Mobilization Funding's Customized Cash Flow Mapping

Transcription
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Jordan Hansen: Welcome to the Beyond Banks podcast. This is where we talk to leaders that are transforming small business funding across all of the nation with all different kinds of technology. I'm your host Jordan Hansen. My guest is Scott Peper, founder and CEO of Mobilization Funding, who transformed his skepticism about lending to contractors into a decade long success story, providing short term capital for businesses that banks systematically avoid.

You'll discover how project based businesses face 45 to 70 day wait periods before receiving any payment while they still need to fund payroll, materials, and equipment up front. And how this partner without equity model allows contractors to scale from managing 5 million in projects to 12 million dollars without diluting ownership.

Hello and welcome everyone to our episode today. I'm really excited to be speaking with Scott Peper here today, CEO of Mobilization Funding. And Scott, I'm really excited to hear more about your story and kind of what brought you to this space, especially they focus on working with funding and loans around the construction space. So really excited to hear more about him, but Scott, if you want to do a quick introduction of yourself, we'd love to hear it.

Scott Peper: Yeah, no problem. Thanks, Jordan. I appreciate the opportunity. Yeah. My name is Scott Peper. I'm the founder, CEO, Mobilization funding. What we do is short term loans for commercial contractors, as well as other businesses to manufacturing fabricators, a lot of people in the industry. Directional drilling, we even do retail and others that anyone that has a business that they are trying to get funded for their revenue cycle in the form of a purchase order or a contract where you need that working capital to execute that big order or that regular business or that increase in growth.

And these are typically things that the bank or your traditional lending companies just don't want to lend into. Maybe they don't like the industry. Maybe they don't understand it. It's just not what they do. We're really good at assessing a company's ability to do what they do, see what kind of capital needs they have and that work in progress or progress billing or do all this work, then deliver it before your service or good is delivered. And then you're paid. We're good at assessing that and helping finance that actual revenue cycle.

Jordan Hansen: That's awesome. I think what's unique about this, especially in this industry, as you know, a lot of people in this industry, they're basing heavily upon daily receipts. You know, they're looking like restaurant daily receipts, things like that. But like you said, you're kind of more PO based as in you, this person is expecting to receive only a few lump sum payments at certain milestones probably in the construction process. Is that accurate?

Scott Peper: That's right. Yeah. Depending on the construction process, it could be milestones. Very often, it's actually a monthly billing that you can put together. It just requires more work and effort upfront and you can only invoice at the very end of the month or middle of the month. And then it takes another 30 or 45 days. So oftentimes it's not abnormal to have 45 to 70 days sometimes before you're seeing any money off the project at all.

Jordan Hansen: And I'm kind of curious to me, at least, you know, knowing some of my customers and knowing some other people in this industry, this sounds a little bit like hard mode, like scary, like, Oh, I'm not going to get money daily. This is high risk. I would like to know your thoughts. Do you feel like it's high risk or do you feel like it really just depends on what you're comfortable with? Yeah. You mean from a lender perspective, actually. Yeah. Yeah.

Scott Peper: Look, I can tell you it is high risk in terms of the traditionally looking at it. And if you just tried to lend into this space without certain things that I think we do really well, it is very risky and probably wouldn't be a good business proposition or pathway. A lot of lenders, and we can dive into as much detail as you want, but I think a lot of lenders are looking for a structure they can underwrite, they can put money out, they can collect it back, and they don't have to do much after that. Right. There's not a lot of give and take. It's less service, less handholding, less touching of the process. So to speak, we take the exact opposite approach. Now that doesn't mean we're like in someone's business or trying to take it over. It just means we're taking the time to understand what someone's actually trying to accomplish.

If we can actually be a good source to help them or not, and then we've created tools. That actually give them an added value of information prior to them ever having to make a decision whether they want to borrow the money from us or not, but also more that information. It helps them make best decisions for the actual process they're about to go through.

