THE Cambridge Connection - Episode 18

Before I introduce our next guests, I want to talk about when you’re financially struggling, whether you are an individual, a family, a business. Everybody knows the word bankruptcy, and bankruptcy basically is the last step when you have no other solutions to solve your financial problems. So we’re going to talk with Sean McCarthy, and he’s the Alliance Business Development Manager at Second Wind Consultants. Sean, welcome to the show. We’re so grateful to have you here today.

Hey, Gordon. I really appreciate the warm welcome. I’m glad to be here. I think that, as you mentioned, talking about debt and business debt is certainly what I’d like to do today, but I think that talking about some of the reasons is also going to be part of the conversation. We want to make sure that people understand what their options are if they are up against the wall, as it were, and if you’re considering bankruptcy.

I’d love to open the conversation today to talk about what other options would be available to you. Absolutely. So before we get into it and talk about Second Wind Consultants and talk about solutions, why don’t you tell our listeners a little about yourself? Yeah, absolutely. That’d be great.

So as Gordon mentioned, I am the Business Development Alliance Manager here at Second Wind Consultants. I have been with the company for about four years. I moved to Massachusetts a little over 10 years ago, and since I landed here, I’ve only ever worked for small business, and Second Wind being one of them. We have a pretty big reach across the United States, but as far as the organization is concerned, we’re not a huge company. And that’s been true for really every company that I’ve worked for since I’ve moved here.

And part of what that means to me is that I’ve gotten to know all of the owners, the owners’ families, and really all the businesses that I’ve worked for since I’ve moved here have really become like family for me. I still hold a lot of really close connections with people that I’ve worked with in the past, and it’s part of what connects me to all the people that I get to help working through Second Wind. And again, being able to share all this with the listeners and anybody that the listeners know is really something that I hold near and dear to my heart, and I’m happy to share Second Wind is in partnership with Cambridge Credit Counseling. Is that right? That is correct.

Yep, absolutely. And they have a total family environment over there, so no shocker that the synergy here is amazing working with company to company. So that’s incredible stuff. And for our listeners, I’d like you to know on a couple of Zoom calls I’ve had with Sean, there’s a striking resemblance to Captain America. Just so that you know, he looks very similar to Captain America, and I was very impressed by the Captain America shield you have in the background when we were on our call.

Yeah, Gordy, I really appreciate that, and it’s an honor to have that kind of a comparison. For anybody that knows me knows that that is not always a joke, even though it is kind of funny. But I do indeed have a Captain America shield hanging behind me, as I do every day. Not only is he one of my favorite characters, but I do also follow his sort of code of ethics and his code of morals pretty closely. So I certainly appreciate it.

I don’t know that I deserve to be compared quite so apples to apples, but I’ll take it. I had to give you a little shock moment. No problem, Sean. All right, so Second Wind Consultants, can you break down for our listeners what Second Wind Consultants does for business? Yes, absolutely.

Business debt and personal guarantees explained

So Second Wind Consultants is a business consulting firm. As you noted earlier, we are located in Western Massachusetts. Our primary focus is helping businesses with unsupportable business debt, and we only work on business debt, which is part of what makes the synergy with Cambridge so great. So we work all across the United States. We are not strictly limited to our area, which is Northampton, Massachusetts.

We also work in really any industry, so we’re agnostic as far as industry and region. Our goal as a company, our mission is business preservation. That can mean a lot of things depending on where your seat is, but the way that we go about that is through strategically reorganizing businesses as a way to not only keep operations going, but also offer owners ways in which they can settle personal guarantees that are owed if they’re unable to pay them in full. Can you break down what the personal guarantee actually means as a business owner? Yeah, absolutely.

So it’s important to understand a couple of things here. When you have a business and you borrow money, well, part of the reason that somebody would set up a legal entity is for this reason here exactly. So when you set up an entity, you aren’t actually the borrower. So if I was the owner of a business, Sean McCarthy, and I borrow money from a bank, technically I am not the borrower. I personally guarantee that the funds will be paid back if the business should fail.

