It’s Not Just About the Money

I recently asked a restaurant owner what he likes the most about his business. His response was that he loves creating a space for his customers to relax and enjoy themselves. The answer startled me for a moment. I was expecting something like – “we make great food”. But then I realized that “what a business does” and “how they do it” are really very different.

On a simple level, one could say that at Multifunding we help business owners get money. That is what we do. But how we do it is very different. We work incredibly hard to create a process and an environment where we are empathetic and supportive of the entrepreneurs’ that we serve. We want to treat them as we would want to be treated. In many ways, creating a company around this culture and set of values is more enjoyable and challenging then just “getting them the money”.

As I have realized that my answer is very similar to the restaurant owner, I’ve recently started to do some writing about “being an entrepreneur” in addition to my regular writing about “how to get loans”. I share these posts on LinkedIn, and more importantly with our team members so they can hopefully get some additional insight into what being an entrepreneur is being all about.

Be Careful When Looking in the Mirror

When I started my company five and a half years ago, I tried to design and organize my life in a way that replicated my experience where I spent the last decade of my life.  Previously, I worked for an organization with 1,000 people in it. In that company, everyone was compartmentalized with one or two skills that they were best at. There were plenty of other people and other departments to take care of your perceived weaknesses. And to survive politically you started to believe in the myth of your own strengths and weaknesses. After all, you couldn’t be strong at finance if there were people who did that for a living–etc., etc.,

Whenever we’re faced with current decisions in business or life, we naturally look at our previous experiences for guidance and direction. It’s a smart thing to do. That being said, you have to look at your new set of circumstances, and make sure that your prior experiences are a good proxy for them.

In retrospect, trying to replicate my prior corporate life, in a brand new company, that was a raw idea; was about the most naive thing I could have done. Nothing was the same. Trying to compartmentalize an organization chart with 2 people was ridiculous. We both had to do everything and learn everything. We had to be strong at all of it, not pieces of it. It would take years before I could slowly start to afford the luxury of picking and choosing what I wanted to do.

I’ve also learned that when I ask for advice from mentors, which is critical and I do a lot, I also have to consider the mirrors that they are looking through as well. While I want their advice, I have to make sure that the context and texture is relevant to the current set of circumstances on the table.

I do not mean to suggest that we can’t draw valuable lessons from mentors and prior experiences into our lives–we can and we should. But when you’re looking in the mirror–make sure you’re comparing apples with apples. If you don’t, your prior lessons could haunt you.

Helping Launch the Responsible Business Lending Coalition

Last week I participated in launching a Responsible Business Lending Coalition in Washington, DC, where my company MultiFunding joined several other for-profit and non-profit entities in setting up a small-business borrowers’ bill of rights for lending products and services.  We created and agreed to a set of standards that we follow, and hope others in our industry will join us as well.

The process of launching this coalition was long and exhausting. In my entrepreneurial spirit, I don’t function well in committees–and this group was definitely a committee with a wide variety of ideas. During the conference calls as we worked on this, I often muted the phone line, and screamed in frustration. And as I hunted through my closet for my suits to travel to Washington, I was especially grumpy as I prepared to spend a few days in the city where you never really know who is telling the truth.

All that being said, as I reflected this weekend on what we had accomplished with this launch, I realized that the events of the week had actually had a poignant effect on me. Somehow, I didn’t feel quite as lonely as I did before.

You see, we’re building our business on a fundamental premise of trust and honesty with our clients that we help. And while it’s very satisfying, it can also feel very slow. We seem to be surrounded by many competitors with less ethical standards, who will do anything necessary to make a buck. And sometimes their propositions, although they might be short lived, sound very compelling. And every day we keep going and fighting through it, doing what we believe to be the right thing for the long run. This path often feels lonely.

And after launching the coalition last week, I realize that we had brought together a group who shared similar principles and ideas. And while the companies and entities in the coalition have different shapes and sizes, we were brought together under a common set of values. And the next time I feel overwhelmed by our long term vision, I now realize more then ever that we’re not alone.

I encourage you to check out the Responsible Business Lending Coalition and help spread the word about our work. It’s an important step for  small-business and entrepreneur communities.

Understanding Liens and How They Can Affect Small Businesses

Many small business owners have heard the word lien before, but do you know how these legal claims can affect your livelihood?

Legally speaking, a lien is a notice attached to a loan that acts as a security interest on a debt owed. Lenders can file a lien for a debt owed by an individual or business so that in the event the borrower cannot meet the contractual obligations of the loan, the lender can sell the borrower’s collateral in order to recoup the loaned amount.

Often buried in the small print of loan paperwork, small business owners may not think that liens are as important as interest rates or repayment terms. However, not the paying enough attention to liens can spell trouble for a small business. By taking the time to understand the liens against a business from the start, small businesses can save time, money and major headaches.

