The Month End Podcast
The Month End Podcast
Episode 23: Grant Christopher • Bridge Finance Group
The Month End provides emerging inventory-based brands real life knowledge in the accounting, finance, and operational world. Our guests are not only similar brand founders and owners, but key stakeholders and contributors to the industry. Each episode provides a glimpse into the vast experience and insight from its guest’s unique background in a casual, conversational tone.
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In episode twenty three, Accountfully's CEO and Partner, Brad Ebenhoeh, sits down with Grant Christopher of Bridge Finance Group to talk about financing for early-stage, high growth CPG companies. The company was founded after Grant and his brother saw a need for equipment financing and leasing without the classic constraints. This is a must watch for founders seeking capital in order to grow, and in search of a knowledgeable partner in the industry.
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The Bridge Finance Group Website: https://www.bridgefinancegroup.com/
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Welcome to Episode 23 of The Month End. Really excited about having Grant Christopher on the podcast today. Grant is the co-founder and partner at Bridge Finance Group. How are you doing today Grant?
Grant Christopher:Doing well, Brad, thanks for having me on today.
Brad Ebenhoeh:Yes, I'm super excited. We're gonna kind of get into the topic of equipment financing for CPG brands, which I think is a topic that maybe not a lot of people have even thought about, or, or kind of dived into. So I'm really excited about it. So before we get into more details and specifics on that topic, let's get a little bit of a background on you Grant. So Grant, what's your, what's your background in the CPG space? Why Bridge Finance, just kind of give us a little understanding of where you come from?
Grant Christopher:Yeah, appreciate it, Brad. So I kind of fell into the equipment financing business. I did an equity investor in the space for close to 12-13 years, kind of a family industry. My brother is a serial entrepreneur in the space, Clayton Christopher. So he created a couple of brands within CPG. And we had been investing on the equity side. And one of the companies that we were invested in, was growing and needed capital to expand their production facility. And we were fortunate enough to be involved on the inside of this business. We saw a couple of the term sheets come across and looked at each other and kind of thought to ourselves, you know, I think there is an opportunity here to have an equipment financing and leasing business that's focused on early stage, hybrid CPG companies. There's not a lot of equipment, leasing and financing companies out there that are focused on the space. They're kind of industry agnostic. One day, they may be leasing IT servers, the next day, they be may be leasing truck trailers, and then all of a sudden, they're looking at a CPG company and manufacturing and production equipment there. So we felt like we had an edge that we knew the industry in these businesses better than the other ones did. So that's kind of how we got our start about six years ago.
Brad Ebenhoeh:Awesome, awesome. Glad, super excited for this chat, like, as I say, as an accountant in here and seeing all the the debt versus equity amounts in the various balance sheets is up for clients. It's always interesting. So kind of stepping back from just overall like equipment financing, right, so Bridge, you guys are in Dallas, Texas. Do you guys support clients locally? Nationally? What's your portfolio of clients?
Grant Christopher:Yeah. So we're all over the US, I would say, you know, when we first got our start, we were pretty heavily concentrated within the Texas kind of Austin area, as you well know, that's kind of become a hotspot for CPG. I would say outside of Boulder, it's it's, you know, it's pretty, pretty large hub within food and beverage. So when we first got our start we were pretty heavily concentrated within Austin, but since then we've grown, we're all over the US, I would say that the majority of our business, and I say majority, it's not over 50%. But it's probably in California. We're doing business across the spectrum to brands that are, you know, anywhere between one to 2 million in top line annually, you know, working with a brand that will probably eclipse 80 million this year as well.
Brad Ebenhoeh:Good to know, good to know. So like as we kind of go through this thought process of just CPG brands, right? Hey, I'm finding or creating a product, I'm working with co-mans or different people to produce the products. So from your perspective and experience in the space how should the decision making of I guess the the CEO or the founder of that brand go through from whether or not to leverage a finance shop like you to lease or buy an equipment versus kind of just going straight to co-man, I guess, kind of can you walk through the lifecycle a little bit in that kind of thought process of where it could be a good point for them to kind of start thinking about this?
