamentals of finance would argue that if you can borrow at 5% and earn a 20% return, then you should do that all day long. But what what are these people missing that say debt is bad? I don’t want any debt in my company.

David Kennedy 4:34
Yeah, yeah. Dave Ramsey. Dave Ramsey is a wonderful guy that’s helped a lot of people. And I think his approach and I honestly, perhaps the approach we take and maybe this is a bit unique for a bank debt can be dangerous when not deployed, I would say correctly. And I think the challenge when people hear that debt is bad. I immediately go to nobody ever went bankrupt without debt. So If you look at 99.9% of businesses today, most of them, or 99.9%, of 100, are good businesses without any debt. Because if you don’t have to pay anybody back, if you don’t have to behold that you’re not beholden to a bank, or repayment schedule, etc, then you pretty much get to pocket whatever your margins are. And so with excluding debt, it is it is true that pretty much all businesses are good, if deployed in the wrong way, it can be bad. And that’s where the question comes into good debt versus versus bad debt. Using debt in a way to it almost in place of equity is where the challenge becomes. So if you don’t have a stable base, that’s why people always talk about having, you know, you first start your growth with equity. And there’s, there’s tons of ways to do that, whether it be angel investors, or you can get friends and family to contribute, etc. With venture capital, we can talk about all that as well. But if you use debt as a way to do that, then you bet your business is then beholden to potentially a bank. And our job as the bank is to get repaid that some banks that are trying to potentially take your business or take the assets to your business, we don’t look at lending and most bank, most traditional banks don’t look at lending that way we look at lending as Okay, how can I lend money? And how can I get it paid back. And at the end of the day, cash flow is really one of the best ways to get paid back rather than collateral. Because if I have to liquidate collateral to pay me back, something’s gone wrong for all of us.

Ken 6:32
Yeah, so so I like that description, I’d like to take a little bit deeper into kind of the the lending portion of it in terms of an e commerce business. So an e commerce space, it’s, you know, we primarily deal with, you know, if you have a physical products business, you’re dealing with inventory, and you’re also dealing with you usually, you know, you’re scaling pretty rapidly. So, you know, in terms of going to a lender and getting a loan, what have you seen come across your desk, like business owners, like, hey, I need money for this, or I need money for this? And can you group those into a couple of different classifications? And are some of them? Do some of them default more than others? You know, like, say, say, I want to I want to expand my business, I want to go borrow money for marketing or product launch? I personally like this I, you know, a little bit risky, right? Or, or if I have a proven business model, and I want to go borrow money to fund the inventory for that.

David Kennedy 7:25
Yeah, yeah, that’s a good distinction. So I’d say so the the hard part with that, specifically in viewing entrepreneur side businesses is, when you do that with debt, a lot of times or pretty much at all times, the senior lender, or just the bank, the traditional bank. And the entreprenuer. incentives are not aligned many times. So from an entrepreneur perspective, they’re gonna come to me or to a bank and say, Listen, I’ve got this awesome opportunity where I can buy this from wherever. And I can turn around and sell it via an e commerce site here. So they never have to take possession of the inventory, their cash outlay is to buy it. And then they get paid when that gets sold. And they make whatever that margin spread is. So they have normally high upside as that continues to scale. Me as the lender, I don’t have upside. So my incentive, I don’t have an equity interest in that business where, hey, if you go and blow the doors off, and it turns into a fantastic success, well, then the only thing that happens to me is I get my money paid back, you know, at some small interest rate. So essentially, it becomes, hey, if it does great, you win. If it does really bad, I lose. And so that’s why if you look at some of the that’s why it’s hard to lend into those businesses, as opposed to hey, here’s my business plan. And I’ve got a diverse revenue base, where I’m going to buy a specific product, whether it be a raw material or whatever. If it doesn’t end up working out, then me as the bank can take that raw material and go sell it to help me get paid back for that though, my I’ve got a secondary source of repayment in that sense. So that’s why a lot of the other areas to raise capital, your angel investors, your fear, accelerators, whatever, they will take a piece of equity to say, Hey, I understand the risk in lending to you because this is a startup or it’s a small revenue business that has a revenue concentration. I understand that. But now if you succeed, we both win in the fact that we’re both equity holders. So that that’s kind of the distinction is hard for me, me as the bank is looking at it from a downside scenario, because that is my upside is just that I get the money I lent back paid back. So I don’t know if that answered your question in regards to kind of putting in different segments. So the e commerce space can be hard from a from a lender’s perspective specifically, because a lot of times there’s nothing proprietary about what they’re doing. They can scale but but their their mode or their vehicle for doing that as an e commerce site and let’s say for example, an Amazon type site if a large percentage of that is being sold on Amazon. Well, if amazon for one reason or another suspends your account, tomorrow, you have no revenue source or 75% of your revenue sources gone, which is my repayment, and then I don’t have any collateral because the collateral is never owned by you. And then that is open, and then you go to the secondary and tertiary areas of repayment, if that makes sense.

