Let’s go behind the scenes of how Merrill Chandler helps clients with their fundability questions. In this episode, Merrill shares his conversation with one of the CreditSense Solutions Coaching clients where he answers a question that must also be pressing those who are building their QFE (Qualified Fundable Entity): “What do I use the money for?” Merrill lays down the rules of engagement of using the money and shares some business instruments to consider. On branching out away from the W-2 income, Merrill then gives advice on jumpstarting the path to becoming a business consultant. Don’t miss this rare opportunity of hearing this insider client call!
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An Insider Client Call
In this episode, I had the opportunity to speak to one of the CreditSense Solutions coaching clients. He asked an amazing question and at the end of that question, I asked his permission to be able to share it as part of this episode because it was awesome. He said, “I love what you’re doing. I’m brand new as an entrepreneur. I’m exploring different things like real estate investing and looking into other opportunities. When I heard your stuff, I wanted to get started up with my QFE, Qualified Fundable Entity. What do I use the money for?” That’s what our conversation is about. Know that he’s a Solutions coaching client and he asked a question because he’s not involved in a particular environment yet. My perfect scenario was he’s building his QFE so that whatever comes to him, he can coach, consult, manage and market any other business or enterprise in which he’s involved. We’re going to go into that conversation. Think of it as a Solutions coaching where I’m helping them understand what to do, what are the rules of engagement, how do you use the money and the definitions of many things that we’ve discussed. I think you’ll enjoy it. It’s all about, what do I do with the money?
Dan, how are you?
I’m doing very well. Thanks for your time.
I wanted to make sure that everybody gets taken care of. Fundability is so powerful that we want to make sure that you have all the tools, the answers to your questions and the things that you need in order to do so. First of all, since it’s the thousand-foot view with me, tell me what your experience has been. I saw that you’ve been to the bootcamp. Scott Carson is where you were referred from or listened to his podcast.
Getting very valid to be honest. I love the job but it’s a frustrating line of work. There’s a lot of stuff that is not to love. I’ve been trying to branch out away from straight-up W-2 income and looking for other things to do with my time. I’m looking for other avenues and came across and heard about you from Scott Carson’s show. It sounded an interesting way to go about building up a business. I’m still in the process of working on things on my end. I thought regardless of what I end up doing, having a good and fundable profile and some easy access to cheap money would be useful. I’ve appreciated that. I think I’ve read all your blogs and it’s pretty entertaining.
This is why we were able to talk sooner because I’m doing more episodes. You’re in the middle of the next set of episodes. That’s why I told the team, “I’m doing it. If you can get him in somewhere in here, then I want to talk to him.” I’m glad you’re following the show.
Your passion comes across. That is tremendous. The only issue that I am having when I first signed up. I was explaining my history of work early on. I’ve heard you say that giving people these credit tools is like giving a weapon to a two-year-old. You’re not going to be responsible for how they are used. I don’t know if I’m supposed to agree with that. My question was, would there be the ability to have a generic like, “If I want to do this, what credit line would you use? Would you use a loan? How would you go about asking for that and getting that?” I was told that would be something that could be offered. When I sent the email, I felt like I got shut down and said, “We don’t risk advising on your business.”
That’s why I’m involved because we’re in a gray area, which overlaps a gray area. Delilah and the team, there’s in no way did we want to communicate that we can’t advise you on the principles of fundability as it relates to your QFE. I think I even said it in one of the episodes you may have read. I’ve been doing this a long time. Back in the day, I get clients who are fundable and then those clients say, “What are you doing with your money because we got money too?” They’re like the inexperienced two-year-old with a revolver in their hand. I’m like, “This is what I’m investing in. This is what I’m doing and this is what I’m doing,” then 2008 hits. Not only did I lose my shirt, but people were in the things where I was in that lost their shirt. While I’m super clear, I think you know me well enough through whatever 60-plus episodes you’ve been through. I’m pretty much a sharp-shooter and I’m going to cover my ass and I’m going to cover your ass as well. I did tell them, “I can’t vouch for this. I’m just telling you where I am.” That turned into a limping wound when it’s cold at night and you feel the weather.
When it’s financially chilly, I still feel the ramifications of losing almost $800,000 and a bunch of other people lost their shirts as well. I’ve trained my team to say, “Here’s what we do and here’s how we do it.” We don’t tell them what to do with their money. She did a great job of drawing a very clear line about saying, “We can help you get them. If you keep doing what you’re doing, you’re going to get them.” I can’t tell you what to do with it because all of a sudden, I’m giving investment advice, real estate advice, or fixing and flipping advice and they’re not qualified to do that. That’s why you and I are talking because I am qualified to talk to you about that. I’m happy to help you understand. If I understood my life in 60 seconds, you’re looking to get out of the W-2 rat race. You’re looking for time and money freedom. You also have been listening to Scott Carson. Have you done notes? Is that one of the things you’ve already executed on or is that on deck in the future?
