The site serves a simple purpose – to help small business owners to find banks in their communities who are most likely to lend to them.

We hope it will save entrepreneurs a lot of frustration and aggravation, and help them get to the right lenders who can allow them to focus on growing their businesses.

Small business owners and entrepreneurs are America’s job creators and we’re simply throwing too many stumbling blocks in front of them to get the capital they need.

Bankinggrades.com is a tool that we initially developed internally to help us identify good banks for small business.  And now we’ve decided to open up the tool to anyone to use.

It’s our small way of saying Thank You to the America’s small business owners and entrepreneurs.

Thanks to our sponsors, Hana SBA, The Receivables Exchange, and IOU Central for supporting this effort. 

Please try our www.bankinggrades.com and let us know what you think.

Would, and have,  the entrepreneur lend themselves the money?

In our work at MultiFunding, one of the first questions we ask an entrepreneur is “would you lend yourself this money and are you willing to bet your house?”  If there is a moment of hesitation, it’s time to dig and understand why.  Sometimes, it’s a sign of a business in trouble.  Other times it’s an indication of a plan that has not been properly thought out.  Or perhaps it’s an indication of an entrepreneur who doesn’t believe in himself and/or doesn’t have the backing of hi family. 

Whatever the reason might be, if you’re an entrepreneur looking for money, it’s really smart to ask the question “would you lend yourself this money.”  If the answer is no, be ready to ask yourself why?

Do customers of the business recommend the product or service to their friends?

A critical element of a successful business is happy customers – and we don’t think loan underwriters talk to customers nearly enough as part of their due diligence.  It’s fairly simple.  If customers love a product or service, and actively tell their friends about it, that’s usually a great sign of a successful business.  If customers churn and burn in a business, there is an imminent problem on the horizon.  These issues often get forgotten in the underwriting ratios that get crunched.

Are the employees of the company happy, engaged, and committed?

Do the employees of a company love coming to work?  Are team members engaged and happy?  What is the employee turnover?  Would employees jump out of a window to help a company succeed or would they prefer to jump out of a window instead of coming to work?  A happy team is a critical element of a successful company, and it is one that usually never comes up in the loan process.

Does the small entrepreneur have a mentor or mentors who they rely on and bounce ideas off of?

Being an entrepreneur is a lonely and frightening adventure.  Every good entrepreneur needs and deserves a good mentor.  I would love to see loan officers ask to talk to the mentor.  How well does the entrepreneur take advice?  Does he actively like to bounce ideas around?  How flexible and nimble is he in his thinking?  These are critical elements in a world that constantly changes.

With a snap of the fingers can the entrepreneur produce a current financial report about their business that they can explain and understand?

Entrepreneurs who run their businesses without understanding the fundamentals of the numbers are like drivers driving around town with their eyes blindfolded.  Good, accurate and timely accounting is a critical component of success that should not be overlooked.

 I would bet my money on almost any company that met the five criteria above.  Your ideas and thoughts are most welcome.

In my business, my laptop is my life, and, I hate to say it, almost my best friend.  It’s traveled this country with me.  It usually falls asleep on my lap at night, and wakes up at the same place in the morning.  Needless to say, there wasn’t time to be emotional.  I jumped into my car with my daughter and laptop, and we were off.  I was ready to buy another laptop if need be.  A few days without my laptop, and many of my clients would feel that their worlds were blowing up,like mine was.

It was Sunday.  Ideally I like to support a local small business, but on Sunday the local computer shops are closed.  So I debated between Staples and Best Buy, and purely by chance I picked Staples.  I stood before the commissioned sales guy at their tech counter, my life (and budget) were in his hands.  He didn’t know it, but he could have a new laptop sale on his hands in about two seconds, which would have messed up the rest of my work day (Sunday) as I set it up and transferred all my data.