Ken 10:13
So you’re digging into the businesses and just kind of trying to identify those those risks there and then making making those lending decisions based on a specific lending risk, right?

David Kennedy 10:24
Yeah, yeah. And so our kind of the, the, you know, in old school, the five C’s of credit would be the character cash flow, capital, collateral conditions, those are the five C’s of lending. So we believe at Parkside. And, you know, obviously, you’ve got to have the business plan, etc, you’ve got to have the actual business model to repay. But at the end of the day, it’s not balance sheets that pay you back, it’s people that pay you back. And so understanding who we are lending to, is just as important as what we are lending on. And so we’ve got to kind of view those credit metrics to say, Okay, well, how do we get paid back at the end of the day, it’s a pretty simple business where we lend money, but we have to figure out and do the underwriting and dive into the business to figure out what are the risks? What, from a revenue perspective, a competition perspective, a character perspective, etc, that that would potentially, you know, get in the way of us being paid back?

David 11:19
You know, David, one thing I want to dig into a little bit deeper on is why some ecommerce sellers are told no, and I’ll give you an example, in the Amazon space, Amazon has their own lending program, and they lend at between like 13 and 15%. It’s personally guaranteed. And I’ve had a couple people in my masterminds that have said, Yeah, I’m using Amazon lending. And one thing that I’ve mentioned is, Hey, why don’t you look into getting like a commercial line of credit from a bank at a much lower interest rate? And often they say, Yeah, I went to my bank. And they told me no, and I’m really interested in the perspective of the bank when they’re saying no, and what are some like alternative outlets for capital, that may be a better fit than this very high interest rate Amazon lending?

David Kennedy 12:09
Yeah, it was fascinating when Amazon came out with that product. And it’s an you know, they’re a group of smart people, because they basically cut most most ecommerce related businesses are essentially leveraged on us, if you don’t have the equity, you don’t have the cash sitting there, well, then they use credit cards to buy it and then turn around. So which those are 2324 25%, Amazon said, Hey, listen, we’ll cut it in half. So it seems like it’s a wonderful deal. But they are the ones not only lending that on a higher interest rate, but they’re also the ones that are controlling who is who can sell and at what levels and making sure that people are following the right procedures to do that. So in that sense, from an e commerce perspective, a lot of times the know that entrepreneurs would hear while you’re in the in the exact definition, your customer diversification, meaning how many customers you’re selling to, is infinite, because every person, every new purchase that buy is a new customer. But the mode in which you do that the vehicle with which you do that being an Amazon type seller, or there’s a few other e commerce sites that you can sell from is the one that really is controlling your access to those customers. And so it’s hard for me as a lender to lend on that. And it also depends on what you’re making. If you actually have inventory that’s on your balance sheet, well, then if I if something happens, and you can’t sell that, well, then I can take that inventory. But if you never actually have that inventory, or it’s overseas, I can’t go get that from international overseas to help with my repayment. So that would probably be a reason as to why your cash flow is good. And your repayment is quick, because most of them are credit card purchases. So you’re not having to wait 90 days for somebody to pay a receivable invoice. But in order to repurchase that next batch of whatever it is, it almost is I am out of the picture as the lender from that perspective.