And so when we get into an example of some of the work that we do, I’ll get a little bit more in detail here, but when we go through a reorganization, part of that process involves resolving personal guarantees that are owed by the owners. So there’s a couple of things that we’re doing in our work, which part of it is focused on preserving businesses through reorganizations, but the other part of it deals with the individuals that personally guaranteed any debt. So again, just to be clear there, if you own a business and you borrow funds, it’s very likely that you are not the borrower, but you will likely have to sign a personal guarantee. Basically, just backing up the promise that your business made. And those are things that we can help if, again, you are facing a situation where you are either insolvent and unable to pay the debt.

And that means that the owner is vulnerable, even if the business fails or goes down and they have a personal guarantee, they’re still responsible. Yep, that’s exactly correct. Not every debt has a personal guarantee. It’s something that is extremely common. We’re saying that, say, 10 years ago, it wasn’t quite as common, even though it sounds a little bit silly that you’d be allowed to borrow money without having a personal guarantee on it just because it’s just so commonplace these days.

But just to note again that not every single debt does have a personal guarantee attached to it, but for the most part, they all really do. And what would you do, Sean, in the event that you’re dealing with restructuring a business and there are personal guarantees involved? If it goes to that route and the owner is responsible for a debt, there’s really not much that you can do other than try to help them work that out. Is that right? Yeah, that’s correct.

And so there’s a few different ways in which we go about settling personal guarantees. And what it really comes down to on our end is what kind of creditor we’re dealing with. And the reason for that is that personal guarantees are structured differently depending on the type of loan or even advance that you get from a lender. It’s important for us that every single client we work with, every single debt, every single creditor, we always read every contract that we get very thoroughly to understand what the obligations are of the owners, not only from the business perspective, but also from the personal guarantee side of things. So for example, if somebody had pledged something like a home, for example, as collateral, we need to be aware of that before we pick the phone up and start discussing any type of settlement or negotiation with the creditor, because we need to understand exactly what’s at stake.

And that’s true for every case that we work on. So the early part of our engagement with every client is really a lot of due diligence on our end, because again, we need to understand the financial picture of every client that we work with through and through in order to provide them a viable solution not only going forward, but also for us to be able to work out the debt on their behalf. All right. If you’re just joining us, this is Gordon Oliver with The Cambridge Connection. I’m here with Sean McCarthy from Second Wind Consultants.

Comparing this work to bankruptcy

So is what Second Wind Consultants does the same as Chapter 11? It’s not the same. So there are some very key differences from what we are doing to what a Chapter 11 would put you through. So first and foremost, Second Wind, we are not taking you through a bankruptcy. We are not a law firm.

And for the most part, almost every single one of our cases, we are able to avoid going through the courtrooms and going through litigation. What we focus on are business strategies and negotiations. You know, we often will get compared with either a Chapter 11, maybe a sub-Chapter 5, even 363 sales, which are all various forms of bankruptcy. And that is not what we do. So I think that that’s a really good point for me to give a little bit of context.

So this company was founded on the basis that bankruptcy really does fail the lower and middle market in a pretty substantial way. And what I mean by that is that many, and really the majority, say, of Chapter 11 filings for lower and middle market companies end up failing. And that’s sort of the origin story of Second Wind. And what, you know, really what that comes down to is that our founders, former practicing bankruptcy attorneys, saw what was happening in the courtroom when they would try and take a company through a Chapter 11 to try and reorganize the business and the debts such that they could continue to operate in lieu of having insufficient funds to pay all their creditors, which of course is what’s going to push you into a bankruptcy in the first place. And what ended up happening in so many cases is that they fail, they get converted to a Chapter 7, which is a liquidation bankruptcy, so it’s a personal bankruptcy as well, and there’s no opportunity for a business to get preserved that could otherwise be saved.