The tech blew me away.  He opened up the back of my machine, and told me a new fan would not be worth it.  He asked for my permission to buy a can of air compression for $2.99.  I said “sure.”  Within minutes he cleaned a bunch of dust out of my machine.  Then he recommended a base fan for $9.99 and for about $13 we were on our way home with my laptop in tip top shape. 

My new best friend at Staples made my day.  He didn’t have to do what he did.  I left there thanking him.  I was in such a good mood that my daughter got a new pink chair for her room.

My turn into Staples was good luck.  If I had gone into Best Buy, it’s possible that I would have left there with a $1000 hole in my pocket and the rest of my day in disarray.  Mr Staples saved my day.  I wish there was some way to give him a gold star or a crown on his head, so other small business owners could know “good guy here”.

Why am I telling this story on a finance blog?  In many cases, when small business owners are looking for or need financing , they have that same feeling I had on Sunday morning.  They’re desperate, nervous, and not sure what to do.  I got lucky on Sunday morning.  But it doesn’t happen all the time.

There are thousands of sticky webs waiting to capture a small business owner out there looking for funding.  It could be a branch manager at a local branch of a big bank who has no authority and can’t help, but strings on a small business owner for months while he tries to protect his job.  It could be one of the financing leaf generation sites,where small business owners get bombarded with crazy offers and pitches that make no sense for their business.  In my instance, my laptop was at stake.  It felt like my life, but it really wasn’t .  But when it comes to financing – in many cases the entrepreneur’s life and dreams are at stake.  Their employees’ jobs and livelihoods could be at risk.

I wish that everyone looking for a business loan in America had my Staples experience.  We try to do the right thing for every client every time at MultiFunding, but we only reach the tiniest fraction of folks in these situations. 

How can we make sure that every small business owner has an experience, like I did at Staples, when they have a pivotal/ critical situation on their hands?  I know it’s a pipe dream, but if we could find a way, we would all be better off for it.

Thanks again, Mr. Staples.  You made my week.

Today President Obama was joined by Republicans, Democrats and entrepreneurs (including several friends of mine) to sign the Jobs Act into law.  The legislation makes it easier for entrepreneurs to raise money from everyday Americans, hopefully creating a whole new spigot of capital.

The President touted this legislation as a tool that might help the next Twitter or Facebook get off the ground.  In his remarks, he expounded upon the myth of American entrepreneurship.  Think big, get investors, shoot for the stars, and anyone can conquer the world.

This is the myth of entrepreneurship.  Have a billion dollar idea.  Write a business plan that will show you will have at least $100 million of revenue in three years.  Get investors.  Have rounds of capital.  Go public.  Make magic happen.

I think that this myth explains American’s fascination with the show Shark Tank where entrepreneurs go before a group of big name investors and try to sell their souls so that they will invest in their companies.

I think that my visceral negative reaction to the Jobs Act and Shark Tank is that we’re sending the wrong message to entrepreneurs and our young people.  I would like to see just as much pride in starting a restaurant, your own franchise, or your own manufacturing or distribution business.  These are just a few examples.

In my opinion, the last thing these main street entrepreneurs need is crowdfunding (passed in the Jobs Act today).   The first thing an entrepreneur should do is try to figure out how to execute their business model without selling off shares to investors.   After all, the investors never go away in their company. 

We should be encouraging our entrepreneurs to bootstrap their ventures.  We should be doing everything in our power to open up lines of credit and loans at reasonable prices to small business owners.  We should be doubling down on efforts like SCORE and/or the SBDCs to provide mentorship.  We should look for creative ways to improve the accounting and books of small business owners. 

I would love to see our media tell the stories of main street business owners and what they’ve done to survive the recession.  These should be our heroes, ahead of the founders of Twitter or Facebook. 

Yesterday, I want to visit one of my favorite (and first) clients.  She runs a day care center.  We fought like hell for 11 months to get her an SBA loan (after she was declined by Citibank) and now she has deployed the funds to double the size of her facility.  Kids were smiling, and about a dozen new jobs have been created.  Together, we sat and debated her next expansion plans, where she will hopefully double in size again.