Ken 14:06
David, I’d like to get a little bit more specific details. So as I was scaling my brands, you know, I would go to the banks, and, you know, I went after about six months of starting my business, I went to my banker, and I was like, hey, I need some money. And he and he’s like, well, I need all this paperwork. I need all this and I’m like, okay, so I went back to the drawing board. And, you know, I got some emails from Amazon, like, you know, we were just discussing Amazon lending. And, you know, there’s several other what I consider predatory lenders out there. And some of those loans that I that I took early on, were like 19 20%, you know, and, and as I took a couple of those loans, you know, they did slowly lower the rates, but it was just really, it’s an expensive way. You know, after talking with Mr. SHERMER, that’s a very expensive way to get money to borrow money, right. So I’m like I need to go back to the drawing board. So At what point do you know? What is the criteria for you? Let’s say, you know, if I at six months into a business, if somebody comes to you, you know, what’s the odds of them getting a loan from you? versus, you know, what if they came back at two years, you know, kind of what is that sweet spot of where someone can walk in your door and say, Hey, I need to fund an inventory purchase? Can you explain dig a little bit deeper into that?

David Kennedy 15:23
Yeah, and good question. And yeah, I would say from a traditional banks perspective, part of the reason our rates are so attractive is because normally we lend on businesses where we can see the primary, the secondary, the tertiary points of repayment for us. And so I think that that’s ultimately where it comes from. That’s also why your first instinct when you need to buy to buy an inventory batch is you want to come to your because we want to come to your traditional bank, because our rates are so much cheaper than one raising equity, which gives away equity in your business, or to going to somebody who’s going to charge you 15 20%. So from that sense, we do have to be pretty selective in how we do underwriting. And that comes into Tell me what your business, your business plan is, who are you going to be selling to? And then how, what is the process of turning an inventory? How do you turn that inventory into a product? And then how do you sell it? And then how do you get right back. So So from a lending perspective, you kind of have two different products as a bank, you’ve got a line of credit, and you’ve got term debt, really, the easy way to look at it is lines of credit are really not used. And this goes back to the good debt versus bad debt are really only used to fund kind of timing shortfalls of cash so that the shortfall between the inventory the time it takes to make it and then the time it takes to get that back end. So you should see if an if a working capital line of credit is done correctly, you should see ebbs and flows in that balance. If it just goes out and sits at a specific balance. Well, that’s not a line of credit, that’s just an equity infusion that comes from much cheaper capital, like me, instead of going out and raising that capital. And so your term debt is more for your longer term debt, hey, I’m going to go buy a piece of equipment that’s going to help me turn this inventory into a product. And I’ll amortize it over five years, or seven years, or whatever, or I’ll buy a piece of real estate and amortize it over 15 years. So you’ve different uses for debt. But that’s how that that’s why we have to be conservative and how we underwrite. So we want to see stable cash flow. And at the end of the day, it is very, very difficult and sometimes dangerous to use debt to grow. So or use debt to scale your business. Because that should come from That’s why they call it leverage. So there is going back to David Chalmers point, there is the ability to say, hey, I’ve got a return right now of x. And if I use leverage, I have to put less money in and then I have that return is boosted. Because it’s not my money going in, I’m using somebody else’s money, the bank’s money to do it. It is challenging to lend into that environment. Going back to what I said earlier, because of the fact that okay, well, if this works, then great, I get my money back. If it doesn’t, that I have to go look for how do I get that money repaid?

Ken 18:12
Okay, so to follow up on that one, then essentially, as soon as you know, an econ business owner has some kind of a machine or a cycle that you can predict cash flows, then you would feel comfortable lending to them at that point, or is there a limiter?