Grant Christopher:Yeah, sure. You know, we we work with brands that do all of their manufacturing in house and also work with brands that use a co-packer because there are plenty of times where they're using a co-packer but that co-oacker just isn't willing to purchase that piece of equipment specifically for that brand. You know, so we work with a handful of companies where they may use 10 pieces of equipment at a co-packer facility but they may own or in this case lease another 2-3-4 pieces and but they're using, you know, the co-mans labor across the board. So, you know, it kind of varies. I've had this question come up in the past of you know, when should we? Or why should we go and manufacture 100% in house or use what come in? Or, you know, what have you? I think it just kind of varies and depends on the company. You know, I think more if you're alcohol based, you definitely there's more of a trend for you manufacturing in house, as opposed to using a co packer, whether it's craft beer kombucha, and I say alcohol but not on out as well. Kombucha the majority is is in house is manufactured in house, you know, and then food products as well, I think it depends on the type of food product that you're in the space and subcategory that you're in, within food can kind of drive you to, to manufacture in house mean, especially if it's some sort of proprietary process. That of course, you know, always leads to manufacturing in house, but we see that trend you know, of specifically on food products of, you know, coming out of probably a shared kitchen or commissary kitchen, and then they have to make that decision of whether to go to cut back or out or manufacture in house. I mean, I don't think I'm saying anything that people already don't know. It's margin at creative to factor in house. However, it has its challenges as well. So I think it just depends on the company and the brand.
Brad Ebenhoeh:Yeah, we definitely see the spectrum open house versus turnkey co-man versus mixed supply chain and different decision points of kind of where you're at. And they all make sense at different ventures in different products as well as different, you know, ages of the business.
Grant Christopher:Sorry, sorry, Brad, one point I want to thank you gotta have the expertise to be able to manufacture in house, you know, it just kind of depends on the strength of the management team, and the within the CEO and entrepreneur.
Brad Ebenhoeh:Yep. I agree. From you guys providing, you know, financing as well as leasing, right. So there's like different ways that they can own the property on the equipment, you guys finance it, or you guys can own it, and they can lease it or how does that work?
Grant Christopher:Yeah, we really structure everything as an equipment lease, where we own the equipment. And we we lease it to the brand.
Brad Ebenhoeh:Gotcha, gotcha over a two to three to four year period or whatever makes sense.
Grant Christopher:On average we're anywhere between two to four years.
Brad Ebenhoeh:Gotcha. And then when it's paid off, do they then own it? Is it a capital lease?
Grant Christopher:Yeah, no. So it depends, you know, for the most part, there is a buyout at the end. That's one way we differentiate ourselves, I think from a lot of other leasing companies out there is that the buyout is predetermined, and is typically at a higher amount. So we like to, we structure these as operating leases, just given the buyout can be anywhere from 25 to 50%. And, you know, at the end of the term, they have the option to exercise that buyout, or they can extend the lease. And then at which point at the end of the extension, there's another buyout option, or they can revert to a month to month or return the equipment.
Brad Ebenhoeh:Gotcha. Oh, that makes sense. So, if somebody is going to come to you and start the conversation, what is the like request list? What do you guys need to underwrite? Review? Like, what do we all need to prepare? Before we even come to have a conversation with you?
Grant Christopher:Yeah, good question. You know, it's nothing out of the ordinary, especially if you've run a process to either raise equity or look at you know, your traditional ABL type facility. We're going to look for you know, historical financials, P&L, balance sheet, cash flow statement, also be looking for forecast, as well with those, those three financial statements, you know, the type of equipment, of course, we're gonna underwrite that, you know, cap table, we want to see the list of investors, we typically work with brands that are institutionally backed by some venture capital or private equity firm. That's not saying that's a prerequisite but that's typically the type of companies that we work with. You know, and outside of that, it's just you know, your Certificate of Formation again, nothing nothing really out of the ordinary, I would say one probably diligence item that we do requests that you may not get from another equipment finance company, or even lender is we do ask for velocity reports. You know, that's a big deal to us. We like to see how the other products moving on the shelf.