How Liens Work

Say you need a loan for a piece of equipment for your business, or simply working capital. When you take out the loan, the lender may file a lien. This legal claim alerts the business, and all other entities in the state in which the business operates, that the lender will be able to seize some or all of that particular business’s assets in the case of the business defaults on the loan.

All lenders ideally like to be in the first lien position. When a lender is in a first lien position, that lender will be the first to acquire the agreed upon collateral in the event that the business defaults on the loan. Liens are filed in succession, which means that any given time, a business can have multiple liens filed against it. Should a business default on a loan, the lenders with liens are paid out in the order that they have filed the liens against the company.

Lenders who take on second or third lien positions are in a riskier situation than the lender who is in the first lien position. When a lender cannot obtain a first lien position, their loan offering may be more expensive or disappear all together.

Blanket liens are liens that small business owners should be particularly wary of entering into. These liens, most notably offered by short-term lenders or cash advance merchants, give the lender the right to seize all of the debtor’s assets in the event of nonpayment or default. Blanket liens can, in essence, close a company’s doors in the blink of an eye.

What Small Business Owners Can Do

Most importantly, small business owners should be aware of all liens against their business, the succession of the liens and the collateral that is included in all liens. The risk to small business owners come when fine print regarding liens is overlooked or ignored all together.

Because all creditors are legally obligated to file a UCC-1 financing statement when they have a security interest in property of a debtor, it’s relatively easy to check the status of liens against a small business. The Secretary of State website associated with the state the business is located allows small business owners to conduct a lien search.  To do so, simply type in the Debtor Name using the standard search field. Any UCC-1 forms filed against the debtor will appear.

Small business owners can also opt for a professional, fee-based lien search done by major credit bureaus, local law firms or title companies. These services can range in cost from $95-$125 depending on the agency.

As a small business owner, it’s vital to regularly check the liens that are filed against a company to see if there are any that do not belong or could be renegotiated. In rare instances, lenders may place a lien against a company that is different than what was agreed upon in your loan agreement. A good rule of thumb is to incorporate a lien search into a bi-annual debt review. This way, even if you get caught up in the day-to-day operations of running a business, you are still reminded that keeping up-to-date on liens is a necessity for all successful businesses.

Understanding the Lending Market for Small Businesses

The lending landscape has changed drastically over the years. The internet is indeed king, and has opened up numerous opportunities for businesses outside of their local banking market. In fact, more entrepreneurs and small business owners today are seeking financing options online than ever before. The boundaries of distance and time have been obliterated…and that means a plethora of options for your clients.

While the lending market has evolved, the basic need for working capital remains the same. According to the U.S Small Business Administration, there are 23 million small businesses in America- accounting for 54 percent of all U.S sales. Since 1990, major corporations have cut jobs by 4 million, while small businesses have added 8 million new jobs to the market. Now more than ever, small businesses need financing options that are accessible and affordable to start and grow their organizations. And who better to guide them on their lending options than you?

Small business lending today is completely different than it was before the recession. With the banking tightening up their lending portfolios and credit scores taking a hit, its hard for small business owners to borrow in a time when they really need the working capital to rebuild and grow. The increase of online lenders has been a breath of fresh air because they are not regulated by the same standards as big banks and are eager to lend to small businesses.

Making sure clients understand finance options

With the wealth of new options, small business owners need to be careful to clearly understand finance options, terms, and conditions before signing on any dotted line. Technology has certainly improved the lending industry, but it has also created difficulties for entrepreneurs and small business owners when it comes to understanding all loan options and making sound financing decisions.

Key areas of concern include interest rates, factor rates, and amortizing periods on borrowed money. When a small business owner searches online for a loan, they are bombarded by ads for cash-advance merchants and quick cash offers. Small business owners may be attracted to the quick turnaround time and relative ease of obtaining a cash advance, but the price of this borrowed money can be a major downfall. This is where the guidance of an experience accounting professional is critical for clients.

While technology has opened up a new world of lending options, the internet cannot take the place of one-on-one guidance. Dedicated consulting and real-world experience from an accounting professional is important in helping business owners make such a big financial decision. Leaving these decisions up to a search engine and a web form can be risky and can have serious implications for business owners who do not fully understand the terms and conditions of most short-term loans.

Technology undoubtedly serves as a helpful and necessary tool for progress and advancement in the lending industry, but a return to a more localized and personalized loan application process will only benefit small business owners. All of this adds up to further strengthening the client-accountant relationship as you take on the role to educate and assist your clients in the world of lending.

Don’t Jump Into Bed with a Business Partner So Quickly

It’s often tempting to take time out to write about our successes. But sometimes the more important lessons happen when you can’t get the job done.