Now, someone might say, why do they need extra tools to go through what they actually do? Well, the businesses that we're lending into, these are often growth businesses. So they might be doing similar projects, but their business is growing and it's at a pace that they've never had it at before. They're doing five and six projects at a time. And they're used to doing two or three. They're used to managing five, six, 7 million of revenue. And now they're managing 12 or 13. They were a single owner operator that had their hands involved in everything. And they had a real good comfort level with it. But now they're going to be relying on project managers. They need to rely on different levels of management and service. Maybe they're working with a new customer. Maybe they have three projects starting at the same time, or maybe I'll give you an analogy that you came up with a product and it's like one of those things. You and I, Jordan created this cool product and we've been hustling and selling it to all our little local stores. And then one day you walk into Dick's Sporting Goods and you come out with a million and a half dollar PO, the thing you and I both dreamed of, right? Oh yeah, like this is going to be amazing. We're going to put them in Dick's Sporting Goods. And Dick says, yeah, I would, I think your idea is great, Jordan. Let's do it. And all of a sudden you have this million dollar PO. You come out and you call me partner and say, I got this million dollar PO. And then both of us look at each other after a high five, or we're like, Oh, we pay for this.

Jordan Hansen: Yeah.

Scott Peper: How do we pay for this? Do you think our suppliers will give us a half a million dollars worth of stuff for free before we pay them? No. And so those are the types of environments that are really scary for a lender. They have typically high risk. But if you take the time to understand that, you know what, Jordan in this example knows what he's doing. He has the suppliers. What he really needs, he just is going to have to make a quarter million dollar deposit to that supplier before they ship him a half a million dollars worth of stuff.

He's gonna have to give another deposit to his contract manufacturer, or he has a line open in his manufacturing facility. He just needs to do a couple little things to get it tooled up, you know? Or if it's construction, you know, he has to crews. He has a subcontract crews. He knows exactly what he's doing. You, you don't bite a million dollar, 2 million, $5 million job off at one time. You do it one day at a time. He knows how to do that. And so what we do is we can lay out the cash flow of what that revenue cycle is going to look like so that I can actually help somebody understand here's how much cash you actually need.

Here's when you're going to need that cash. Here's what your margin is on that job. If you try to maintain and keep the schedule you have with your cost structure. And by the way, as you invoice it and you're paid, this is how the money from that project is going to flow back in. So you can see exactly where those cashflow gaps are.

And someone would say, Oh, great. Well, I know there's going to be cashflow gaps. Well, that's where we can become a solution for that. It fits into the scenario and we're able to help them. And if it's in our parameters and their parameters, and we can actually help provide that cash they need. And the working capital for that revenue cycle.

It's very easy for business owners to grow when they can borrow money project by project, contract by contract, or customer by customer, because everyone knows the start in the end. Where a lot of people get in trouble with lending. And I think a lot of lenders get in trouble with lending. They try to do exactly what I said in the beginning. They just want to put the money out. So they put the money out and then the borrower or the client, they think they need that much money because you know, who knows they're in a territory they've never been in before. And so they think they need a half a million dollars. And so now they're paying for half a million dollars.

They have a half a million dollars or do they have the discipline to use it? Where it's supposed to be used when they want to use it. All of those things that when we build that cashflow for them and show them the information, now they know for sure. And so they know, Oh, I do need 300,000. And by the way, the first 25, I'm using it for this, the next 30,000, I'm using it for that.

And if I continue to do that and do what I do and invoice my customer and I'm paid, this is exactly how I'm going to repay that debt. This is the exact cost. This is in dollars, but also this is the exact impact of the project. You know, I had a 20 percent margin. Now I have a 19 or 18 percent margin. I have a 50 percent margin, like a Dick's sporting goods example. And you know, it costs me 5 percent of my margin, but I was able to do X, Y, and Z. Those are the kinds of things and information that allow you to lend into that space. Without being risky.

Jordan Hansen: So it's a little more, you know, white glove treatment where you're kind of taking care of the customer more, almost like a partner more than just like a lender. Yeah. It's funny. I had a customer tell me one time, you're like, you know what, Scott, you guys are great. You're like having a partner without having to give you equity. Yeah.