Brad Ebenhoeh:Yep. I mean, that that definitely makes sense. And that's, that is a kind of an abnormal request, I guess for you know, a facility like yourself, when you're looking at, you know, an underwriting and reviewing the the financials in the numbers clearly, like just by saying last year, you're gonna sales. I mean, is there like a couple top metrics? Or like should our clients be focusing? Or should these folks be focusing focusing on profitability on top line growth? And cash on hand? You know, inventory turn, is there specific things to kind of think up for this? Or is it, you know, consolidation of everything into one and figuring out, you know, our analyzing that way?
Grant Christopher:Yeah, it's a mix. I wouldn't say that, you know, 90% of the businesses that we work with are unprofitable. That's, that's pretty much why we started this business was that we just, we saw a trend of companies that, you know, weren't profitable yet. They're growing top line, they're trying to capture as much market share as they can. And so they're burning money on a monthly basis. But they weren't bankable from a traditional banking standpoint, you know, because they didn't check every box, kind of post '08-'09 that you have to check in order to go get a loan from your Wells Fargos or your Bank of Americas and so profitability, you know, is is something that, you know, we like to see visibility towards profitability, we don't want to, you know, invest in a brand or lease equipment to a company that is just going to be burning money in perpetuity. I think we all agree, that's not really viable these days. And so, you know, we look at the investor, the cap table, how much money in equity they've raised in the past, you know, top line growth, kind of margins, you know, like to see some strong margins. And then yeah, the velocity reports is something that we dig into, as well. You know, it's, it's, it's something that if a company has to, has to trench, you know, and kind of hunker down and survive, and they're selling well, within stores, you know, they're not going to get cut. So something we look at.
Brad Ebenhoeh:Gotcha. General question. Because we have a tax team here, as we deal with a lot of just CPG brands, tax returns, entity structure. Is there a specific entity structure that you guys prefer? And maybe folks in industry? Do you prefer a C-Corp, LLC, partnership? Or does that not matter? Because there's a ton of nuance, there's a ton of reasons why you do it. There's a lot of people that start as LLCs and become a Delaware C-Corp over time, but I'm just wondering if you guys, you know, from from your, like requirements or best practices, like prefer anything?
Grant Christopher:Yeah, we've seen it across across the spectrum. So we've got no preference, we work with Delaware C-Corps we work with Texas based LLCs, California based LPs. So we've seen it every which way, and we really don't have a preference there.
Brad Ebenhoeh:Do you guys do anything internationally?
Grant Christopher:We do not. We have looked at a few companies that are based internationally and have a presence here and a facility here, actually more on the co-packer side than the braand side. But we haven't gotten one across the goal line yet.
Brad Ebenhoeh:Gotcha. That makes sense. What is like average, like, you know, lease rate, interest rate? Like, what is something to think or just give us a range?
Grant Christopher:Good question, you know, what one that one way that we get really competitive is we've got a, what I feel is a strong advance rate. So we can go up to 95% advance rate on on the equipment. So, you know, as an example, if it's a million dollars worth of equipment, we can, you know, potentially go up to $950,000 our rates are typically in the low to mid teens. So, again, while we're not going to be as cheap as your traditional lenders from a bank, we have zero covenants or non recourse, which means we don't ask for personal guarantees. And then again, our strong advance right so we actually do win opportunities over banks because of what I feel those three reasons.
Brad Ebenhoeh:Absolutely. I mean, with your industry experience as well as those the high advanced rate, that means there's minimal cash out the door up front, which really helps a small business, you know, just succeed and then clearly or, you know, you're leveraging or your your collaterals that piece of equipment really at the end of the day.