It’s on deck. The things I’ve invested on have been single-family, turnkey rentals and apartment indication.
Have you flipped any or have you invested money for a fixed rate of return on a package deal or those types of turnkeys?
The only thing I’ve done is a conventional loan for a long-term buy and hold strategy.
As I discussed in the bootcamp, on the business side, there are three main small business instruments. There are business credit cards, business lines of credit and business loans. Those three as I described in the bootcamp, you can use them any way you want, but if you’re looking to stay fundable, if you’re looking to continue to build the relationship with the lenders and you want to develop deeper and deeper relationships with bigger and deeper pockets, then your best thing for a business credit card is to use it for short-term capital.
Rarely if ever keep a balance on it if you don’t have to. If you’re debt shifting up from your personal over to business, sure, but we want to keep traffic going. You remember the difference between traffic and utilization. Charge up and pay off and utilization is what gets reported or the balance we carry over on the due date. We want to keep those low and minimal. It’s like free money to us in turning, fixing and flipping or doing whatever you’re doing. It’s just a free loan. Credit lines, the rules of engagement that are going to keep you in play, meaning they’re going to continue to grow up to that $100,000 if you use it right, is where you carry for 3 to 6 months, plus or minus.Regardless of what you end up doing, having a good and fundable profile and some easy access to cheap money would be useful. Click To Tweet
We never want to go over six months to a year and you never want to be more than a year or half of the age, whichever is lower. If you’ve had it for five years, we never still want to be over a year. Six months is the sweet spot and three months is dripping with honey. Those are shorter term, but they’re designed to carry a balance. Whereas the credit card, the highest yield is if we don’t carry a balance or we keep it minimal, you can charge up to that 38%. Remember how we talk about in the first 90 days, we only want 10% to 20% traffic and pay it off, but then we can carry 38% because they will continue to raise the limit and then pay it down 38%. It will grow to $20,000, $30,000, $50,000, $75,000 or $100,000. You’re on business module three if I see this correctly. If you keep going at your current rate, you’re going to be vetting banks here shortly. You’re going to be creating these relationships. We’re going to start with business checking accounts, then we’re going to go with business credit cards, and then business lines of credit. Business loan can come anytime in there if you want a chunk of loan.
If someone were in the fix and flip mode, you could take down a property. You could score and either use it for earnest money. That earnest money is 30, 60, 90 days, then use hard money or you’re going to use the credit line for your portion of hard money after it’s at least 90 days old. You don’t put that on a credit card. Hopefully it’s no more than 38% because we want to keep growing it during the growth phase. It’s a hard money piece, but we need to be aware that we don’t want that to turn into a 6 or 12-month turn. We want to choose deals. We want to be smart. We want to do things right. These are examples of some of what our successful clients have done.
Also, our most successful clients do not carry notes on business lines of credit because they’re like, “It’s 5%. This is awesome.” You’re carrying it out 5% and you’re burning your relationship with the bank because they may call it due if it goes over that six months. If it’s a five-year-old credit line, they may shut it down completely if it’s over that six months to a year. If you’re buying a franchise and you know that you’re going to get an SBA loan coming on deck, but you pay the franchise fee using the credit line, see how it’s short-term. I’m not recommending one of these things or another. I’m telling you what our most successful clients have used them for and how to create momentum so that you leverage it into the next level.
On a franchise, you pay the franchise fees and then you leverage it into an SBA loan right down the line. For fix and flips, either you take down the property with the earnest money or otherwise, or you use it as part of your portion of hard money loans. There are some clients who have multiple credit lines and they’re past the growth phase. Let’s say they’ve got $400,000. They transfer that money into their checking account. They buy outright a property that they’re fixing and flipping or that they’re taking down for a buy and hold, but they only hold it for a month or two so that they could do a take out loan with Fannie or Freddie on some. I’ve got clients with 38 properties, so they put it into the blanket loan or the property acquisition loan. This is cheap and easy money that’s fast and in your control. None of these, even the business loan, which could be 3 or 5 years, whatever it is. You can pop that into an investment if you can deploy all the capital at once, then a business loan is what you want to use. Thirty days later, you’ve got a payment and you need to be able to make sure that your cashflow can handle that.
In one of those business loans, do they typically ask you specifics what it’s for?