And that is what Second Wind is focused on. We are here to offer an alternative to any company that is facing insolvency. They can’t support their debts, but would otherwise have a financially viable business, again, if it weren’t for the debt. Those are companies that we want to help reorganize to have them continue to operate. This is very much about business preservation, but it does go quite a bit deeper than that.

Because every single client that we work with, we recognize that it’s not just a name, it’s not just a business, it’s not just an individual. Every company we work with has employees, those employees have families, so on and so forth, and that is really who and why we are doing this work. We want to be able to preserve economic activity, we want to be able to preserve jobs, and help keep these folks operating and in business, because look, small business is the backbone of America. That is true through and through, and that is who we are here to help support. Yeah, obviously we saw what happened in the restaurant industry during the pandemic, and I’m sure there are many businesses out there over time that need to know that there is an alternative that they should turn to.

And just like when counseling people, if you can’t do this, what’s the next step? And if you’ve exhausted all opportunities, then maybe speaking to an attorney about bankruptcy is the option, but you want to exhaust all opportunities first before you take that direction. I totally agree, and I do want to also be clear here and say that I and we don’t believe that bankruptcy is the worst tool on the planet. It exists for a reason, and occasionally, where it’s reasonable and where it makes sense, we advise our clients to do the same thing. We can only do so much in so many cases, and so it’s not this evil tool that we’re fighting against.

It’s just something that we compare to very often, because that face value, they could be considered very, very similar, even though they’re really not. Absolutely. We’re going to continue this on with the success story, as well as the real people, real problems conversation when we get back. This is Gordon Oliver with The Cambridge Connection, coming back in just a couple of minutes. When business debt becomes unsupportable, business owners are often advised that their only options are to pay or fail.

Second Wind Consultants offers a better way to resolve unsupportable business debt. Our solutions preserve the value of at-risk or insolvent businesses and create a win-win for all parties involved. At Second Wind, we believe that every business is too big to fail, and over the past decade, we have saved thousands of businesses driven by that belief. com. All right, everyone.

Cambridge referral and personal debt story

Welcome back. This is Gordon Oliver with The Cambridge Connection, here with my special guest, Sean McCarthy from Second Wind Consultants. Conversations that we have during this show are real people, real problems, and the Cambridge Credit success moment, and today, we’re going to share a few case studies from Second Wind Consultants with Sean, but before I do that, Tina Marie had shared with me just a quick story. There was a referral. Sean, I think you can maybe segue into this.

The business owner was working on a restructure of the business and then was referred to Cambridge Credit Counseling because he had had about $270,000 in credit card debt that he had put personally on his own debt because he was using that to try to keep the business afloat. That reference to Cambridge was ... Try and get help with the interest rates like they always do with a debt management plan. So a lot of times with that personal guarantee on loans, not only do business owners have that hurdle, but they also can have the hurdle where before they reach out for help, they’re using their own personal lines of credit to try to keep the business rolling to buy time or inventory or whatever expense that they have to meet, payroll maybe even, while they’re trying to get the business back on track. So that relationship that Second Wind has with Cambridge, I’m sure you see business owners that have personal debt that they’ve accumulated to try to keep the business working.

Yeah, absolutely. And it’s really common. I mean, that’s a really great example of what we see, I won’t say every day, but at least every week when, again, small to medium-sized businesses have limited access to capital. And so what oftentimes happens is that they will end up relying on personal credit cards, even borrowing from friends and family, which is a little bit different than credit cards, of course, but they’ll sort of pull every opportunity that they can. And that’s a great example, Gordy, of somebody who had used credit card funds personally to fund a business, whereas that’s really just not something that Second Wind is going to be able to help with, because again, personal credit is personal credit, and we leave that to the experts.

Co-packing company case study

And I’m sure Cambridge referring business owners to you when they’re struggling as well, it just sounds like an amazing partnership. So I want to refocus on the quote I started with. For a business owner, start where you are, use what you have, do what you can do. That’s an Arthur Ashe quote. So Sean, give us the first success story.

