Like everything in Washington, there is a fight.  This one is between the National Community Bankers Association, and the American Bankers Association who don’t want the Credit Unions to be able to lend more money because they feel the Credit Unions have unfair tax advantages.

I don’t think that the contractor in Chicago that we were forced to put into a thirty two percent APR equipment lease today really cares much about this argument.  His biggest sin is that he hasn’t been in business for two years, so no bank wants to lend him money, despite his growth.  SBA lenders don’t want to touch his because he doesn’t have a full year of tax returns yet. For him, the more competition amongst lenders with cheap accesses to capital the better chances he has at getting a lower rate.

I suspect the cocktail party I attended tonight was similar to many going on around Washington.  There were plenty of lobbyists there, lots of “think tank type folks”, some private industry members and a Senator and Congressman who showed up for a few minutes.  Everyone had their perspective, their stats, and their research they wanted to share.

Here is our perspective at MultiFunding.  We’ll keep advocating for the small business owner across all fronts, and we’ll try to do our share in Washington as well.  Our approach will be simple – we’ll bring the stories of the small businesses we work and fight for to Washington – and when we can find opportunities we will try cut through the baloney and smoke and mirrors to make sure that everyone knows the real issues confronting small business.     

I’ll check in tomorrow after my “Day On The Hill” and let you all know how it goes.

The differences between Silicon Valley entrepreneurs and Main Street entrepreneurs are dramatic — and the dichotomy led me to hunt for a Facebook note that I published in April 2009 while I was running Ideablob.  I want to share the post with you, as I feel the issues are more relevant then ever today.

From my post in April 2009:

“Over the past year and a half, I’ve learned that there are very different perceptions about what being an entrepreneur is all about. I understand that the perception is probably formed by background and experiences in life. Up until recently, my perceptions were influenced by a private college education and time spent in Silicon Valley. I would probably classify this kind of perception as the Silicon Ivy bubble.

In the Silicon Ivy bubble, there is a perception about entrepreneurship. In Silicon Ivy, an entrepreneur tends to look like this:

1. You need a unique proprietary idea that could grow into a billion dollar company;

2. You must raise rounds of capital – b, c, angel, bridge. There is an entire ecosystem built around supporting this bubble.

3. You must follow these steps.

However, I’m willing to bet that for every one Silicon Ivy startup, there are another 99 that start on Main Street, and that is a very different place.

On Main Street, there is typically no “secret sauce” at the core of the business. The businesses tend to be more traditional, serve the needs of the community, and provide for the owner’s family. These businesses don’t have access to venture capital. The funding comes from a bank loan, a credit card, or bootstrapping. They may receive guidance from the SBA, SBDC, a franchise or a business coach.

I think there is an opportunity to vastly improve the ecosystem or support system for our Main Street entrepreneurs. They need a place to feel the energy that exists in Silicon Valley coffee shops. They need access to financing for their businesses. They need mentors and cliques like the entrepreneurs in Silicon Valley have. They need hip, cool resources that keep them inspired.

At Ideablob, we’re trying to do this. The task is daunting and sometimes the baby step pace seems too slow. However, we know that the need is great. We know that ninety-nine percent of the entrepreneurs in our country will never make headlines in the Wall Street Journal or Tech Crunch. We also know that they are the engine that drives this economy. We are trying to help them, one entrepreneur at a time.”

This note triggered an interesting post from my friend Chris Shipley at the Guidewire Group that I want to share as well.

“This past week President Obama and the SBA focused their agenda on the “Silicon Ivy Bubble” as the solution for creating jobs.  If this is done at the expense of focusing on an ecosystem and funding solutions for main street entrepreneurs, I think we’re steering the ship in the wrong direction.” 

Half of Americans either work for or own a small business.  Only a tiny percentage of these jobs come from the “tech center”.  Let’s be certain that we place our effort and energy on building and finding solutions to help the vast majority of the main street community.  These businesses were hit the hardest during the recession, and deserve our focus and attention as they rebuild and recreate themselves.

While this news is fine and dandy, none of it mattered to one small business owner I spoke to in Texas today.  Her story and plight is similar to those of millions of other small business owners.

Mary (her identity is being protected) has owned a high end restaurant for 17 years.  She does about $700 thousand in sales a year, and built it up from scratch without taking out any loans.  And then two years ago, she decided that she would like to open up a second location.  She made the mistake of financing this transaction through an expensive merchant cash advance loan that takes a percentage of her credit card sales daily.  The one merchant cash advance loan quickly led to a second one (this is how these loan programs are designed), and now she is buried in repayments.

Mary needs $10,000 to get her over the hump and open up her second restaurant.  There is not one viable loan option I know of which could make it happen for her.   And now she is treading water, trying to pay off the current merchant loans on their quick time frames, while struggling to find a way to open up her second place.

These are the trials and tribulations that millions of small business owners face today.  Small retailers, like Mary, are particularly hurt because they have no collateral to work with which could help them get cheaper, more reasonable loans.

Mary’s story is not reflected in the studies and legislative proposals coming out of Washington today.  When the Feds released their report, they coupled millions of small business owners like Mary with massive businesses that have up to $50 million in sales.  Putting these types of businesses together in one classification is an insult to hardworking small business owners.  The data don’t tell us a thing.