David Kennedy 18:27
Yeah, so so definitely not a time limit more of a business underwriting. So as that business scales to the point of having stable and pretty predictable cash flow, and we understand seasonality with some businesses. But when you say, Hey, this is what I’m generating, these are what my projections show I’m going to generate for, you know, the next year, it’s also really hard to lend to we call hockey stick growth of, Hey, I know I’m doing this a month right now, which yields this from a net income perspective or from an EBIT da perspective. But in 12 months, I’m going to be doing, you know, eight times that it takes so much equity, it takes so much cash to grow to that. And so that’s where you can’t use if you’re doing $100,000 a month in revenue. But next year, I’m expecting to do a million in revenue, you’re gonna have to go out and raise a bunch of cash to get to that point. And it’s typically going to come from raising cash as opposed to debt. If you try to use debt to do that, you will always be fighting and that’s why if you read the book, shoe dog Phil Knight’s story about Nike, He always gets he would with his blue ribbon LLC would always get pushed, you don’t have enough equity. You don’t have enough equity. And at that time, he didn’t understand why do I need equity. equity is the cushion that you have in your business, your assets minus your liabilities, that’s that’s the cushion that you have. And if you don’t have any of that, it’s really hard to lend into that. Yeah, yeah.

Ken 19:49
That’s a great book. I love that book. And so just to so last, last follow up I’ll have on that so, would you would you comfortably say like, I totally get it, you know, the hockey stick You can’t predict that it’s very volatile. Would you comfortably say like two years of financials, you would be able to go and look at a trend and say, and feel comfortable as a lender, like, Okay, I see 24 months here. And, you know, there’s cyclical cycle, you know, and it’s trending up and all that. So two years, would you comfortably say, that’s probably the lowest benchmark that you would lend to?

David Kennedy 20:19
Yeah, good question. Yeah. That would somebody say, Hey, here’s my last two of financials. And I can historically track kind of what they’ve been doing. And what the predictability of going forward is, because that’s my job is to really, it’s almost like Shark Tank, or somebody says, here’s my business plan. And my job as a lender is to try to poke holes in it and say, Okay, well, how, how could this fall apart? And if you’ve got two years of history, or a couple years of history that says, here’s what I’m doing, then going back specifically to that, that diversification of revenue of Is there a single source or two sources that make up how you can sell your product? Is it Amazon and Walmart? Or is it Amazon and wherever that is the actual mode at which you access your customers, then that is a big risk for me. In the event, something happens with that, but having a couple years of historical track record, with proven positive cash flows, that you’ve been able to build a little bit of a balance sheet, at that point, becomes easier.

Ken 21:12
And one, one comment the first time I went into my my bank to see my business banker, it was like, right at about a year into my ecommerce businesses and it was hockey sticking and and I felt like I was on Shark Tank trying to explain it, you know, no, no, it’s album really likes do it is this and he’s sitting there looking at me like that. Yeah, that’s funny that analogy it was it came true. So

David Kennedy 21:34
and it’s true, because those are a lot of the e commerce space. They are good businesses. And they are they are predictable. But it’s it’s again, it just goes back to it’s hard from a lender’s perspective to lend into that. But there are acts other access other areas to access capital to help you fuel that growth. That may not be a credit card, or Amazon. But it has to be somebody that’s comfortable lending into that space. And a lot of times it’s going to be people that know the business owner, or know the person that’s putting the business plan together. And if you have a succinct business plan of how to generate revenue, what that means for your projections going forward, there are tons of people that will find ways to invest in you. And if they poke holes in it to the point where you get offended and say, Well, you know, they just don’t understand. And you hear that 5678 times, it’s not that doesn’t not everybody understands, it’s very possible that maybe your business plan or your business model is not investable to you again, you see it back on deck all the time.