Over the past few months I have worked with a client who was desperately trying to dissolve a partnership that had gone south. About two years ago, she sold 50 percent of her business to an investor who promised future success. The partnership and trust unraveled quickly. She wanted our help to buy out the investor with a loan. Despite multiple attempts, we just couldn’t get it done.

Sadly, our client ended up selling her shares to the investor, and exited the business she founded and loved.

The moral of the story is simple, and often forgotten. When you take on an investor, or give away equity in your company you are effectively getting married. I don’t know many successful marriages that ran to Las Vegas after the first date.

Relationships need time to develop and nurture. You need to make sure your values and principles are aligned, in good times and in bad times.

Don’t get me wrong- it’s incredibly tempting to take on investors or partners. Call it the Shark Tank Myth- almost all business success stories and heroes in our culture are those who’ve gone down this path. While the press and reality TV love to celebrate these stories, we don’t hear the tragedies like that faced by my client who i could not help get out of her mess.

If you’re looking to raise money for your business ask yourself some tough questions. First of all, how much money do you really need and why. Then are there debt or equity options to help you achieve your goal, and what are the trade-offs. And if you’re going to give up equity or take on a partner- think long and hard about the choice- as if you were picking a spouse.


Lamenting the Online Small-Business Lending Bubble

Have you ever lied awake in the middle of the night as a nentrepreneur and wondered if you’re missing the boat and doing something wrong? that’s how I have felt lately as I’ve watched the emergence of the small-business financing space.

It seems like every other week I wake up to another announcement about a company in the small-business financing space who has raised a lot of money from venture capitalists at a really high valuation. There is a bubble happening in the space and anybody who is anybody in the investment community wants a piece of it.

Every successful company has a core thesis to it-something that they’re trying to do-or prove. In my space, many claim they’re bringing speed to the loan process. Others promise technology. Sometimes It think they’re missing the core message.

When we serve an entrepreneur or business owner-we’re being entrusted with their dream-and to help advise them. In many cases their life savings are on the line, and many people’s jobs. Our belief is when the stakes are so high-they deserve a conversation with an expert-who can try and help them figure out the best path for their business.

Sometimes the answer might be that they should not borrow any money at all. Or other times they need to clean up their financials or get their taxes filed before looking for a loan. Other times we need to piece several loans together over a path to help them get to where they need. Speed is often not the answer-listening and patience are.

At my loan shop, as part of our new website launch we changed our tag-line from “smart money for your business” to “business loan advisors”. The tag line might not have the sex appeal that makes venture capitalists druel, but it’s who we are and what we do.

I know that MultiFunding will be here for many decades helping to serve our clients. And I am done with my sleepless nights.


Using Purchase Order Financing to Access Working Capital

Purchase order financing, or P.O. financing as some may know it, is a no-interest, short-term finance arrangement in which a lender provides capital to businesses that need immediate working capital to fulfill single or multiple customer purchase orders, usually from large national retailers or government agencies.

As a small business owner, P.O. financing can be a lifesaver when it comes to fulfilling purchase orders that the business just doesn’t have the cash flow to fulfill otherwise. Without entering into a long-term loan solution, P.O. financing provides cash flow when it’s needed most.

Here’s a situation to determine how P.O. financing can help a small business fulfill a large purchase order:

A small business that sells specialty pet food via their own online e-commerce website received a call from a large national retailer that wants to put their pet food in 25 retail locations in a test market. If the product sells through, the retailer would expand the coverage and pick up the product for all of its retail locations. The situation is a home run for any small business,until the two business owners realize they’ll need to press their manufacturer to up production in order to fulfill the initial purchase order from the retailer.

In this situation, P.O. financing arrangement, the manufacturing company that produces the pet food for the small business will be paid by the P.O. financing company. Once the pet food is shipped to the retailer and the retailer is invoiced for the pet food, the P.O. financing company will be paid by a factor who will take over the invoice form that point forward.

When considering a P.O. financing arrangement, the lender will check the credit of the borrower’s customer-not the small business producing the goods. If the end customer has a good track record of paying bills on time and has the finances to cover the goods it has ordered, it’s likely that financing arrangement will be made.

This basic flow of purchase order fulfillment via P.O. financing is the same for any small business entering into a purchase order arrangement. It can be tricky to think of this type of financing in theoretical terms, but when you look at the numbers, it’s easier to see how small business benefits greatly from P.O. financing when the conditions are right.

In our scenario with the pet food business, let’s say the retailer wants 50,000 cans of pet food at a retail cost of $5.00 and a wholesale cost of $2.50. The invoice for the total purchase order will therefore be $125,000 and is due NET30. The cost to make each can of pet food is $1.25, so the small business needs to pay the manufacturer $62,500 sixty days in advance.