Grant Christopher:Yep, exactly.
Brad Ebenhoeh:Awesome. The other kind of question a couple of things in terms of like, is there a world where as you we, you know, a brand moves forward and they're working with you in 12 months? Do you require like renewals? Are things that can be conscious of outside of just paying your bills month over month? I'm sure your lease bills, but is there anything to kind of keep clear of as during this two or three year lease period that you have or any requirements you have for brands?
Grant Christopher:Yeah, no, we try to stay as hands off as possible, you know, as long as as you're making your payments, we don't want to get involved in your business. So as long as you're making the payments, we're happy. You know, one of the things I would, I would say is that we do work with companies during their entire lifecycle. You know, I mean, we're we just actually signed our seventh schedule with a brand out in California, that we started working with about four years ago. So they just continued to expand, and we've just expanded with him. So it's been a great partnership.
Brad Ebenhoeh:Awesome. Yeah, I was gonna, I was gonna ask that is your life cycle, like, clearly, you know, increasing or buying more equipment, leasing more equipment to brands? Do you guys do, you mentioned at the start that you guys had an equity investment, and then decided or found out like, this is a great opportunity. Do you guys also, will you do equity investments in these brands? When you're already kind of a debt holder or a finance startup for them?
Grant Christopher:We typically don't, you know, we don't ask for warrants on on our, on our offers. You know, there's a couple of companies that were invested on the equity side, too, we just, we kind of like to keep separation there. In the event of a conflict, you know, so if we, if we want to chase it on the equity side, we will. But you know, if we want to chase on the debt side, it just depends on kind of what we feel may be the best return for us. So we just like to kind of keep it keep it separated so there's not any conflict, though, for the most part.
Brad Ebenhoeh:Awesome. Do you guys have any plans at any point to get outside of CPG? Are you just gonna, kind of hunker down in that in that space?
Grant Christopher:Yeah, I still think there's a lot of opportunity within CPG, I feel like we're just kind of scratching the surface here. I made I made a hire for vice president of business development, recently, and he's out there just pounding the pavement, making phone calls, going to conferences. So I feel like there's still a lot of opportunity within CPG. But, you know, we like to keep our options open. We're entrepreneurial at spirit. And so you know, not going to turn away on opportunity within a different category, if it makes sense for us to go into it.
Brad Ebenhoeh:Yeah, love it. Love it. I'm just question I'm thinking here. And I'd love to, I'd love to hear and I'm not trying to put you on the spot. But is there a kind of two questions. Number one is, is there like a scenario or a situation that through Bridge, you know, your brand here in your relationship where you feel like, you've saved somebody or, you know, they came out of a really bad situation, because of how the finance, you know, structure works versus in the past? And I'm going to ask you on the other side, is there also, like a nightmare scenario, or a bad scenario that exists? And again, like this, you know, this is anonymous, but I'm just wondering, just kind of some general kind of thoughts or, you know, lessons learned from that.
Grant Christopher:Yeah, I mean, we pride ourselves on our reputation. You know, I think we're very borrower friendly. And so we work with brands all the time, we understand the challenges that they face, as an early stage kind of high growth company. In 2020, we worked with a couple of companies that ran into liquidity issues, where we just deferred their payments for several months, until they were able to get the liquidity and equity that they needed to continue operations. So we feel like, you know, again, we kind of pride ourselves on our reputation. I think if you went and talked to any of the CEOs or founders that we currently work with, they would say that, and I hope they would, that we try to strive to be a good partner for them. And then on the on the flip side, you know, of course, there's been scenarios where, unfortunately, a brand has gone out of business, but we've worked with those companies to get those assets, and then, you know, replace them or, you know, release them or sell them to another company. But again, I like to like to think of ourselves as good partners, always keeping the the communication line of communication open, and trying to solve problems together.