David 22:35
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David Kennedy 23:55
Yeah, absolutely. I’ve got two that come to mind immediately. But one of them specifically has a business down in kind of southern Missouri, a fabricating shop. But really, as they were putting products together, they’ve been a client for years and wonderful people wonderful business, when they needed something to be painted and to be powder coated, they would take that product and have to ship it out to somebody who did that. And really as they were talking and now there is obviously costs related to doing that it cuts into some of your margins. And as you’re having to pay that to be done you’re having to pay freight to ship it there and these are larger items but and then ship it back in and then you’ve got time issues etc. And so they came and said Hey guys, we’re doing a lot of this with pretty much every product we have down the street is a small basically warehouse, a warehouse, I mean a couple 1000 square foot warehouse. Why don’t we buy this little building, invest to buy the equipment and why don’t we do it ourselves. Instead of having to send this 100 miles away. We can send it a mile and a half away, capture that margin and then secondarily, we can then offer those services to other people. To our other either competitors, friends in town, etc, that are using the same powdercoating operations elsewhere, we can then do that and capture that revenue as well as the margin or roads to the product. And so they came to us and said, they said, Hey, we’d like to buy this little facility, we’d like to then buy the equipment, etc. The good part about this was they had a stable cash flow producing business to then add the leverage to it wasn’t, you know, somebody who said, Hey, this is a wonderful idea. I don’t have any cash flow now. So bank, can you lend me all this so that I can then go do it and see if it proves out. So I knew that my fallback as a repayment, I have a stable cash flow producing business, that let’s say this powdercoating operation doesn’t work. Well, then guess what the core business can still service the debt of what we need. And we could sell the equipment and do that kind of stuff. There’s a way for us to get repaid, even if the product didn’t even if the plan didn’t work out the way you expect. But actually, a couple years in now, it’s worked out fantastically, and they use it often gone down there to see it a bunch of times. And it’s fascinating to watch them do it.

David 26:07
And you said you had the two stories came to mind. I love these success stories. What’s your second one?

David Kennedy 26:12
So second one is a gentleman who’s actually a good friend of mine, who basically is one of the hardest working people I know, but essentially spent his time over the last however many years really developing an expertise in operations in managing people etc. and so has left his job and basically said, I want to go start without an equity investor, and said, I want to go buy a business that I’m going to operate. And that’s going to be my that’s my full time gig. And that’s what I’m going to do. And so he brought equity to the table brought an investor has formulated a plan for, for what that means and went out and found a business to buy that was for sale, and is dove in headfirst. And so we helped with a portion of that financing. So if you think about it, it’s a little bit different style of financing. Instead of saying, here’s a working capital line of credit, to help you with timing, you know, timing shortfalls, we put a term loan in place that says hey, here is a term loan, that will be for the acquisition of this business. And essentially, we’re not only underwriting the business, but we’re also underwriting really the the operational expertise of the gentleman who’s now running this business. So we do that occasionally as well, kind of that acquisition financing. But really, it was a underwrite the company and then bet on the guy as well. And so how do we get repaid in this situation? And so he’s running this business, operating it day to day, but has spent the last several years in preparation, really building his expertise, and is doing it now very successfully.

David 27:43
Now, for our listeners that are getting a lot of information out of this interview and thinking that they may want to use debt as a tool. What type of client are you looking for? Who would be a good fit for Parkside in I would say, who would not be a good fit for Parkside?

David Kennedy 28:00
Yeah, good question. I appreciate you asking for us. We are your traditional bank. And so for us, as I mentioned before, you know, call it two, two to 5 million in revenue at the low end, and then up to 5060 70 million at the high end. That’s kind of what our balance sheet really, that means we like to lend money between half a million dollars, and about $10 million is kind of our sweet spot, a lot of people will say, well, you’re a small bank. So we need a $25,000 line of credit, that you know, and from a from a paperwork perspective, it really takes the same amount of time to bet to paper a loan that is 25,000, as it does to do a $5 million loan. And so we don’t have just as a smaller bank, a lot of times, you’ll find that we don’t have the bandwidth and the volume to do a lot of $25,000 loan. So really, it’s about 500,000 to 10 million is kind of where we play. And that means really, we’re pretty industry agnostic, but for the most part manufacturing, distribution and business services, so if you’re providing a service to other businesses, if you’re providing and so even if it doesn’t have a ton of collateral, if you provide Business Services, if you provide if you make something and sell it, etc. Those are typically where our traditional clients fall. And then there’s always the you know, the A I’ve got a wealthy grandfather or wealthy father who’d like to back my ability to grow and scale a business. And then that becomes my secondary source of repayment is somebody who’s willing to sign as a co borrower or sign as loan. But again, it all focused on that commercial manufacturing, distribution and service based companies. You know, we obviously love St. Louis is kind of our, you know, within about an hour’s drive of St. Louis, but we will post all of your contact information in the show notes and to any of our listeners, if that sounds like your business, and you would like to use David and Parkside financial for lending services, go ahead and