In my mind, the owner of this day care center, like tens of millions of other main street entrepreneurs, are American heroes.  It is highly unlikely (in my opinion) that the Jobs Act and crowdfunding will do anything to help them.  It’s the furthest thing from their minds. 

The Jobs Act, like Shark Tank will likely do more to expand the myth of American entrepreneurship instead of focusing on the hard work of helping and encouraging main street small business owners.  While it might all be good for Silicon Valley, I don’t think it will help Main Street.  And that is disappointing to me.

A few weeks ago, I was honored to be invited to speak at a TEDx New Wall Street conference about the future of banking.  For those of you who are no’t familiar with it, TED is an idea sharing community around the world and I invite you to check out their website.

At the Tedx Conference, I presented a fairly simple but also potentially transformative idea called “10 Day Pay” that could help millions of small businesses.  I presented these ideas at TED because it’s a good idea, but it’s one that I don’’t have the time, resources, and energy to do on my own.  I put the idea out to the TED community to see if anyone wanted to help with it and I’m putting it out to you as well. This idea will also be discussed in my chapter in the upcoming book about #FixYoungAmerica.

 

 The idea is pretty simple. Big Corporations are sitting on tons of cash these days. Meanwhile, millions of small businesses who service these big corporations are cash strapped and struggling to survive.   And as a result of the recession, the Big Guys are taking longer and longer to pay the Small Guys, which is forcing them into very expensive factoring agreements.

 

The “10 Day Pay” idea is to encourage Big Businesses to pay all of their small vendors within 10 days. “10 Day Pay” would encompass a website that would rate big businesses based on their treatment of small business vendors. Big businesses could adopt the 10 Day Pay Pledge, promising to pay their vendors within ten days. It would be a positive marketing campaign for big businesses about how they are helping small business and participating wouldn’t affect their profitability (they still have to pay the bill) and would hopefully generate new loyal customers for them.  Meanwhile, small business owners could grow and expand and sleep at night.

 

10 Day Pay was well received at TED, and I have enjoyed many conversations since the conference about the idea.  A few nights ago, I went to buy the URL that was available just before TED and somebody had already bought it.  I was thrilled.  If you would like to join in, please give me a holler –and if you grabbed the URL, I would love to hear from you as well. 

 

As I reflect on my Silicon Valley experience I think there is a lesson for all of us. Let’’s stop waiting for Washington to drive change to help the economy.  Instead, let’’s develop ideas of our own that don’ ’t require Washington, and rally together to make them happen.  This is how I believe we will rebuild our country.

 

Here is my two cents.  Unless you’re a high tech start up and a Silicon Valley junkie – there is likely nothing in this legislation that is going to help you.  Ninety nine + percent of businesses in America aren’t on the fast track to IPO and don’t think they have the next Facebook or Twitter on their hands.  Most small business owners are ordinary people trying to do their thing and satisfy their customers.

It seems to me that @StartUpAmerica has taken over the political agenda when it comes to small business financing.  Many articles I have read espouse the idea that the vast majority of “high paying” new jobs come from fast growing technology companies.  I don’t buy it.

Imagine a race. 

On the one starting line are 100 Main Street Entrepreneurs.  They want to start a contracting firm, a new restaurant, a retail store, or perhaps open a Franchise.     Let’s assume that on average they will each employ 10 people.  If at the end of the year, 70% of them survive, that’s 700 jobs added to the economy.

On the other starting team are 100 Silicon Valley, StartUpAmerica Entrepreneurs.  They have a billion dollar company in mind, and they want to revolutionize the world.  Let’s say that they will also each start with 10 employees.  But realistically, at the end of year one, 20 of the companies have survived and 1 of the 20 is really rocking and rolling.  If the rocking company has 100 employees, and the other 19 survivors still have their 10 – this team has added 290 jobs.

Main Street Entrepreneurs win the race.