Brad Ebenhoeh:Awesome, awesome. Since COVID, I mean, you bring it up in the last two years has been crazy, just in the entire world, you know, and then, filtering down in the CPG space, has there been any kind of trends from what you guys see in this space? And from, you know, from a co-man or supply chain standpoint, clearly supply chains have been impacted, globally, across all industries. But I wonder if there are any trends or things that you guys have seen from your perspective for the last like two and a half years in terms of where we're at?
Grant Christopher:Yeah, I mean, I would say generally, most companies, if they did to survive through COVID came out stronger. You know, think most people would agree within the industry that, you know, there's probably a lot of fat to be trimmed. And they did that. And so if they were able to survive through through COVID, you know, they came out stronger, better margins, able to produce more with less headcount. And so obviously there are challenges right now within the supply chain, raw materials, shipping, etc. But I feel like, you know, the companies that we've talked to, I mean, even as recently as the last four to five to six weeks, I feel like we've kind of hit our peak a little bit on that, and things are starting to get a little bit better, for the most part, not saying that's, you know, 100% across the board, but most companies are that we've talked to said, yeah, I think we've kind of hit our peak on supply chain issues and raw material cost increases.
Brad Ebenhoeh:Yeah, that's kind of the general feel.
Grant Christopher:Are you guys, I mean, you talk to a lot more brands than we do. So are you feeling the same way?
Brad Ebenhoeh:Yeah, I feel like there was a really tight period for a minute and really long delays, high costs, little unknown circumstances, it feels like we're getting getting back to more of a normalcy. Again, I agree. It's this is not across the board, but it just feels like there's more known aspects related to costs related to supply chain situations. So I would agree with you on that. From a lead time perspective, just with you guys, like what is the turnaround time of getting, you know, coming in the door, getting approved so how long as it takes to get the equipment? You know, what does that look like?
Grant Christopher:Yeah, good question. You know, for us internally, our process typically takes about three to four weeks, you know, once we get that, the diligence items that we need, we'll underwrite it here, internally, go to our investment committee, and then turn around a term sheet to the to the company. Once we've agreed upon terms, it's a it's a pretty seamless process after that. We do about 98% of our underwriting before we offer a term sheet. So, you know, I think there's some companies out there that may just offer a term sheet and they kind of start the underwriting process. We try to avoid that, where we'll do all of our underwriting pre-term sheet, then once we have a signed term sheet, it's it's pretty standard documentation for our lease agreements, and we can close on--we've closed within, you know, 48-72 hours after a signed term sheet before.
Brad Ebenhoeh:So how long does it take to get the equipment?
Grant Christopher:Yeah, it just kind of depends. That's, you know, one of the things that has unfortunately come out of COVID is that the lead times on equipment have definitely gotten longer. It depends on the equipment, if it's coming from overseas, you know, whether it's a canning line, or some tanks or packaging line, overseas, definitely, it's going to take longer, we've probably seen lead times on that stuff double, unfortunately, over the past 12 months, you know, the last couple of releases that we've gotten into the lead times have been 12 months. But then again, if it's, you know, within the US, that that could be a different story, we just got into a lease where the lead time was, you know, three months. So it again, it just kind of varies on the type of equipment and where it's coming from.
Brad Ebenhoeh:Yep, yep, I figured that. Is there any questions that I should be asking you that our CPG brands should be asking you?
Grant Christopher:Yeah, I think one thing that again, we can offer two types of leases. One of them them is a sale leaseback. If you have existing assets that you've already purchased in there at your facility or at a co-man's facility, we can buy those assets from you. That will provide you some some capital and then lease them back to you. And we can also do what we like to call an interim funding or a drawdown type lease where you're ordering a new piece of equipment that may have a 12 month lead time and we're able to make those payments, whether it's you know, a downpayment, a couple progress payments, we're able to make those. And, you know, once the equipment arrives, that's when the lease begins.
