If you own a business, this is a podcast episode you need to listen to. This episode with Dean Siouaks from Magilla Loans. We’re talking about the process of getting loans and Dean walks us through his search engine for business loans.
I’ve long been a proponent of having business owners only work with community banks. The challenge with this finding the right community bank for your borrowing needs is a challenge. Using the Magilla Loans website simplifies the process.
Here are some of the things you’ll learn in today’s episode:
- How you can find the right bank for your lending needs.
- Get an understanding of what banks are looking for and how you can find the right bank for you.
- How to find a bank when your loan needs don’t fit with your present bank.
- Understanding what a loan ready business is.
- Learning that banks like some industries better than others and what you can do about it.
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful.
Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hey, this is Josh Patrick. You’re at The Sustainable Business. My guest today is Dean Sioukas.
Dean is a really interesting guy. We just met a couple of minutes talking. He is the founder and CTO of Magilla Loans. He bills himself as a technofile. I hope he’s more of a technofile than I am a curmudgeon which is how I bill myself.
He’s got lots of interesting stuff. He has got a JD/MBA from Columbia University which means he’s a really smart guy. He’s taking a look at the lending business in a different way – a very different way actually. The way he described it to me, Magilla is a dating site for people who need to borrow money. We’re going to learn a lot about that. We’re going to learn about what it takes to be a good borrower and why you should be looking for good lenders. My guess is we will probably morph into lots of other different areas when it comes to credit. Let’s bring Dean in and start the conversation.
Hey, Dean. How are you today?
Dean: Very good. Thanks for having me. Nice to meet you, a couple of minutes before we started here.
Josh: Yeah, this is always fun. One of the things I really like about podcasting is I have gotten to meet some of the most interesting people that I could ever imagine meeting. You appear to be one of these guys. We don’t often do this but I want to start out, because I’m really curious about your company, tell me about Magilla Loans.
Dean: Sure. Well, Magilla Loans was started by myself and a friend of mine, Chris Meyer. Our kids are actually classmates and that’s how we met. We’re not long-time friends. We’ve been friends, we met in the last couple of years. Basically, we started the idea over lunch. It sounds like one of those cliche stories but that’s what happened. We went to lunch. We had the idea. We were talking about business and that was the spark.
Josh: What does Magilla Loans actually do?
Dean: Well, I’m a real estate developer by trade. Chris is a business owner. It was actually Chris who had, that day, been going, like he normally does, to re-finance one of his companies, one of his buildings. He went to a bank and had gone to a couple of banks to get quotes. He wanted to compare one bank to another. He wasn’t trying to go to just one bank. He wanted to see what his choices are.
Over lunch, he was saying, “This is taking way too much time. I’m trying to do an initial search and get some terms – not a binding term sheet but some lay of the land as to who’s interested in this type of a loan on this particular day.” To his dismay, his favorite loan officer had moved to a different bank. One bank gave him the run around and the story that we’ve all heard before. I said, “Well, why are you doing that?” He said, “Well, what are my choices?” And I said, “Well, I’ll just go to the office, find you a search engine and we’ll find a way that you can narrow the field.” He goes, “Well, that would be fantastic.”
I went to the office and, for the first time, I couldn’t find what I was looking for. I literally couldn’t find it. I just couldn’t. There were things that purported to kind of give a lay of the land but upon – not even deeper inspection, just very barely scratching the surface, it was pretty clear that it was not for us. And us being businessmen who have had loan experience in the past. We have banking relationships that we value and work hard on. But not every loan that we do fits within the profile of our bank, so where do you go?
Josh: Well, that’s a good question. Actually, you brought up a bunch of cool questions around banking. I love what you guys are doing because I think it’s a really interesting and needed activity. Here’s the question that I have, most business owners when they go out and they look for a loan, they talk to one bank at a time.
Josh: In my opinion, that is a gigantic mistake.
Dean: It is. The problem is you don’t have a whole lot of other choices. You and I are both old enough. If the viewers can see us, you can tell that we’re old enough to remember the days– I love cars. It’s my weak spot, when it comes to cars. Everyone in the office gives me a hard time about bringing things back to a car example but this is a relevant one. We both remember the days of shopping for a car. Your parents would throw you in the back of the car, no seatbelts, with your brothers and sisters. That’s something that would get you put in jail today but, of course, back then, it was the norm.
We’d go to the car dealer. Why? To see what they had. There was no way to know. Did they have a blue one? Did they have a red one? We take it for granted today that we have these wonderful tools at our disposal to check inventory of one thing or another, whether it’s a car, or a DVD player, or television, or just even toilet paper. I mean, you can check inventory without leaving your home or your business and you know the answer to your question before you arrive. Well, that didn’t happen before. You go to the car dealer and they basically would time suck you, so then you wouldn’t leave. Why? So that you don’t go to the other dealer which you have to get the car to go.