Please don’t take my perspective the wrong way.  I think that StartUpAmerica is a positive thing for a specific type of entrepreneur.  And I am all in favor the Jobs Act and CrowdFunding if they will help a segment of entrepreneurs move their businesses forward.

What I am opposed to though is the Silicon Valley StartUpAmerica agenda taking over and leaving Main Street mom and pop entrepreneurs in the dust.  Remember, in our imaginary race this group creates 700 jobs.  They might not be the highest paying but last I checked our unemployment problem is not a “high paying” problem.  Everyone deserves a job.

In some articles I have read, folks suggest that CrowdFunding will help main street businesses and that their fans and customers can become owners and investors in the company.  The proof will be in the pudding, but I doubt that this will be true.  It’s likely that the paperwork and accounting standards that will be required to meet the CrowdFunding standards will simply be too arduous and complicated for a main street business owner to take on.  They have a tough enough time keeping track of their books today.

If the Jobs Act passes the Senate, I suspect we will hear lots of politicians this fall touting their support for small business. Don’t buy the argument.  Let’s hold their feet to the fire (and our own as well) to make sure that we’re all doing everything we can to help ALL entrepreneurs, not just the special ones who think about big companies and IPO’s.  If we focus on lots of singles, our economy will be better off in the long run.

That’s my two cents.

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UPDATE: March 28, 2012
Entrepreneur Magazine agrees with Ami’s Blog Post!  
Read It Here

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Today we’re here to talk about a New Wall Street.  Many of the ideas presented here have to do with how we might change or fix the inner guts of Wall Street.  My idea, called the 10 Day Pay campaign, is different.   It has to do with issues that float in the clouds around Wall Street.  

Together, we can help millions of small business owners across America can grow cash flow, return to profitability, hire more employees, and help America lift itself out of the Great Recession.

We won’t require the government to act or regulators to change.  Lobbying groups won’t have to be rallied, and we don’t have to wait out a year of presidential politics.  This TED community, with the knowledge and resources at our disposal, can make it happen.  And the benefits could start to be felt in weeks.

I want to describe the problem, tell a story that I think will help really bring it to life, and then explain how 10 Day Pay could be transformational.

Here is the problem.  In today’s economy, most large Fortune 1000 companies can borrow money at dirt cheap prices.   Sometimes, two or three percent.  Meanwhile, for the 26 million small businesses in America, many of them who make their living supplying the big companies, getting access to credit is as tough as you can imagine.  For those small businesses who make a living supplying the big companies, they often have to turn to factoring and purchasing order financing today and their cost to borrow money can be anywhere between 24 – and 48 percent.

Think about it folks — One group of companies is paying 2 -3 percent interest.  The other is paying 24 – 48 percent interest.  Their difference in cost of capital is mind boggling.

But it even gets worse.  Most big companies take their sweet jolly time paying their small business suppliers – for a simple reason – THEY CAN.  It would make little to no difference to their long run profitability if they paid their suppliers in 10 days versus 60 days.   They just don’t do it.  Somebody deep inside an accounts payable department somewhere some clerk enforces these rules.   And the small business owners are stuck.

Let me tell you the story of one of our clients.

We will call them Joes wiring, and their sales are above 6 million a year.  Their business is providing wiring installations for a large phone and cable company who is expanding their networks across the country.  We all know their client.  In fact, I bet you that 20 – 30 percent of us in this pay them a bill every month.  And if we’re more than 30 days late they cut off our phones, and our internet access.

But they don’t treat their small business suppliers the way they expect their small business customers to behave.  Joe’s wiring waits on average 97 days to get paid by their supplier.  If they complain about it, they’ll lose the account, and their business will be finished. 

So how do they make payroll while they wait to get paid?  They had to enter into an expensive factoring arrangement that costs them over $500,000 in fees a year.  These fees destroy their profitability, their ability to borrow money from more traditional sources, and to grow their company.