Here is where the P.O. financing company enters the picture. The purchase-order lender will pay the manufacturer of the pet food the $62,500, removing the immediate financial burden from the small business. Then, when the product is shipped and invoiced, a factor will pay the purchase-order lender the $62,500 plus interest and fees. At this point, the small business will also get 85% of the invoice minus the amount that is paid to the purchase-order lender. When the retailer pays the invoice 30 days after receiving the goods, the small business receives the balance of their payment (15%) minus the factor’s fees.

Many small business owners turn to purchase order financing in order to fulfill purchase orders because the option is less costly (and involves far less financial commitment) than entering into a long-term loan solution or bringing on an investor and giving up equity in the company.

Seeking Capital? Take a Fresh Look at SBA’s Loans

The Small Business Administration (SBA) is often not a first choice for small business owners looking for financing, but the long-time lending giant has recently made significant changes that should bump it up your list when it comes to finding smart capital for your business.

I won’t dispute that the SBA has a reputation of being laboriously measured and overly bureaucratic, but then again, what government agency isn’t? For business owners seeking quick capital, the turn-around times and legwork for an SBA loan are often prohibitive, even if the money is available at a lower rate and with more attractive terms than its competitors. But the truth is, if you have the right lender working diligently and effectively to pair you with the right SBA loan for your needs, the process can be as timely and painless as applying for a conventional loan.

The advantages of the SBA’s 7(a) and 504 programs over conventional lending have become even more apparent over the past few months as the Obama Administration has recognized the need to increase small businesses’ access to capital, create new jobs, and support economic recovery. The most notable changes include:

  • Raising lending limits on SBA’s 7(a) and 504 programs:

– From $2 million to $5 million;

– Up to $5.5 million for manufacturing companies under the 504 program

  • Raising lending limits on the Micro-loan program from $35,000 to $50,000
  • 10 year amortization periods for businesses buying equipment
  • 25 years atomization periods for real estate loans

With these changes, the SBA expands its reach to larger businesses while also increasing support to smaller banks. Small banks with assets less than $1 billion provide 56% of loans to small businesses as a percent of all business loans. The combination of more accessible money and more refined lending practices is a win-win for small business owners.

Nonetheless, navigating the SBA loan process can be tricky for even experienced lenders. Small business owners considering an SBA loan should do ample research into lenders that have experience (and results) obtaining SBA loans for small businesses. If one lender tells you that you aren’t a match for an SBA loan, seek a second opinion from a lender who may be more creative with solutions and experienced in dealing with the SBA’s loan programs and their caveats and rules.

Over the years our firm has had tremendous luck working with SBA lenders to create positive outcomes for our clients. In one example, we recently helped a trucking company obtain a $5,000,000 SBA loan. They used the funds to refinance their building as well as about $2,000,000 worth of their truck fleet. They were able to obtain a 25 year amortization on the loan, and improve their cash flow by hundreds of thousands of dollars a year, which was critical for a major new project they are undertaking.

If a business is in need of a dose of working capital, the SBA Express offers an appealing alternative. Many of our clients use this program to receive up to $150,000 on a 10 year amortization at 6 percent interest rate-without the entrepreneur having to put up any personal collateral. This program is very helpful in allowing the business time to pay off their loan, and maintain their cash-flow.

The SBA has also made exceptional improvements and progress in their CAPLINE program over the last several years which offers companies ABL facilities, often at dramatically cheaper rates then the private markets.

Whatever your situation is, don’t rule out the SBA at the starting line. It might just be the perfect solution for your needs.

Should I Be Worried About The Train ?

This week I saw a picture on Instagram of a turtle with a slogan saying “your speed doesn’t matter – forward is forward”. I decided to re-post it and was struck by a quick comment that came right back from an old friend of mine in Silicon Valley who said “unless you’re about to be run over by a train”.
His comment hit a nerve for me this week. I have an opportunity to do a deal with a partner that might significantly grow my company. The problem is that in my opinion the partner’s terms are outrageous. While I could substantially grow my top line – the chances of making any profit are small and the chances of losing money are high.

There ordinarily wouldn’t be any debate expect there is another venture backed company in my space who is happy to take the deal. And while I can’t be sure of their logic – I can only speculate that they’re more interested in market share – then profits. Their investors want growth. They’re on the venture capital treadmill.

Should I be worried that in their quest for growth they will build a train and run me over?

I am sticking to my guns. I have never seen a study that proves this – but I bet you if you took a sample of 100 companies that were focused on sustained profitable growth vs. another 100 companies that were focused on quick and rapid growth – at the end of the day the first group will have more survivors and build more long term value.

It doesn’t have to be a race but sometimes the tortoise beats the hare. I am going to stick to my tortoise strategy. I am not worrying about the train.