Need Funding? The Challenges And Solutions To The Obstacles Of Small Business Lending
When my business partner and I launched our first Company back in 2005, we really had no idea what challenges we would face in raising the necessary capital. Entrepreneurs have many options for funding their start-ups, none of which are easy roads. More difficult now than ever before. Like many naïve entrepreneurs we started down the venture capital path, even hiring a “consultant” to help us set up meetings with firms that would ultimately try to convince us to raise more money than we needed, or tell us we didn’t need to raise any money at all. It was all quite confusing at the time.
Ultimately we decided to raise friends-and-family debt capital with very simple terms. We just needed a small bridge to get us started. Later we opened a Series A round in order to raise approximately $750,000 against what was probably an inflated valuation. The good old days!
We are now running our second company, a full-scale marketing agency, which has been recognized by the Inc. 500|5000 as one of the fastest growing private companies in the country for the last three years in a row. We borrowed money from the first business to fund this business, and then later raised $1.5 million in a Series A round. Since then we have been working on growing our line of credit. As a rapidly growing agency, we invest in new technologies and float media spends for our clients. A healthy line of credit is critical to making that happen. But growing that line has had its challenges. In this new economy we live in, small businesses face the double-edged sword of needing a bank loan to grow, but not being given one due to a lack of credit history. So how do you even get started?
I recently had the pleasure of sitting down with a colleague of mine, David Gilbert, the Founder and CEO of National Funding, a leading financial services provider for small and medium businesses. As CEO, Gilbert oversees all business operations for the company and has steered its path for successful growth over its 15 year history. In the past three years alone, National Funding’s staff and revenues have doubled under his leadership. By recognizing opportunities in the marketplace and new delivery channels, Gilbert has remained a leading voice in the dynamic alternative lending marketplace and regularly speaks at industry conferences and as an expert source in the media.
Here are the key takeaways from our interview about their company, his leadership, and the industry as a whole.
Tell me about National Funding.
National Funding is one of the country’s leading financial service providers for small and medium-sized businesses, providing working capital loans, equipment financing, merchant cash advances and credit card processing. We’re helping small businesses get fast access to short-term working capital when they have no other viable options available, and we work with them to make sure they have the right product for their business and provide counsel on a variety of financial issues.
The company believes in American small business owners, and we strive to provide fast turnaround, flexible solutions and great service to all of our customers and clients, who range in industries including: automotive, construction, excavation, manufacturing, retail, packaging, printing, restaurant, telecommunications, trucking, and waste management, among others. In 2013 and 2014, National Funding was recognized as an Inc. 500|5000 company, as well as one of San Diego’s Fastest Growing Companies, both years.
How did you first get involved in the small business and alternative lending space?
I held positions at various financial institutions where I was working with many high-revenue portfolio companies. Through that experience, coupled with my own passion to create a business, I knew that it was the American small business owner who kept America running, and I wanted to do my part in keeping Main Street thriving.
Compare the process of getting a loan through National Funding vs. through a bank. How is your business model different than the other companies in this space, and why is it important to distinguish this?
National Funding is more of a custom shop for small business loans. Our one-on-one approach is significantly different from that of a large bank. Our credit window is wider than what a bank would consider, so we see a lot of people that have been turned down there. Additionally, our process is much faster, so where a bank may take 30 days or even longer to put something together, we can do it in as little as a day. That’s not the rule, but on the other hand it’s not uncommon either. There’s also less paperwork required, which also makes it easier to do business with us.
What are you seeing in terms of loan demand right now? Has this changed over time and if so, why?
Loan demand is much higher now than we’ve ever seen before. The economy is picking up, and that means that these businesses are seeing more opportunities to take advantage of that. In turn, they’re seeking capital to expand their ventures. This could be in the form of added inventory, or expansion of their location, or maybe more advertising, and sometimes added business equipment.
What are some of the big changes taking place in the market right now and how are you adapting to them?
One of the biggest changes in the market is that small business owners are no longer looking for just a traditional loan. In addition to working capital loans, small business owners need equipment financing, merchant cash advances and credit card processing, among other things. We are sensitive to these demands and have an expanded product offering that makes us a “one stop shop” for small business owners. The other trend is one that we see in every segment – the availability of more information and functionality on-line. But curiously, though many businesses now undertake some aspect of loans on-line, the research we’ve done says that they still like and want to talk to someone who is knowledgeable about the lending products and process.
What are your top three goals for National Funding over the next 5-10 years?
In the past three years alone, National Funding’s staff and revenues have doubled. I would like to see this continue, and right now I’d say there is no reason why it shouldn’t. Based on our product offerings and excellent customer service, National Funding will continue to strengthen its position as a leader in the industry and we will find new and dynamic ways to evolve the business based on our customers’ needs.
What will be important to small business lending 5 years from now?
While there is low awareness of the alternative lending space now, in 5-10 years, I think this will be standard alternative for many small business operations. The market continues to add competitors and new forms of loan products, all of which are different from what the banking segment offers. There will always be businesses that do not meet the stricter standards of banks, and that means that companies need to have a reliable source of financing.
What drove you to want to build your own company?
After 15 years in business and finance, including work with Northwestern Mutual Life, Marcus & Millichap Real Estate Investment Brokerage Company and American Mortgage Capital, among others, I had gained enough experience to confidently go off on my own. This helped fuel my drive to build this company from the ground up, and has been instrumental in designing the National Funding’s entrepreneurial business model.
What has been your key driver to success?
Given my own experience as an entrepreneur, I have recognized opportunities in the marketplace and new delivery channels. I apply my personal familiarity with the space to ensure that we are utilizing every possible option.
To effectively run a company, one has to be a strategic and thoughtful leader. What do you see as the most important factor(s) to successful leadership?
I believe being collaborative and open minded are two very important traits to have as a successful leader. I like to be on the ground getting my hands dirty and being 100% involved in my company’s work. I believe in face-time with the team, and this applies to our sales team with customers, as well. We recently commissioned a survey with Northwestern University’s Kellogg School of Management’s Experiential Learning Initiative, and found that most customers show a strong preference for some form of personal interaction, and this is the focus of our sales staff at National Funding. Our customers feel reassured knowing that an actual human being is handling their needs, not a computer generated machine.
What are the things you do every day that help you achieve success personally and professionally?
I have become more confident in my own management style over the years, and as a result I am more confident of my managers. So I reach out to them every day to discuss what’s on my mind, new ideas, issues and the like, and also to hear if they are having difficulties or need decisions. I trust their decision-making abilities, and have learned to stay out of the middle of the details that they know better anyway.
I network a lot more, now, talking to others in the community and the marketplace. Being a member of YPO has opened up a lot of new ideas to me from people in other industries and other business models. And I spend a lot of time talking to successful business people in the San Diego area just to learn how they have gone about building a business.
I’ve learned to stay in shape, also, and realize the benefits it provides in decision-making. A workout can clear the mind of the peripheral problems and focuses me on key issues.
Written for Forbes by Brent Gleeson