The factors and alternative financiers are hugely profitable, as are hedge funds that fund them.  Meanwhile, Joes’ Wiring is sweating it out like millions of other small business owners in similar situations. 

Once America’s Small Business Owners climb onto the factors’ high interest treadmill it’s almost impossible for them to jump off.  Financing costs destroy their profit margins, and defer hiring new employees, raising salaries and developing new products and services. 

This problem has gotten worse during the recession.  Recent National Federation of Independent Business  research shows 40 percent of small businesses are slow-pay victims. On average, they’re getting paid forty-eight days after the invoice date, a six-day increase since 2010, and up ten days since 2006.[i]

This is why I propose that the TED Community rallies together and pulls off a 10 Day Pay Campaign – with the idea that eventually every large company would pay every small company within 10 days for products and services that are delivered. 

If this could happen, the smaller companies would become vastly more profitable, allowing them to grow, innovate and add employees.  The factoring and alternative financing industry that is loving the recession now would largely be put out of business.  And the larger companies who take a leadership position in this campaign would benefit from more loyal customers and a healthier economy in general.

How could we make this happen? Here is what I think we would need.

The first call to action is to find a CEO of a large well known national company who is willing to take a bet.  We want them to take a stand that they will pay all of their small business suppliers in 10 working days, and to challenge other companies to do the same.

Let me clear.  This CEO shouldn’t just do this because it’s the right thing to do for our economy.  I believe that if they actively promote their stand through ads and media, they will win incredible loyalty from small business owners and their employees around the country.  I believe that the bump in sales from this effort will exceed the small difference in their cash flow statements by paying their suppliers faster.

The 10 Day Pay campaign would be complemented with a website.  We need a few good-hearted techies wanting to hack together a website that tracks how big companies honor (or don’t honor) their 10 day pay commitments based on feedback from validated, anonym zed small companies. 

This means “buy local” consumers could check No-More-Slow-Pay performance ratings of ATT, Verizon and Sprint.  When we don’t pay their bills on time, they shut down our cellphones off.  Why shouldn’t they pay their small business suppliers in a timely fashion?  As consumers, we should demand the same from them.

Finally, any help we could get from the advertising and public relations companies to help pull all of this together would be very helpful.

Why is any of this relevant to TEDxNewWallStreet?  On a New Wall Street, banks would take how large businesses play nicely with small businesses, knowing that a big company that abused Slow-Pay really isn’t cash-rich, it’s values poor.  Banks would be able to lend again to small businesses.

Between a No-More-Slow-Pay Pledge and a transparency collective intelligence website, small businesses would borrow what they need to expand at cheaper interest rates, and the big businesses that support them would be recognized through brand loyalty.

What I’ve proposed could be up and running in a matter of weeks.  We don’t need Congress or await Presidential politics.  We don’t need to go and fight the regulators or the big banks.  We can dramatically impact the lives and families of millions of small business owners and their employees across the country.  This will help our economy, and restore our sense of commercial dignity and looking out for the small fish in the sea.

Thanks.

Let me explain.  It’s common knowledge that credit has tightened dramatically for small business owners and entrepreneurs throughout the recession.  What is less discussed, is what they’ve done to survive and where they have turned for help.

For small retailers and service providers, many of them who lack collateral that lenders are looking for, the answer has been the merchant cash advance industry.  A typical loan is six months long.  Here is how it works.  A merchant has a need for cash.  Within a few days, they can typically get a cash injection of about one month of their sales.  As soon as the money hits their checking account, they start paying the loan back in daily increments.  Often times, the money is debited directly from their checking account or credit card sales.

The offer is tempting.  As an example, the lender says, we’ll give you $25,000, and you will pay us back $7,000 over 6 months.  The borrower typically focuses on the $7,000, and calculates the interest rate in their head accordingly.  “So they’re going to charge me in the high twenties for the money.”  But the reality is that the interest rate is dramatically higher than that, because the money is being paid back in six months instead of twelve.