Dean: And so, how do you compare? By the time the kids start screaming in the back, your dad probably said, “Oh, I wanted a blue one. Forget it, I’ll just take the red one.” The banks, in my opinion, it’s the history of the banking that got us to this point. But here we are today and we have to do it with our feet, and we have to do it with the phone, and it takes a lot of time. If you’re a small business owner or any business owner for that matter, large, small, you’re running your own shop, you’re the president, the CEO or the decision maker, do you really have that time to get for a good proposal?
Josh: I think that most business owners only get one proposal, whoever says “yes” first, that’s who they choose.
Dean: And then even worse is if you have one proposal and that one person said yes, you never got a second.
Dean: We both know what happens during the process. Stuff comes up. There’s concern over a K1 you have. You have a partnership interest in a partnership that you forgot about. It was 10 years ago. Something unimportant can become important. What happens if after a month of going through this process of underwriting it doesn’t look so good?
Josh: My suggestion always is, and I like what you guys are doing better than the way I used to do it, was I say, “Go out and find three community banks– I’m a big fan, by the way, of community banks versus the money centers for businesses that do under $100 million because frankly I’ve almost never seen them had a good old money center bank unless you’re borrowing , you know, 40 or 50 million bucks. And if you’re under that level, they don’t care anyhow. But if you go to three or four community banks and start negotiations with three or four at one time, you’re likely to get a better deal. Now, your system of allowing me to go online and just go pick, pick, pick seems to make more sense to me.
Dean: We agree because ignoring, for a second, community banks that by charter or by a decree have to stay within a certain locale. Banks are licensed by the State. It’s a State license.
Is it possible for a community bank in Los Angeles, legally, to give me a loan for my owner-occupied building in Sacramento? Well, the answer’s yes. But how could I, in Sacramento, even have the inkling to call a community bank in Los Angeles that I don’t’ know the name of, I’ve never heard of, I have no relationship with, and simultaneously, how would that banker in Los Angeles, who has capacity in their portfolio for exactly my loan, ever find me? It’s two ships passing in the night. It’s never going to happen.
Josh: Does your system take into account banks and industries? Meaning, that certain banks like certain industries and they dislike other industries?
Dean: Yes. Our system takes all of that into account. That’s what makes it super efficient because you, as the borrower – me, us, everyone on this show is probably a borrower. I’m a borrower. We built it from a borrower’s perspective. We’re not bankers. We don’t know. When you go to the bank, if it’s a bank that you’re not intimately familiar with, how do you know what their affinities are? It’s not on a neon sign on the door.
You may think that you’ve heard they’ve done a lot of industrial loans or you’ve heard they’ve done a lot of office loans but that’s not a scientific experiment. That’s not accurate. Since that type of information is too voluminous for any one person to synthesize, how can we do it?
Josh: I’m not quite sure there is a way to do it, frankly.
Dean: There is now. It sounds cliché but there is now.
Josh: Yeah. And, in fact, I would say that less than 5% of business owners even know banks either red line or green light industries based on their experience.
Dean: And where I think Magilla becomes really interesting, Magilla works very, very well for the loans that are in the sweetspot. If you’re a borrower who’s in that sweetspot, we get asked this question all the time. “Well, what do I need Magilla for? I’m in the sweetspot. I know I can walk into a bank and get a loan. What do I need you for?” Because you should be an educated and informed decision maker. If you’re going to go to one bank because you know you can get a loan from that bank, we don’t know if that’s a good decision. But the same person may go home, after going to just one bank, and may spend what – an hour and a half on Kayak? With the minutiae of the trip with his wife or partner to Hawaii to save what? A couple of hundred bucks?
Josh: If that.
Dean: We just went to one company, in this case a bank, a vendor. Right? They’re a vendor. They’re providing a service. They’re giving you money.
Josh: By the way, that’s all a bank is, is a vendor.
Josh: Business owners, please stop putting your bank on a pedestal. They don’t deserve to be.
Dean: They are a vendor. They’re providing a service. An insurance company provides you a service.
Dean: You are swapping risk profiles between yourself and the insurance company. If you want to go uninsured, that’s a business decision to make or a family decision to make on your own behalf. The banks are doing the same thing to you. They’re assessing the risk level of you and whatever you’re trying to accomplish and putting a price to it. If you have a lot of speeding tickets, your car insurance is higher than if you don’t. That’s maybe a bad example but it’s one everyone can understand. The bank is doing the same thing. They’re assessing the risk level of you and your house, you and your business, you and your office building and making a judgment call.