The President’s proposals coincide with the one year birthday of the StartUp America initiative.  I applaud StartUp America for their efforts to encourage new start-ups.  That being said, it’s also important to point out that the vast majority of folks trying or thinking about starting up a business have nothing to do with technology, angel investors, or venture capitalists.  StartUp America only speaks to a fraction of entrepreneurs.

Ultimately, small business owners like Mary need all of our help and support.  Their determination is inspirational, and they are critical to our economy.  I don’t know if I will be able to help Mary, but I will be “sleeping” on how to do it tonight.

While the large banks are touting these records to the public and their investors, the data that they release and report to the FDIC about their small business lending tells a very different story.

In the FDIC reports, CitiGroup holding company reported that their various subsidiaries held just north of $7.7 billion of small business loans as of 12/31/2010.  The same entities held just over $7.6 billion worth of loans as of 9/30/2011 (the latest reported data).  This drop in small business lending tells a very different story then their press release.

Chase also reports conflicting data.  In the FDIC reports, JP Morgan holding company reported that their various subsidiaries held just about $24.5 billion of small business loans as of 12/31/2010.  This number is almost identical to their small business loans reported as of 9/30/2011.

Where are the increases that the banks are reporting to the press coming from, and why is there such a wide discrepancy with their two sources of data?  We’re scratching our heads over here at MultiFunding. It’s likely that the banks are using one definition of small business loans for the FDIC (loans with a balance of $1million or less), and a very different definition for their press releases (loans to companies with $20 million of revenue or less).

As taxpayers and shareholders of these large banks, we have the right to clear and transparent data about their small business lending activity.  As both of their press releases suggest, small business lending is of vital interest to our national economy.  We think that the FDIC data is a far better indicator of small business lending activity to main street businesses, then suggesting that loans to companies with as much as $20 million of revenue are small business loans.

How can we get to the bottom of this? At MultiFunding we’ve given every bank of the country a grade for their small business lending activity  based on the FDIC data.  If our report card is wrong, I challenge the big banks to tell us why. 

Lately, my blog has focused a lot on data and statistics.   I think we’ve done a lot of good work to help change the national conversation about what’s really happening in small business lending.  While I don’t want to diminish the importance of our data and reporting, it’s not the most satisfying part of our job.  What is most rewarding is the work we are doing as a trusted friend and advocate for small business owners across the country.

Being a small business owner is one of the most exhilarating and frightening experiences there is.  Running a small business and surviving the great recession in the process takes the typical emotions and puts them on steroids.

A small business owner asked me the other day “Ami, is there a conspiracy out there against small business?” She started a business with her husband about seven years ago with $30,000 of their savings.  When the recession hit, their sales were $6,000,000, and in 2011 their sales were about $2,800,000.  This drop is purely a factor of the economy. 

What is amazing about this company is that they’ve managed to stay profitable every year – DESPITE – the rapid decline in their sales.  But in the process, the bank that they had their line of credit with got sold, they are slightly out of formula on their lending contract, and the new bank wants them out – and has been threatening to shut down their business.    They’ve tried to refinance several times, and hit the brick wall time and time again.

I am glad to say that we found this company a solution.  To get the job done we had to piece together two loans, and they are expected to close this month.  They can say good riddance to their existing bank.  The solution isn’t perfect, and it won’t be cheap for the business.  But it will allow them to sleep again for a few nights, and know that the eight families they support will keep getting pay checks.  If our financing plan works, and they can hit their growth numbers, the new financing will be temporary and in fairly short order we will be able to get them back into cheaper financing.

I am thrilled that we were able to help them keep their dream alive.  I would put my money on any entrepreneur who managed to steer their ship through the downfall and stay profitable at the same time.  These attributes are missed when bankers run their formulas and take orders from regulators.

This month we also expect to close a loan for a kitchen cabinet manufacturer.  The business is run and owned by two wonderful families.   And when their refinancing is done, their monthly debt service will reduce by fifty percent a month.

This loan was not easy to do.  Like many small business people, the owners of this business are incredible trade people, but it took some work to get their accounting and books in order.  They’re tied to the construction industry – which gives most lenders angina.  But guess what – they too have survived the great recession.  And every two weeks – they cut paychecks that about thirty families rely on.  Their new loan will help them continue to grow and thrive, and the process of applying for it helped them to become a better business. 

These are just two examples where we have managed to make a difference to two small businesses and help them carry on.  And this, keeps me ticking.

I don’t have a crystal ball to visualize what  MultiFunding will look like when we turn three.  I am not sure how big we will be, how many loans we will close, or what new services we might offer.  What I am absolutely certain of is that our guiding principle of being a trusted advocate and friend to small business owners and entrepreneurs will not waver.  And I hope we will have the chance to help as many people as we can along the way.

Happy Second Birthday MultiFunding!! Thank you to all of our clients,  readers, friends, and partners for your support and help.

Here Are Some Recent Headlines!!!