Scott Peper: So I'm like, okay, that makes good sense. I understood. I didn't think about it from that perspective before, but for someone who was going to take on, you know, half a million dollars and give up maybe half their company or 40 percent of the company, some percentage that actually is permanent and forever, and instead they could get the knowledge and the know how through these tools and our expertise, just financing projects so much and working with all the different businesses without having to give up equity, who cares if you give up a couple of percentage points of the actual transaction. And you have a tool now to grow. It's way different thought process than whether you're trying to give up equity in your business forever.

Jordan Hansen: Yeah. So I thought it was a good analogy. Yeah, that makes a lot of sense. So what brought you to this point? Like, why did you choose this direction in the lending?

Scott Peper: Yeah, so I didn't choose it exactly. I didn't lay this out. I didn't like meditate. I don't have the story of meditation perfectly. And it came to me to start this problem. But it came around through a lot of different avenues. Number one, my father was in commercial construction. I spent a lot of time growing up on a construction site. I was what you'd call the gopher boy. Yeah, I ran around and go for boy, go for this, go for that. You know, I did all that stuff. So I saw all that kind of thing and I was around it. And of course that's how my, my parents and my dad, you know, supported our family. So it was cool. I understood what he struggled with as a business owner and he wasn't always a business owner either.

He worked in the trades forever until like most of the construction trades, they work for somebody that's terrible. And the world goes apart and all of a sudden they're forced to do it on their own. That was my dad's story too. So, you know, so I have the experience there. I got into medical device sales and had lots of business finance and marketing experience through corporate America.

But it wasn't until a friend of mine called me one day and said, Hey, we got this idea. I think you're going to be perfect for our third or fourth partner, Scott, because your dad was in construction. Okay. Chris, what's the idea? He said, we're going to make loans to commercial contractors so they can execute the work that they're contracted to do. And I'm like, you're insane, dude. That's the dumbest idea. I was going to wonder what your

Jordan Hansen: reaction was going to be. If it was going to be, yeah, that's awesome. Or no, that's crazy.

Scott Peper: I'm like, yeah, that's a real problem, man. And those folks need capital. There's no doubt about it. I'm like, but however you think we're going to lend it to them and get paid back. That's like suicide. It's like, no, we got this little plan. We've got this idea. We're working with these surety companies and they're trying to get bonds in place. And this is right. Give me his perspective. This is right after the downturn. So I think like 2013, 2015. 14, lots of infrastructure work, lots of bonded job work.

The best of the best contractors that are still around or are significantly impaired at this point because it's been slow. Construction was tough. They all went through the downturn, but these are people who know exactly what to do and they're the best of the best companies. If they're still

Jordan Hansen: there, you know, that these are the good ones.

Scott Peper: That's right. And so we said, well, okay, let's see how we can help them. The bonding agents were like, look, they need working capital to execute these projects. We're not giving them money anymore up front. We're holding their hand to make sure that the money stays on the job. And so if you guys can help be a source of working capital, help them get started.

We can write these bonds, performance payment bonds. And they can get started on this infrastructure work and government work. And we're like, okay, well, I'm paying attention. So then we came up with a way to make sure that our dollars were utilized for what they intended them for, and that we can be repaid as the projects repaid.

And then that's how we first started to make the loans. And so I thought it was a bad idea, but I didn't want to miss out on the opportunity. The fear of loss is definitely a motivator for me. And so I was all in at that point. We made one small loan, the four of us to an electrical contractor. We made a second one, a third one, and then turn that hobby into a business about eight, 10 months later, the rest is kind of history from there. At that point, we made a lot of mistakes. Yeah, of

Jordan Hansen: course. It's a learn. It's interesting. I just read a LinkedIn post by you where you talked about saying no or saying yes. And here is in the, you're in that situation. Is a decision where you said yes, even though you were scared, but it turned out to be the right decision at that point.