Josh: One of the things that I’ve always seen– again, there are a very few business owners who understand how banks make decisions about loans they put out. This is especially true for operating loans, or capital loans, or working capital loans. Not so much for real estate because people pretty much get that. It’s pretty simple. When you’re loaning to a business for operations or growth, how important is it for the borrower, i.e. the business owner, to understand the way banks think before they get into this process?
Dean: I think it’s important. It’s not necessarily– I mean, we can talk about this question all day long. I talk to bankers as well as to where the reality lies. I think it’s really important. It’s important in anything you do in life to assess the person you’re speaking to and what point of view they’re coming from.
A banker is coming from the point of view of, “Where are the minefields here? What is the risk? How truthful is this person being? How much do they understand the nature of their own business?” You need to instill confidence in the bank that, in the most simple manner, you know what you’re doing. That’s why they ask you how many years in business you’re in. If you’ve been in business for less than three years, it is a tough road to get a loan, very tough.
Josh: Yeah, or if you have a debt-to-equity ratio of 16:1, which is what I had.
Dean: Yeah. This is where things get interesting is not every bank is going to look at the ratios in the same way. While there are some common denominators and there are some bright line tests that are probably common to all banks. As you intimated earlier, a community bank may look slightly differently at a company than a national bank or than a credit union.
Just like everyone’s entitled to their own opinion, every bank is running their business as they see fit. Not every bank can compete in all the spaces. That’s where Magilla gets powerful because if I’m the president of a community bank and in my area I keep getting beaten out by a certain type of bank, well, what am I going to do? Well, I could shut the doors. I mean, that’s one way. I’m losing. I’m not winning. I’m winning. I’m trying to make money by lending money and to getting deposits in the door. I might have to pivot my advertising techniques. I might have to pivot the type of borrowers I’m going after. As the borrower, how would you know which bank has pivoted to your direction?
Josh: Unless you have something like your program, you just have to plainly get lucky.
Dean: Exactly. And what are the odds of getting lucky with literally thousands of bank choices in the United States? It’s impossible.
Josh: Now, do you guys go past bank choices to, say, insurance companies or other lending sources, if appropriate?
Dean: The platform was built to give you lending choices. The primary purpose is to connect the borrower with an FDIC-insured lender. That’s how it started. That includes national banks and community banks.
As the platform matures, we add manually because there’s no way for them to automatically use the system. We have to vet them. Credit unions are not automatically in the system because they’re not FDIC-insured. That doesn’t mean they’re bad. Of course, they’re not. But you know we have– the larger credit unions are in the system. We have some alternative lenders because not every loan is at the place in its life cycle – not every business is going to because creditworthy or an FDIC-insured bank. That’s okay, we have some alternatives for you. We believe that, at that point, that’s a lot of information to take in. That’s the important information.
Dean: That is where the money is made or lost is making a right decision with your bank. Can the system give you a similar experience for insurance? Yes, it can but we’re not doing it.
Josh: No. I don’t mean insurance. No, I mean, insurance companies who tend to be big lenders for real estate.
Dean: Oh, yes. We have gone to insurance companies and pension funds who do have an affinity for that market. The system works very, very well for them because the lenders themselves set their search criteria – very similar to a dating site.
There’s too much noise in the system. There’s too many loans coming through Magilla now. It’s overwhelming for a lender to have his criteria wide open. If I only want to see residential loans $5 million and under, so be it. If I only want to see large, commercial real estate loans in the State of Texas, in excess of $50 million, I can do that too. The system allows you to be very efficient with your time.
Josh: Cool. Let’s say you get a company like mine which I really was at a 16:1 debt-to-equity ratio. My bank got red lined by the OCC, the Office of the Comptroller of the Currency. They pulled me in to the famous workout meeting where they basically said, “We don’t like you anymore” and they tossed me out. Now, I found a new bank to take us over because they were an asset-based lender who really understood cashflow. Our interest coverage was 15 times.
Josh: Even though our debt-to-equity ratio really stunk, we had a great interest coverage. They loved us and they took us right away.
Now, I had a talk to about eight or nine banks to find this one that understood (a) the industry or spent the time to understand the industry and then understand our cashflow. Does your system automatically help people figure out, “You know, I’m a 16:1 debt-to-equity but my interest coverage would be about 15 times.” Would that take that information and find a lender that would be good to have a conversation with?
Dean: Yes and no. I think you can probably tell I’m a pretty direct person, very honest person.
Josh: Yes. Yeah, I like that.
Dean: I don’t lie. The system is getting more complicated with each day. We have coders in-house that are constantly enhancing the system.