The other reality of these loans is that it’s really tough to pay back an investment in six months when the fees are included. Typical loans have paybacks of 5, 7, or 10 years.  Imagine going to the car lot to buy a car and apply for financing?  You get a loan offer back and you’re going to have to pay for the car over six months.  That’s the nature of these loans.

Typically, after two or three months, when a lot of the money has been spent, the lender comes back and offers the borrower a renewal.  They can get some money in their kitty.  They’ve become used to the daily payments, and they take the extra dough.  Meanwhile, the lenders fees keep adding up.

Lending programs like this have skyrocketed though the recession.  How big an industry is it?  The answer is that I don’t think anybody knows.  But if you run the numbers, you quickly realize that these loans are putting small business owners on a dangerous, high interest tread mill.

This is one of the results of the banks and the regulators creating such tough standards for small business lending.  However, I don’t think we have begun to see the fallout yet.  Eventually, the high fees and cumulative expensive debt will catch up with these businesses, and they will no longer be able to keep up.  By that point, the alternative lenders will have made hansom returns.  But the small business might not survive.

I want to be clear.  There is a need for these lenders in the market right now.  They will tell you that they’re fulfilling an important need and they are.  From time to time at MultiFunding, we put clients in these types of loans.  However, this option should be reserved for clients that have no other options – they HAVE to make payroll or pay taxes – or there is a viable exit strategy. Unfortunately, this form of financing is being presented as the first and best option in too many scenarios.

It is wrong for us to accept this type of lending as the new norm.  We’re putting America’s job creators, the small business owner, at such a disadvantage.  These issues are far more relevant and pressing than the tax and regulatory relief the politicians are running around talking about.

Over the next few months, we will continue to put forth proposals and ideas about how we can work our way out of the collateral crisis.  We hope that you will join the debate. 

The stakes at the meeting were high. The husband (the dreamer) will break through any walls to grow his business.  The wife (more cautious) seemed to want to support her husband but was more pragmatic.  They were accompanied by their commercial real estate agent, who would like to find any way to get the job done.

This couple is typical of many entrepreneurs today.  They have no equity left in their house to use as collateral for a loan.  They’re in a service business that does not have any tangible assets that a bank can use as collateral.  And they’ve running their business and personal expenses out of one checking account, making it more difficult to sort out their profitability (shame on their accountant).  They’ve also been banging their heads against the wall with banks for months.  And in the process, they got tricked by an “equipment leasing credit card” that charged them $4,000 cash a few months ago so they have the “right” for them to borrow money from him in the future for their equipment at about thirty percent interest.

We spent about half an hour sorting through their options.  I explained to them that while they might be able to cut and paste together an assortment of high interest “unsecured loans” like their equipment one and other merchant cash loans, in doing so they were putting their entire existing business at risk, and they needed to know that everything they had spent the last few years building up risked being destroyed.  And I explained to them that it’s highly unlikely that any traditional lender will approve their loan.

We came up with one possible solution.  The wife’s dad has several pieces of property that he owns free and clear.  If they asked him to put one of them up as collateral, and he was willing, I think this couple could get a lender to offer them an SBA loan.  Under this plan, the interest and principle payments will be reasonable, and I think they can well afford to manage their growth.

I am not sure that anybody left the meeting happy.  I didn’t have a magic bullet to offer the real estate agent to close his deal.  And the couple has some hard and tough decisions to make about what they want to do. 

This story is similar to millions of stories of small business owners and entrepreneurs in America today.  In this case, the landlord would like a tenant for his space.  The real estate agent wants his commission.  The equipment manufacturer would like to sell them new equipment.  The equipment lessor would like to earn his high interest rates.  The sign manufacturer hopes that they move into their new building so he can make new signs.  The merchant cash advance lenders would love to get their claws into this company. 

All that being said, this couple has a mortgage to pay and two kids to put through college.  They need to grow their business in a prudent fashion.  I am not sure if I will ever hear from them again, but I sleep well at night knowing that we gave them sound advice.