Scott Peper: Yeah. Yeah, I can't do that, but I can do this Exactly. Yes. So and now it's been you said it was right after the downturn. I think it was 2010 Is that when you founded it?

Scott Peper: We made our first loan in 2013 And uh, we incorporated in january of 2014. It's been 10 years now

Jordan Hansen: Happy 10 year anniversary.

Scott Peper: Thank you man, appreciate it.

Jordan Hansen: Now the challenges you face now, they're obviously probably different than what you faced then. But what would you say right now is your biggest challenge as you're, you know, facing the market as it's changing? Now it's a, you know, the market has gone through some phases where capital is easy and now capital is kind of tricky again. What would you say are the biggest challenges facing mobilization funding right now?

Scott Peper: Well, we're not agnostic to some of the pains of the economy and pressures. There's no doubt about that. But we've been through a lot. You know, one, self inflicted wounds and That that's nothing what we did to ourselves is, is like way worse than what the economy So learning through that phase was helpful going through COVID. That wasn't easy either bank debt and things like that. It rates increasing those impact us certainly because we do have a senior credit facility with banks. Our cost of capital has gone up. But really where I see it now is you have two different schools. Like you have certain geographical areas in the country that are booming and doing really, really well.

And you also have certain scopes of work, certain industry types that are doing really, really well. And so you need to understand where you're at, both geographically and industry and type and scope of work to really, that's before you even start to look at the actual business itself. And so that's where we're really focused.

The beauty of working with companies that are not traditionally financed, by banks is that, you know, it doesn't matter what the banks decided to do. It doesn't matter what the rates decided to do. And in the construction that works getting done, focused on public work, whether you may be focused on private work, it cycles, you know, so is your average developer right now coming out of the ground with its multi use, you know, retail on the first floor and condos on the second floor, are those projects dried up? Absolutely. Are there as many? No way. But there are in certain pockets, you know, Dallas hasn't stopped building them. Florida hasn't stopped building them, but there's a lot more public work as well. So you have like a ton of regional airports over the last five years have been renovated. Those are great big projects.

You know, I don't think there's an airport that Southwest lands a plane in that hasn't probably been renovated at this point in the last 10 years, Kansas city might've been the last one on the Track and anyone that's flown through Kansas city in the last year, they've just built their new airport. So things like that, or the backbone fiber being laid down for 5g wind storm. You have all of your water mitigation. You just have lots of city and public works, concrete roads, horizontal bridges. Those things are always,

Jordan Hansen: not really slow down. Maybe a little, but yeah, we got to keep going.

Scott Peper: Yeah. And those contractors are very good at ebbing and flowing with where the work is. So we work with them, you know, they come up with a project or a contract that they have in place. And we're able to put things together for them and analyze it or help them in advance to say, Hey, yeah, if you did do this work, what does it look like? What are the terms? How do you have to execute on it? How much capital would you need? And we help them try to get through the bid process so they know they can execute it well.

Jordan Hansen: That's awesome. Now you are for sure in the alternative finance space, but it's a wide space of different edges. And I was just down at funders forum down in Miami and I heard a lot of awesome talks. A lot of people, and they're trying to make sure the industry overall has a really good name and they were trying to work with regulators to make sure it all turns out great. Obviously we all want that here in the industry. And it's really important for the small businesses as well, but we know there's bad actors as well. And so I'm kind of curious about your thoughts in general about the industry and where it's going and what could be most helpful for other funders or your thoughts in this space.

Scott Peper: Well, I have a lot of different thoughts depending on where we're going, but you know, in general, I think there's a place for private capital. There's a place for third party, whatever you want to call our alternative finance world. If somebody were to tell me what's the best advice you could give to a lender coming into this space, I would tell them it's the same best advice I got. You should stay in your lane, man. Like stay in your lane. And even if you raise a bunch of capital or you have access to a bunch of capital, it's not about just putting it out, like put it out in places that you understand that you can help the best. And the reason I say stay in your lane is not because I'm worried about competition or someone coming in my lane.