David 29:47
give him a call. But I appreciate you talking about who you don’t lend to. Just because when I think of lending, this is an exaggerated example. But I think of it on a spectrum right and one end of the spectrum you have borrowing from your Grandma, who has very like loose repayment terms, and at the very end, you know, the other end you’ve got, you know, borrowing from the mafia, right? Where it’s very high stakes. And you know, Amazon, right Amazon lending is higher on that, you know, risky and interest rate. And so it’s good to observe lending opportunities at all parts of the spectrum, absent probably borrowing from the mafia. But anyway, we’ve seen

David Kennedy 30:26
for years, if you have a good business model, if you have a good work ethic, if you are have the ability to really dive in, grind out and times when needs to be there are x there is access to capital, and whether it be from a traditional bank. And while we may be the ones that are, you know, the more conservative lenders, because the end of the day, that that’s how we make money as we’ve got to really get repaid, there are grants, there are venture capital, there are angel investors, there are accelerators, and St. Louis is a wonderful place for entrepreneurship. And so there are there is access to capital, if you want to put the time in and do the work and prepare for what are you going to do from a business perspective, and not try to just and everybody wants to make a quick buck. But if you are going to focus on that and really put something together, there is a there are areas to access capital. So David, one thing that

David 31:19
I want to talk about is that scaling in in rapid growth, when I went from say, you know, $100,000, in revenue up to high six figures, I have never felt poorer. I remember, like several conversations with my wife, where I was like, Listen, I swear this company’s profitable. And she’s like, Well, why are we infusing cash month after month after month? And and it was to just keep inventory and stock? And so you commented on on that equity cushion. But can you talk a little bit more about, you know, the lenders role in that growth? And what role you play in what role you don’t play?

David Kennedy 31:56
Yeah, yeah. Great, good question. And that’s a what what you felt there is exactly during that time of growth, is exactly what all entrepreneurs, all businesses feel, because you are in the trenches when you’re growing. And it’s exciting, because you’ve got great things going on, you’ve got wonderful opportunities. At the same time, you’re like, I have to put, I continue to put money, you have to continue to feed this to get to where you want to grow, where you want to go. And the challenge is, a lot of times there are you can go through wonderful periods of growth. But then you have to stabilize that at some point to allow that to recoup, you have to allow that to basically you almost have to taper the growth off for a period of time to really allow your cash flow to rebuild. And I don’t just mean your bank account, I mean, the whole cycle of cash of when your inventory is purchased to when it’s sold to when you get that cash back in health, how long it takes to create, take $1 and turn it back into $1 50, or whatever that number is, is that period of time which you’re having to continue to invest. That is the part where it’s dangerous to use debt. So it’s, it’s dangerous to use debt in that situation. Because that is where going back to that the Phil Knight comment, that is where you need that equity cushion to support you. And so if you’re at the at the lower end scale of that of yours, you’re starting out, you’ve been doing it for a couple months, or whatever, and you’re having success, that is not the time to layer on debt, because that will add even more risk and even more potential hurdles. As you go forward. That’s the time to go either raise capital, or if you have to slow down growth a little bit to allow yourself to almost restock and refill that cash flow. That’s the time to do it, instead of layering on additional additional debt. It’s really, really hard from a lender’s perspective and from an entrepreneurs perspective, to use debt to capture that growth that really is something that needs to be done. And again, I’m saying this is a banker, which my job is to, to lend money, it’s it’s really hard to use debt to do that. That is where bringing in other investors finding other sources of capital, that are not going to, you know, if you can find one, that’s not going to charge you 19% the reason they charge you 19% is because they know it’s riskier than something else. And so you don’t have a lot of times alternative access, and so they can charge you 19% because they’re hoping that nine out of 10 of them, they’ll get repaid on and the one that they don’t they’ve made 19% on all the others that they’re going to help and repay the one that they lent out. So that’s that’s the reason they can charge that. If it was such a stable positive cash flow business, that it would you wouldn’t wouldn’t need to go find somebody who’s going to charge you 19% you’d be able to find somebody that can charge you 4% or 5% on that difference.

David 34:43
That makes a lot of sense. That makes a lot of sense. All right, Ken, let’s dive into the fire round.

