In The News

 

09 23 2014

09 23 2014

Creativity, Alternative Lenders, And Small Business Financing

“The small-business community employs half of the private workforce and creates two out of every three net new jobs,” said SBA administrator Maria Contreras-Sweet at a packed luncheon crowd at City Club Los Angeles, part of the Town Hall Los Angeles speaker series. When talking about alternative lending channels and their place in the market she included, “I marvel at those companies, Kiva Zip, PayPal, Square, Lendio, Kabbage . They’re all important alternative financing channels.”

Of course it’s rewarding to see our company’s name mentioned among a list of the companies Contreras-Sweet identifies as some of the important players in the alternative lending space.

She’s not the only one talking about alternative lending this week either. Former SBA administrator Karen Mills, writing for the Harvard Business School, suggests, “Alternative players have the potential to fundamentally change the way in which small businesses access capital.”

I’m convinced the world of small business lending is changing and agree with former administrator Mills when she suggests alternative lenders will have a big part to play in the future. That being said, many of the alternative small business financing tools available today have been around for a while—although some are new. Charles Green, author of the new book, Banker’s Guide to New Small Business Financing, has started calling alternative lenders “innovative” lenders because they are taking a more innovative approach to how they evaluate potential small business borrowers and loan risk.

I recently spoke with David Gilbert of National Funding about what his company is doing to help small business owners access the capital they need to expand and grow. National Funding is not part of the Lendio network, but has been around for about 15 years. The reason I’m talking about them is because they are leveraging some financial tools like equipment leasing that aren’t necessarily new to the market, but fill an important niche. Gilbert suggests, “Some people don’t really need a small business loan. They need an equipment lease.”

He argues we should be looking at some of the more traditional alternative financing products with a new paradigm. “Since the financial meltdown in 2008, many small business owners have become very debt averse,” he said. “They don’t want to sign up for long-term obligations any more.”

Of course this doesn’t describe every small business owner, but the key to finding the right financing vehicle seems very dependent upon both the lender and the borrower understanding the objectives of the financing. “We’re asking questions to determine if the financing serves a direct need,” said Gilbert. “Many business owners have a difficult time articulating what the financing they’re looking for will do to help their business—which sometimes makes it challenging to get the financing they need.

With that in mind, here are three questions any business owner should ask him or herself before they sign on the dotted line with any alternative (or traditional) lender.

Do you know how you’re going to use the capital? I can’t count the number of times I’ve spoken to a small business borrower who can’t articulate what he or she plans to do with the proceeds from their loan request. Most lenders will be very shy to offer funds to a small business owner who doesn’t have a clear understanding of what he or she wants to use the funds for and the value that will add to their business.

Will the extra capital have a positive impact on the business? My father (our family business was where my small business career began) believed borrowed capital needed to have a positive impact on the business and facilitate an essential business need, or he didn’t borrow. If it wasn’t critical to the bottom line, he would do without until he could invest either cash flow or savings.

That’s not to say he never borrowed, he did. He just made sure it was going to add value to his company’s bottom line. This approach is even more important as the cost of borrowed capital increases.

Do you know the numbers? It’s critical to know what the financial reports are telling a small business owner about his or her business. I understand that most Main Street business owners don’t go into business because they’re jazzed about becoming a financial analyst, but if a business owner can’t read and understand a financial statement, a profit and loss report, or the other financial reports, it becomes difficult to determine whether or not the business is even capable of servicing any debt.

Any CPA or accountant should be able to explain in detail (so you can understand it) what the reports are telling you. If they can’t or are unwilling to spend the time to make sure you understand, you have the wrong person.

The first thing most small business owners think of when they need capital is a small business loan at their local bank. That’s only one of many options and may not even be the right option depending upon loan purpose. “Most small business owners aren’t merchants,” said Gilbert. “It takes a little more digging to find the right product for most small business borrowers.”

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General Acceptance

Any applications submitted electronically shall have the same force and effect as if the application bore an inked original signature(s). The above information, together with any accompanying financial statements, schedules, or other materials, is submitted for the purpose of obtaining credit and is warranted to be true, correct, and complete.

 

US Patriot Act:

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person and business that seeks a business loan. What this means for you: When you apply for a loan, we will ask for your business name, address, and Tax Identification Number. We will also ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

 

For Loan/Merchant Services:

The Merchant and Owner(s)/Officer(s) identified in the application (individually, an “Applicant”) each represents, acknowledges and agrees that (1) all information and documents provided to National Funding, Inc. (“NF”) including credit card processor statements are true, accurate and complete, (2) Applicant will immediately notify NF of any change in such information or financial condition, (3) Applicant authorizes NF to disclose all information and documents that NF may obtain including credit reports to other persons or entities (collectively, “Assignees”) that may be involved with or acquire commercial loans having daily repayment features and/or Merchant Cash Advance transactions, including without limitation the application therefor (collectively, “Transactions”) and each Assignee is authorized to use such information and documents, and share such information and documents with other Assignees, in connection with potential Transactions, (4) each Assignee will rely upon the accuracy and completeness of such information and documents, (5) NF, Assignees, and each of their representatives, successors, assigns and designees (collectively, “Recipients”) are authorized to request and receive any investigative reports, credit reports, statements from creditors or financial institutions, verification of information, or any other information that a Recipient deems necessary, (6) Applicant waives and releases any claims against Recipients and any information-providers arising from any act or omission relating to the requesting, receiving or release of information, and (7) each Owner/Officer represents that he or she is authorized to sign this form on behalf of Merchant.(8) I consent to receive direct mail, faxes, text-messages, and e-mails sent by National Funding and its affiliates for the purposes of transmitting account updates, requests for information and notices, and (9) this request is for business and not for consumer purposes.

 

For Equipment Services:

I hereby certify: (1) the information provided is true and correct, (2) you are hereby authorized to investigate all bank, credit, and trade references, and said references are hereby authorized to release any requested information to you or your nominee, (3) such authorization shall extend to obtaining personal credit profile in considering this application and subsequently for the purposes of update, renewal or extension of such credit or additional credit and for reviewing or collecting the resulting account, (4) this information may be transmitted by us to you and by you to underwriter(s) for the purpose of granting me credit, either electronically or manually, and that by submitting this application, I take full responsibility for transmission thereof, (5) I am over 18 years of age, (6) I acknowledge my rights under the Fair Credit Reporting Act, (7) I consent to receive direct mail, faxes, text-messages, and e-mails sent by National Funding and its affiliates for the purposes of transmitting account updates, requests for information and notices, and (8) this request is for business and not for consumer purposes.

 

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By providing my wireless phone number to National Funding, Inc., I agree and acknowledge that National Funding, Inc. may send text and multimedia messages to my wireless phone number for any purpose. I agree that these text or multimedia messages may be regarding the products and/or services that I have previously purchased and products and/or services that National Funding, Inc. may market to me. I acknowledge that this consent may be removed at my request but that until such consent is revoked, I may receive text or multimedia messages from National Funding, Inc to my wireless phone number.

  
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