Yes, they do. That’s why when you’re developing and if you’re still using Peony Consulting, that’s your QFE. If you’re using that, then you can say, “I’m using this to build my business.” Marketing, “I want to put this into infrastructure. I want to put this into an acquisition of more coaching and consulting clients.” If and when approved, you can lend that money to one of your deal entities. The idea is you’re borrowing the money as your fundable entity, not how you’re going to deploy it, except when it comes to growing your particular portion of the consulting firm. I have used examples of how some of our successful clients have used them but be aware, I can’t tell you exactly if you came to me and said, “Merrill, I’ve got this thing I want to do. Should I do it? Is that a good use of this?” My team nor I am going to weigh in on that. I’m going to say, “Here’s what they’re designed to do. I’m happy to coach you on whether or not what you’re doing is its design, but I can’t say whether or not you should.”
Let’s say I come to you and I say, “I would like to have access to $50,000 to put in active investment. Can you coach me on the steps I need to tell the banker to help me get access to that loan?” Would that be acceptable?
What exactly we’re going to say or your team is going to say is, “What we’re going to do is you’re going to borrow it in the framework of your consulting firm.” This is not a Dodd or a workaround. This is the whole truth and nothing but the truth. You get to adopt the framework that I am doing. You’re leaving W-2 land to become a business consultant. It does not matter to you or to anybody else that the first consulting gigs you get is coaching your deal entities on how to acquire a property or help them get a mortgage for a long-term buy and hold. Those are your client companies. You’re preparing to leave W-2 land so that you have everything you need to create an addition of new clients, your marketing expenses. Your business development expenses is to acquire new clients so that you have everything in line. You can afford to build that client base so they can pay you more and more consulting fees. You have to adopt the belief system. I trained my clients on how to build relationships with lenders. Lenders will love lending to a genius businessman who helps other business entities grow, be profitable and become awesome.
I think we’re on the same page. I apologize if I’m out of line or anything with this.
You can’t be out of line. I’ve trained my team to have my back because I’m still licking my wounds from years ago when I was so excited about teaching people how to get money. I was excited about all the money I had and we were invested in it. You know what it was like in 2008, maybe you don’t remember. It was a rocket sled and everybody was going awesome and it was so much fun. We were harvesting equity out of automobiles because everybody was lending at 120% of the value. I bought a Maserati. I bought a ‘57 Chevy. I bought a ‘69 Corvette Stingray and financed them. I harvested all of that equity out of the car and was making my payments faithfully.
I had been doing it for years left and right, then 2000 hit and all of the returns on the investments we are getting stopped. All of a sudden, I bought a Winnebago and they financed it at 120%. I had a grip of money just from that one and I’m touring around California in my Winnebago. My whole investing philosophy has changed. I don’t harvest equity out of depreciating assets, but I didn’t know 2008 was going to happen. My clients took a bath right alongside me. I don’t want to be in the position of coaching you of what to do with the money. I can coach you to the end of days about what the money is designed for.Lenders will love lending to a genius businessman who helps other business entities grow, be profitable, and become awesome. Click To Tweet
That will be very helpful. I think we’re on the same page. I wonder if you would be willing to do this and if not, it’s your choice. I’ll bet a lot of people would be interested in knowing past clients. That’s not you telling people what to do, but almost like how BiggerPockets will interview somebody who’s done a bird’s-eye view. Take us through what you did in this and that.
You heard my Millennial daughter. We’re bringing on clients. Kirk Wettschreck is geared to be on here. I’m asking your permission if perhaps I can use this as an episode to share what the design and a Q&A so that you are helping others get their answers. Would you be willing for me to use this as an episode?
Sure, if you thought it would be useful.
People want to know exactly what you’re seeing. I would love to be able to use this as a version, almost like a radio show where we’re interviewing one of the callers, “I’ve got a question, Mr. Chandler.” That’s a real thing. If you’re willing, I’d love to be able to have that be a thing for us because you’ve had great questions and a lot of people are like, “What do I do with this?” We’re outlining the use of these things and how to do it. Thank you for your permission. I just want to make sure that it’s okay if they decide to use it. I want to be able to share the love with them as well.
Thanks for your time.
Thank you very much, Dan. I just want to make sure that you’re solid and hopefully, I’ve been able to give super clear answers. I’m not a bullet dodger. I want to make sure that you get everything that you have come to love and respect about fundability and my team. There is that fancy line right there through, “I love having all this money available. What should I do with it?” That’s on you.
I think I better understand why I got that response. I probably misinterpreted it a little bit, but I understand you need to be very clear.
That’s why we’re here. That’s why I’m available to make sure the line in the sand isn’t a chalk outline of a dead borrower. That is not what we want. You be well. Thank you for talking and we’ll talk soon.
Have a good one.
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