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.
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.
Small-business owners seeking financing have hundreds of options thanks to a proliferation of lending firms and programs offering fast and easy solutions. But the reality is only a few of these choices will be the right fit for your nascent business. Although the lure of quick cash regardless of personal credit can be tempting, be wary of common traps when considering a lender for your company:
1. Know when business credit services are necessary — and when they absolutely are not. While business credit can be important as your business matures, it doesn’t make a difference for a startup applying for a loan. Startups are not expected to have a strong business credit file, so any firm extolling the necessity of business credit services to apply for a loan may actually be doing you a disservice.
Instead, concentrate on the strength of your personal credit, as lenders will focus on this more because you will ultimately be responsible for paying back the loan.
2. Know the price you pay for speed and convenience. Some short-term lenders and cash advance companies offer so-called “fast” loans with quick application processes and a lax review of personal credit. This speed and convenience comes at a cost, however. Entrepreneurs should be careful when considering a cash advance, especially if rates and pay off timeframes are extremely harsh. Some firms offer annualized percentage rates as high as 200 percent with amortizations as slow as three to four months — terms like these can be a nail in the coffin before a business is even birthed.
Protect your business by reading all terms carefully and make sure you have a clear plan to pay back the loan before signing on the dotted line for a cash advance.
3. Don’t outsource; know your own business plan. Be wary of any company insisting that you need a business plan and financial forecast in order to sell you an expensive business plan package. Additionally, if you’re paying someone else to do this work for you, then your business may have bigger problems. Having a direct hand in developing the business plan and financial projections ensures that you as the business owner know the ins and outs of the company and have defined goals for growth.
Have a good understanding of what makes your business tick in the present, and where it is realistically headed in the future to protect it from other unnecessary expenditures that you may encounter throughout the startup journey.
Understanding debt obligations is the most important thing when applying for a loan.
There are many things a borrower needs to consider when thinking about a loan, but one outweighs all others by a landslide: what the monthly payment on the loan will be and whether that borrower can or cannot afford the payments.
I don’t want to minimize the other things that borrowers need to consider–liens, prepayment penalties, etc.–but this one fundamental tops the list. Borrowers must understand what their monthly debt obligation will be and validate this versus current income and potential income from the proceeds of the loan under consideration.
When weighing the idea of any loan, the borrower should be confident that he or she can comfortably afford it. If the monthly payments take too much of a bite out of your cash flow, you’re probably going to find yourself having to add more and more debt to keep afloat.
Taking out a loan that you are not confident you can pay back is too often the final nail in the coffin for suffering businesses–or the force that pushes a business over the edge into a perpetual debt cycle.
Sit down and carefully consider your current financials and projected financials over the next fiscal year. If a loan doesn’t comfortably fit into the equation, it may not be the best time to seek financing or may be an indicator that there are bigger problems in the business that need to be dealt with before a loan is considered.