Brad Ebenhoeh:Gotcha. Yeah, super cool. Definitely more opportunities there for more flexibility standpoint, and I think it's super, again, creative ways that, you know, an entrepreneur or a brand owner can kind of look at their assets and if they are struggling with cash or it could be an opportunity to refinance a piece of equipment and get some money to help support the business and working capital. So, super cool. Well, Grant, I really enjoyed the chat as we kind of roll off here. I always ask two questions to the crowd. So number one is, you know, what is one CPG industry do for the listeners out there?
Grant Christopher:Yeah, I think that if you are within CPG, and this kind of goes to more so on like founders or management teams, I would be more of a learner and a listener than a knower. That's the kind of people that we'd like to to work with. And that would be my piece of advice on doing more would be. Be more of a learner or listener type attitude, as opposed to just thinking that you know everything. There's a reason we've got two ears and one mouth, you know.
Brad Ebenhoeh:It sounds like great marital advice there.
Grant Christopher:Yeah, exactly. Exactly. I think maybe I got that from my wife.
Brad Ebenhoeh:Yeah, I get it. All right. And then the last side, what is that one industry don't?
Grant Christopher:I would say, for brands, think hard about, I guess, don't think you need to be in all 50 states. I would rather be partnered or on the equity side invested in a company that's deep and narrow within their market, as opposed to shallow and thin. You know, I think COVID really hit that. If you're able, in a lot of brands did have to hunker down and just sell within your state or your region, and you can have a great business doing that. I mean, there's brands that are just based in Texas, and have sold to strategics. So, just don't think that you got to be in every state, and you got to be in every Walmart or Kroger or Whole Foods or in every state. I would just a word of advice is just kind of dominate the market that you're starting out in and then go from there.
Brad Ebenhoeh:Yeah, it's it's definitely sage advice. And it's never been easier to be wide, across multiple platforms, across multiple sales channels that literally yield zero results, more overhead, more stress, cause impacts on your inventory, your supply chain, and all that stuff. So it's always good for people to always kind of revisit that and think of, you know, maybe I can just dominate here, versus these 10 other areas. So great advice. Grant, I really, really enjoyed the chat, I've learned a ton more just about the equipment, finance space. If a brand's listening and is interested in learning more about you guys or reaching out to have a conversation or start a relationship, what's the best way to do that? What's the best way to reach out?
Grant Christopher: Our website:BridgeFinanceGroup.com. There's a contact form there. I think it goes to my e-mail, and our Vice President of Business Development, Hudson Penn, as well. And so, I'd be happy to talk with you guys. I mean, even if you don't have equipment financing needs, I would still be open to chatting with you, with a company or brand on how, we may be able to help within our own network. We've got a handful of I think kind of value add partners that we have relationships with.
Brad Ebenhoeh:Yeah, and definitely I could see that's a great strategic, kind of intangible and working with you guys. It's just the industry experience and the knowledge and the relationships, the network of connections, you can leverage people. It's always good, you know, one thing I'll always say is, you know, kind of the old adage you know, when it's raining outside the banker isn't going to give you an umbrella, but when it's not raining is when you should be asking for an umbrella. So just to the folks, creating a relationship up front maybe not asking right away but getting your ducks in a row, getting your due diligence items, and talking to someone like a Grant or other you know, entities and businesses out there like you know, Bridge and stuff just because it's it's good to know. Especially when you're getting close to that need of financing or better equity to ask because they have information. They know you, you've build a trustworthy relationship. So you know, and I'm sure you can attest to that situation as well.
Grant Christopher:Yeah, I couldn't agree more.
Brad Ebenhoeh:Well, Grant I really appreciate that. Really appreciated the conversation, the information and the insights. And again, for everyone out there. This is The Month End podcast episode number 23. With Grant Christopher from Bridge Finance Group, hope you enjoyed it.
Grant Christopher:Thanks, Brad. Really enjoyed being on!
Brad Ebenhoeh:Thanks Grant.