I'm more worried like when a lender gets outside their lane is when they start to lose. When you have a lender that starts to lose capital principle, it's the name of the game. Losing your principle is where the most devastating cost to a lending business. And when that happens, that's how those businesses can either, A, go out of play, go out of business themselves, or B, they have to instill tremendous amounts of pressure in any legal form or other to the industry, which in this case is to the customers.

And so if you're a lender and you know better than to lend to somewhere you don't understand and then you get into it and now you understand it, you don't want to be in it, but then yet you put Tremendous pressure on someone and send them out of business or you suing them or you're doing things. Those are bad.

So I'll give you an example. Merchant cash advances is something I talk a ton about, right? This is your daily and weekly loans. Great product. Matter of fact, I think it's genius, the structure they put together with it. But if you do that and you lend that money to a restaurant. It makes perfect sense. They're getting daily receipts. Maybe you're getting daily, weekly payments. They can use that capital to fuel growth. Maybe they open on the weekends. Maybe they extend their hours from just a brunch to lunch to a dinner. It makes total sense to use the capital that way. But if you landed into a construction company using the same diagnostic.

Analytical measures as you would to a restaurant. And then you wonder why the construction company can't pay you back. That's ridiculous. Right. And so, and not only because they pay monthly, but if you don't understand, this is the part that I can't figure out. If you're looking at the bank statements and you see a construction contractor's revenue coming in and you think, Oh, great. I can lend them, you know, one month's worth of deposits that they have coming in their account. But you don't understand the simple, basic fact that 70 or 80 percent of that money isn't even theirs. It's supplier money. It's to the project that has to go to sub suppliers and vendors. And yet you think that it's their problem when they defaulted or they didn't use it.

Right. Of course they have accountability to that, but like, dude, come on. Like you would have known that you should know the most basic premise of that. Like, or otherwise you just don't care. Everyone. Right. And so it hurts everyone. It hurts everybody and it hurts to the whole industry hurt now it hurts the industry for the restaurants that need capital or the other daily receipts, right?

And then on the flip side, I think lenders that allow brokers and I use the term broker, whether it's just a third party intermediary broker, sometimes there's a negative connotation. I don't look at it that way all the time. I think you can have consultants. You can have brokers, a good broker adds value and they don't just add value by having conversations or a file. They add value because they actually understand they're placing the capital right place. They know the business. They can help a lender. The majority of the brokers that Merchant Cash Advance is using, for example, or they call isos, they're just sales organizations. All they want to do is put a deal in place and get as much commission as they can.

And if you're a lender that's allowing that to happen by giving them you know, 30, 40, 50 percent even of the actual amount you're charging. You're just creating an environment that's not beneficial to anybody other than yourself or the broker and not the customer. And so I think it should be customer focused first and then everybody should make money. There's no customer on earth that doesn't think people shouldn't make money just like they want to make money, but you can't make it about you first and then see how you can make your best effort to get paid back from a customer and use the customer. You should partner with the customer.

Jordan Hansen: That's great. I really appreciate those thoughts. Well, Scott, I really appreciate your time and coming on and, uh, speaking with you. Your thoughts are awesome and I think you have a podcast as well, don't you? I do. So the podcast

Scott Peper: is called The Construction mf First. You can find it anywhere. The podcasts are, we have a YouTube channel as well that has all the podcasts on it. Uh, that's under our mobilization funding YouTube channel. And then of course, on our website, you can get a link to everything that we do content wise. Information. I put a lot out on LinkedIn. We have a great newsletter that you can subscribe to. We don't spam everybody actually have to subscribe to them. We only send it to the people that are subscribed. So those are the things we do. I love to connect with everybody there. We're trying to be as helpful as we can. And the number one way we can help anybody is to understand what they need and try to offer education and tools to do that. There's nothing worse than giving somebody money and they don't know what to do with it.

Jordan Hansen: I appreciate it. All right.

Scott Peper: Thanks, Scott. Thank you so much.

Jordan Hansen: Appreciate it, man.

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