Ken 34:48
Yeah, David, my favorite part of the podcast or one of them anyway, the fire round. Are you ready?

David Kennedy 34:54
Yeah, I think I’m ready. All right.

Ken 34:56
What’s your favorite book?

David Kennedy 34:57
My favorite book. I mean, I should probably The first one that comes to mind, but this reinforces why my wife thinks I’m a nerd. My favorite book is called Ender’s Game by Orson Scott Card.

David 35:09
David, Iam with your wife, you are a nerd. But I also want you to know that I love that book, too. I love that book.

David Kennedy 35:17
They went on to make a series of like 42 separate books. Well, Orson Scott Card did. And Ender’s Game is the original and I thought it was such a nerdy book when I first started reading it. And it was one of the first books I remember, just like and capturing me. And again, I’m just, I would call myself a sci fi nerd, but just in capturing me to the point that I had to read it and I read it. I’ve read it multiple times in the book, and then the movie came out. And I was like, Oh, that’s anti, it’s just not as good as the book. But that would be the first one that comes to mind. I’d love to say some, some really sophisticated financial book, but it’s it’s gotta be

Ken 35:49
nice. I like the honesty. What are some of your hobbies? Well,

David Kennedy 35:53
I’ve got three young kids seven, five, most five and then two, so there’s not a bunch of time for hobbies, but I do play decent amount of golf, golf. My my true sport love, despite the fact that I played other sports in high school and college. Golf has always been my favorite.

Ken 36:11
Nice. Absolutely. And yet, and 2020 was an odd year. Yeah, I did not play much golf. And when I did, it was just odd. So yeah, I’m looking forward to 2021 Golf. Last one, what do you think sets apart successful ecommerce entrepreneurs from those who give up fail or never get started?

David Kennedy 36:29
Good question. And I’ve got two things that come to mind. One is one of my favorite sayings that basically says, the harder I work, the luckier I get. And so it’s not something where it’s, hey, maybe I’ll dabble in this and see if I can make a quick buck. And if it’s easy, then I’ll continue doing it. because nothing’s easy. And then my other one is kind of something that we try to live by here. But at the end of the day, people do business with people that you like. So no matter what business that you’re in, whether it’s ecommerce or your traditional manufacturing, whatever you are in a people business, and you have to deal with people all day, every day. And that’s just how it goes. And so if you can find out how to effectively communicate with people, how to treat people properly, even when you’re frustrated, or whatever, and how to communicate frustrations, challenges, etc. People do business with people they like, and if you can focus on that, and focus and understand that you are always in a people business, no matter what you’re doing. That makes the difference.

Ken 37:22
That is excellent advice. It’s dynamite. Yeah. So David, definitely appreciate your time coming on the show. How can people get ahold of you?

David Kennedy 37:30
Parkside, we’re one location shop, we have our bank here. And we also have a loan production office, actually out in Denver, Colorado, as well, based here in St. Louis, I know you’ll throw my contact information up, but we’re a small shop. And so when it comes to, you know, answering quick questions or being a resource, you know, always always easy to be a second set of eyes and the only thing we live by the only thing worse than a no, it’s a slow, no. And so if there’s a response that we can give, we can give it quickly and just say hey, we’re not the right shot. But here’s here’s a few different places that you might be able to talk to, you know, we’re always always happy to do that. So email, phone, whatever, it’s always pretty easy to text. Very nice. Well,

David 38:05
thank you so much for being on the firing the main podcast and look forward to talking to you soon.

David Kennedy 38:10
Alright guys,

David 38:12
Thank you everyone for tuning in to today’s Firing The Man Podcast. If you like this episode, head on over to www.firingtheman.com And check out our resource library for exclusive firing demand discounts on popular e commerce subscription services that is www.firingtheman.com/resource. You can also find a comprehensive library of over 50 books books that Ken and I have read in the last few years that have made a meaningful impact on our business, or that head on over to www.firingtheman.com/library. Lastly, check us out on social media at Firing The Man on YouTube at Firing The Man for exclusive content. This is David Schomer and Ken Wilson. We’re out

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