So the first one I want to talk about is a co-packing company located in California that we basically helped save from liquidation and having to be forcefully shut down by several of their creditors. This was a historically very successful beverage packing company, and I’m going to be a little bit vague here for confidentiality reasons. They had grown the business over years and years. They had some very high-end and large commercial clients. And the year just before COVID, they had been working with a client whose capacity grew and grew and grew.

And what happened is that that company said, all right, we want to buy more of your production facility, we need more production. And they said, no problem, we’ll open up a second plant. You’ll be the primary client there. You’ll have access to as many hours as you need and as many hours as you’d like. Everybody said, great.

Contracts were signed. The company moved forward opening another plant. Of course, they had to borrow quite a bit of funds to be able to open that because that equipment is quite expensive to get set up. So at the last second, a couple of things happened. First, the company that they had that initial engagement with pulled out of it and essentially changed their mind.

So it left them with a fully operational facility with zero capacity because, again, the client that they opened that for just took off and took their business elsewhere. , but really it hit the world. So it slowed their production down to a halt. So now this company is left with millions of dollars in debt that they are unable to service or support due to that second location being open. Their original location was still operating.

It was doing good numbers, but again, it wasn’t enough to support both locations. So this had been going on for quite some time. Their creditors in first position, second position, third position, everybody was getting restless as nobody was getting paid. First position creditor just meaning that they’re first in line in the case, well, as far as the UCC filings are concerned. So essentially they were looking at a location getting forcefully closed down by the first position creditor.

They were looking to really liquidate the assets to try and recover what they could because, again, the company was insolvent, they were in default, they couldn’t support those debts. And so what we ended up doing is that we worked collaboratively with the first position creditor to do a couple of things. First of all, we needed to buy a little bit of time so that we could get under engagement with them and figure out exactly how we could help them. From there, what we ended up doing is that we arranged a note purchase of the first position creditor by one of our alliance partners who came in and financed that deal. And once we got through that deal, we no longer had the first position creditor to worry about as far as their pending foreclosure.

So now we had more time to build a more robust strategy, which we did. And what we ended up doing with this client is that we went through what’s called a uniform commercial code Article 9 asset sale, which is a way of liquidating those assets for the benefit of the first position creditor because, again, they’re going to recover the most in a transaction like that when they are dealing with a defaulted note. And one of the keys and one of the things that makes uniform commercial code Article 9 asset sale special is that if there are any subordinate liens or encumbrances on the assets of the business, they get removed through that transaction. And that is a really important thing to understand because it’s a very powerful tool. Historically, Article 9 is used purely as a means of liquidation.

However, Second Wind has really sort of turned that around to use it as a way of business preservation rather than liquidation. The short story there is that we were able to help take this co-packing company from the brink of closure and liquidation to then reorganizing them through an Article 9 asset sale to a new entity that is now unencumbered. It’s operating. We were able to help resolve all of the personal guarantees for the owner, which there were many talking about millions of dollars of personally guaranteed debt that we were able to work collaboratively with the creditor and the guarantor to come to a resolution that gets essentially paid out over time. If you’re just joining us, this is Gordon Oliver with The Cambridge Connection here with Sean McCarthy from Second Wind Consultants talking about helping businesses that are looking to avoid bankruptcy and restructure what they do.

Tire company case study

Sean, that’s an incredible story, obviously. And just knowing there are business owners that are listening that might be struggling, that there is hope. What’s the second story that you have for us today or case study? So the second case study is a company, I believe it was down in Connecticut. So they were a tire reseller.

They were also a commercial retread company. So this company had four separate entities, had two owners, was a father and son. And they were trying to grow the business after being in business for many years. They ran a very successful business until things such as COVID-19, but also tariffs in China, for example, had a really big impact on their supply chain and their pricing. It really caused that company to get bound up with debt that they could then no longer support.