Yes, that is the direction that we’re headed. At the same time, we’re cautious to not make choices for the borrower or, in this case, the consumer. We want the consumer to ultimately make the choice. But the system is getting smarter and is getting more intelligent to, as you’re answering the question trees and you answer a debt coverage ratio in the manner that you described, that it would give you some advice and some direction. We don’t have that yet.
What we do have though is our refined question tree which is responsive, depending on how you answer the previous questions, the future questions change. You have a notes field. A borrower like you, who understands their business, would behoove them to just put in the notes.
Again, we don’t want to waste time. What do I put in the notes? Be honest. You should always be honest. Never lie. These people aren’t stupid.
Josh: Yeah. That’s really important.
Dean: I mean, you’re just going to ruin a relationship you have with a potential bank. If the bank tells you no, that’s okay. It doesn’t mean that you’re a bad person or that you’re a bad company. Magilla’s trying to tell you and the bank is trying to tell you, “This may just not be a good fit. When? Today, on September 12.” That changes quarterly. It changes sometimes faster than that. Just take it. If it’s not what you wanted to hear, there are thousands more option. And with a little bit of work, you will find one. And with the help of Magilla, you have a much better chance of finding that match. Life’s not easy. It’s not autopilot, you still have to work at it.
Josh: I get that. So, Dean, does Magilla come back and come and say, “I hate to say this to you but you’re not really very creditworthy and you’re going to have a really difficult time getting a loan.”
Dean: Yes, it does. It gives you some choices. It gives you some choices in your locale, to go to, to get re-help from the government to help you write a business plan. It gives you choices in terms of alternative lenders that may be able to take a chance on you. It does give you a soft landing.
It’s not what people want to hear but I always use the example of, ”You don’t get mad at Kayak when you’re looking for a first-class airline ticket from San Francisco to Tokyo for $400.” That maybe doesn’t exist, right? And you maybe thought it did because your friends said they were having a special but you go to Kayak and it’s not there.
Dean: Don’t be dismayed. Every company in the world started from nothing. Nothing being you and a desk. You and a friend and a desk. I mean, that’s how we started, just two guys and an old Macintosh computer. We are where we are today. That’s okay.
You can’t start from banks clamoring after you to get your business. You have to work your way there and that’s okay. Don’t call it a rejection. It is a state of the situation on a given day and just move through it.
Josh: Dean, unfortunately, we’re out of time for the podcast portion of this episode. I’m going to bet or I’m hoping and I’m going to strongly encourage you guys to check out Magilla. I don’t know if you like to talk to people, Dean, or not. If you do, you can give your contact information. I really want people to know how they can find Magilla and start using it.
Dean: Well, the best way is to go to MagillaLoans.com, M-A-G-I-L-L-A-loans.com. That’s the URL. You can also find it in the Apple App Store and the Googel Playstore.
We didn’t touch on this but it’s free for borrowers. Our compensation structure is subscription from the lenders. That’s important for the borrower to know is that we are not a transaction-based system in that by using Magilla Loans you’re adding additional cost to an already expensive process.
We really want it to be what we would want as borrowers. How do I filter the view? How do I narrow the field of view to those who are relevant? And yes, of course, we have to make money but we’re going to make that money through subscriptions from the bank.
Josh: Okay. I almost never do this but I’m going to break my rules because in my world rules are sometimes made to be broken. Anybody listening to this podcast, the first thing I want you to do when you get into your office or find yourself a computer is go to MagillaLoans.com and check this site out. It is completely unique in the world of loans.
I’ve been doing business for over 40 years. If I had this when I was in my vending business, it would’ve been my best friend of all times.
Dean: Well, that makes us happy.
Josh: You really have got to do this.
Dean: There’s nothing to lose.
Josh: Yeah, I’ve got to tell you, I am going to be telling all of my clients who borrow money to check you guys out and I may even do it myself.
I also have an offer for you. I mean, part of what we’ve talked about today is how do you create an economically and personally sustainable business. I actually have the answer to that. It’s called Success to Sustainability: The Five Steps You Need to Take to Create a Personally and Economically Sustainable Business. I even made a one-hour CD about it. It’s absolutely free. All you have to do is take out your smartphone – don’t do this if you’re driving. For God’s sakes, wait til you stop. I ride bicycles, I don’t like to get hit by a guy texting, and text the word SUSTAINABLE to 44222. That’s the word SUSTAINABLE to 44222.
This is Josh Patrick. You’ve been at the Sustainable Business. Thanks a lot for stopping by today. I hope to see you back here really soon.
Narrator: You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around 100 years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802‑846‑1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an e-mail at email@example.com.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.