Reuters reports that small business lending is up 18% in 2011

MultiFunding (that’s us) reports that US Banks reduce their small business loan exposure in q3 2011 by $4.84 billion

Biz2Credit announces that small business loans are up in small banks/private lenders and down in big banks

Scratching your head?  I would like to try to explain what I believe the pros and cons of each argument are – and the fundamental question that no one has answered yet.

• The Reuters/Paynet survey tracks the new loan origination at 200 lenders across the country and puts them in an index.  It’s an interesting way to monitor the activity of these lenders, but unfortunately, we don’t have any way to know who the lenders are because they stay anonymous. So it’s very difficult to tell if this is a representative sample of small business lending.
• We like our work at MultiFunding where we track the small business loan balances of all the FDIC regulated banks in the country.  Yet the strength in our data is also its weakness – we only track bank loan balances, and banks regulated by the OCC or Credit Unions are not included.  So any loans made by private lenders and OCC regulated banks don’t count.
• The Biz2Credit survey tracks the loan activity of 1,000 of their clients across both banks and private lenders.  So, on the one hand, this data tells a broader story then ours does.  But on the other hand – there is a fundamental weakness because the sample comes from small businesses who Biz2Credit services.  These may or may not be representative of overall small business lending activity.

In a nutshell, we still have work to do to answer the question about what’s happening in small business.  All three studies discussed above tell only part of the story.  The reality of the recession is that tightening bank standards have sent millions of small business owners scrambling into high interest private money loans.  It’s impossible to accurately guess what percentage of loans are happening in the private market because there is no tracking.

We must find ways to come up with an agreed upon definition of what a small business loan is, and find ways to track lending activity across all lending platforms.  Otherwise, politicians and business people will be left guessing about this critical economic indicator.

Here are some key statistics:

• Domestic deposits in America’s Banks increased by $271.5 billion dollars during the third quarter to $7.821 trillion dollars.
• Small business loans held by America’s banks decreased by $4.84 billion dollars during the third quarter to $605.8 billion dollars.
• The average ratio of small business loans to domestic deposits has now decreased to 7.75% from a previous level of 8.09% at the end of the second quarter.
• Bank of America, the nation’s largest bank, decreased their small business loans by $410 million dollars in the third quarter.  Bank of America’s decline contributed to 8.5% of the overall decline in small business lending.   This trend is consistent with a story reported in the Los Angeles Times yesterday.

As of today, MultiFunding’s Small Business Bank Report Card now reflects the most current data available from the FDIC.  Now, when small business owners visit www.multifunding.com/banks, they can review the small business lending activity for their community banks  as of 9/30/2011. 

The Big Banks Came to Keep an Eye on Us

As we celebrate this milestone (surviving the first two years of business is an accomplishment), I wanted to share some thoughts about what has helped me along the way.  I hope these thoughts will be helpful to others who are out there struggling to find their feet in such uncertain times.

1. I got out of my comfort zone quickly.  I chose not to enter the long and cumbersome job search process to look for a new corporate home.  I made the decision to “do my own thing” and I got right to work.  Many ex-corporate types get to this point 12 or more months after losing their job.  I think it’s smarter to jump into the ocean and start swimming.
2. I didn’t write a business plan, but I chose a vision and I stuck to it.  For us, we’re all about making it easier for small business owners to make loans.  Our business model has ebbed and flowed, as we’ve figured out a business model that works. But we’re stayed true to our core vision.  The basic idea on that first napkin has not changed.
3. I work like a maniac, but I also pace myself.  When my brain and my body hit the point of no return, I don’t fight forces that are stronger than I am.  I take a break, and then get back to work.   Once a week I treat myself to a massage.  I call it the Chinese Torture Chamber.  It helps me clear my head, hide from the world for an hour, and get a good night’s sleep that night.
4. Rome was not built in a day. I am patient, and at peace with it.  I would rather build my business with a slow and steady hand, than try to blow it all out in one day.  I think this steady approach allows us to learn and build and protect our customers along the way.  So far I’ve resisted the temptation to jump on the venture capital treadmill.  I hope that in a decade I will look back and say that I’ve made the right decision.
5. Over the past two years, I’ve never considered failure to be an option. I never doubted that I would succeed.  So, in those many times along the way when the journey has gotten tough, I’ve buckled down and figured out how to adjust and moved quickly.  I’ve never thought about “why am I doing this” or “what should I do instead”.  I think this quiet confidence is critical for success.
6. I’ve stayed true to my values in every decision I have made at MultiFunding.  If you’re proud of what you do, and at peace with how you act in your business life, you sleep well at night.  There is plenty to worry about in a business.  If you stick to your values, there will be a whole lot less.
7. I’ve worked with a friend every step of the way.  This has made it more fun and enjoyable, and helped to maintain my emotional equilibrium.
8. Finally, I am passionate about what we do.  We’re helping small business owners,  saving companies and helping create jobs.  I feel good about the work, and believe in it.  This makes it easier to get up in the morning, and face whatever challenge the day will bring.

We all need banks lending to small businesses to ensure our economic recovery.  Let’s support banks that support small business.  Please check out your bank at www.multifunding.com/banks and share the results with your friends.