And I believe when they came to us, they were in debt of just over $9 million. And ultimately what the owners were looking to do were really just exit the business and be able to move on with their life without having to go through and file any type of a bankruptcy. They ended up working with a different organization, including some attorneys, I believe, who didn’t actually produce any results for them. So by the time they got to Second Wind, as you can imagine, they were a bit skeptical. They were at the end of the rope.

They really needed a solution to figure out what they could do to salvage what they had built. They had four separate entities with millions of dollars in debt in each one. And really what we were able to do is we sort of pulled back, we did a financial analysis for this company. And what we determined is that really two of the four companies that they had were profitable and were worth saving, whereas the reality, and this happens sometimes. It’s what the reality is that two of the businesses that they were running simply didn’t generate any profit.

They weren’t making any money. All they were doing was losing them, losing them more money, and they were a drain on the company. So what we ended up doing is that we worked collaboratively with the owners and the creditors, of course, because every solution that we come up with, there has to be a pragmatic solution for everybody involved. Otherwise, as you know and you can imagine, we’re not going to get anywhere. So what we ended up doing is that we liquidated two of the four businesses.

We satisfied the creditors and worked with them to settle personal guarantees from the owners that did produce them a result that was actually reasonable and sustainable and something that they could afford. And then with the other two businesses, we arranged, again, through a reorganization, a sale of those businesses by liquidating the assets such that the businesses, the operations got preserved, the employees of those companies kept their jobs, and then, of course, the owners had employment agreements with the new company so that they could actually earn so that they could fund and pay their personal guarantee. So again, we saved the businesses. We saved the jobs. We allowed the owners to continue having gainful employment such that they could then pay and resolve their personal guarantees, all without having to go through a bankruptcy.

Closing advice and contact information

Wow. That’s incredible. And obviously, in the times that we’re in, with costs rising, the economy looking like it’s having some trouble, with the restrictions on the pandemic, I’m sure there are many business owners could totally utilize your service. Before I let you go, Sean, can you give a last word of advice and just tell our listeners how they can find you if they are business owners and they need your assistance? So one thing that I would tell everybody is that you don’t know what you don’t know.

And it seems obvious. But when I say that, what I encourage people to do is to do their due diligence. If you are a business owner, if you know a business owner, if you’re struggling with liabilities that you can’t support, call us, send us an email. You can find me on LinkedIn. com.

And just explore your options. One thing that’s hard when we’re talking about debt is that people don’t like to talk about it. It’s really sensitive. It’s very personal. Absolutely.

People often feel like they’ve failed. This happens every single day. And it’s not going to stop happening. And this is just part of running and owning businesses. So what I would encourage people to do is reach out, have a phone call.

It doesn’t cost anything to talk to us. And we’re more than happy to walk you through what options are available to you. So how can business owners find you, Sean? Yep. com.

That’s our website. You can submit a lead there. You can look at testimonials we have. You can look at case studies. You can do all the due diligence that you would need right there.

You can also find my contact information there. Again, my name is Sean McCarthy. I am the Business Development Alliances Manager here at Second Wind. Man, listen, it’s been tremendous having you today. This is such important information.

I always enjoy talking with you and hearing the way that you work with businesses. So thank you so much for what you do and what Second Wind Consultants do. And I’m sure we can have you on the show again in the future to discuss this and I really appreciate your time. Thanks so much, Gordy. I appreciate being here.

Outro and next week preview

And cheers. Cheers to you, man. What a great conversation I just had with Sean McCarthy and Second Wind Consultants with reference to helping business owners that may be struggling. And we always work to have great experts on this show and next week we’re going to welcome Steve Weissman from Scamicide and we’re going to be talking about scams that unfortunately get consumers, business owners, and the like in huge trouble and it’s not just about changing passwords on websites. We’re going to have a great conversation about scams that exist and how to protect yourself.

m. to listen live. com forward slash The Cambridge Connection or on SoundCloud or you can listen where you find your favorite podcasts. And once again, we’d like you to be part of the conversation. org with any questions or stories or things that you would like to share that we can bring light to on this show.

Or if you need assistance, feel free to call 1-800-CAMBRIDGE.