Credit Crunch: Small Business Lending

June 28, 2012

Today’s Speakers

•  Ami Kassar

– CEO and Founder, Multifunding LLC

•  Ben Geyerhahn

–  Special Projects Director, Small Business Majority

About Small Business Majority

•  Small business advocacy organization – founded and run by small business owners

•  National – offices in California, Washington, DC, New York, Ohio, Colorado, and Missouri

•  Research and advocacy on issues of top importance to small businesses (<100 employees) and the self-employed

•  Very focused on healthcare over the past 6 years – becoming more involved in energy and access to credit

MULTIFUNDING Understanding Debt Alternatives in Today’s Economy  

June 29, 2012

WHO IS MULTIFUNDING ?

 •  Helping Small Business Owners Figure Out The Best

Possible Loans For Their Unique Situations

•  Reuters calls us –  “Loan Doctors for Business”

•  Twi%er  calls  us  –  “The People’s Loan Broker”

EXAMPLE CLIENTS (funding completed)

MULTIFUNDING IN THE PRESS

GEOGRAPHICALLY DIVERSE

•  Regular  Bank  Loans  •  SBA  /  USDA  Loans  •  A/R  Financing  •  Purchase  Order  Financing  •  Inventory  Financing    

 

•  Asset  Based  Lenders  •  Equipment  Leasing  

•  Sale  Lease  Back  Loans  •  Merchant  Cash  Advance  Loans  

 

WHAT’S OUT THERE?

TYPES OF LOAN PROGRAMS

Source : MultiFunding Quarterly Lending Survey

ANNUAL INTEREST RATES BEING CHARGED

Source : MultiFunding Quarterly Lending Survey

Discounted  (%)   LTV  (%)  

Business  Assets  

Real  Estate   25     75  

Equipment   50   50  

Receivables   20   80  

Inventory   50   50  

Personal  Assets  

Real  Estate   20   80  

Stock   30   70  

Cash   5   95  

LENDER’S VALUATIONS

•  Collateral  –  Do  you  have  something  a  bank  can  liquidate?    The  easier  to  liquidate,  the  cheaper  your  rate.  

•  Cash  Flow  –  How  was  business  last  year;  this  year?  

•  Credit  Score  –  680  or  above  (for  best  terms)  

•  Cost  of  Funds    –  What  interest  rate  you  can  get?  

–  What  can  you  afford?  

THE FOUR QUESTIONS

•  Bank  loans  today  require  profitability,  cash  flow,  good  credit,  and  good  collateral.  

•  If  you  think  you  have  all  of  these  ingredients,  try  a  local  community  bank  first.  

•  Visit  www.bankinggrades.com  to  find  a  bank  in  your  neighborhood  that  is  ac^vely  lending  to  small  business.  

GOOD OLD FASHIONED BANK LOANS

•  Many  banks  will  be  a  bit  more  lenient  when  lending  through  the  SBA  and  USDA  programs.    The  government  offers  them  insurance  to  be  more  aggressive  when  lending  to  small  business.  

•  The  USDA  program  works  well  in  rural  communi^es  and  the  SBA  program  is  na^onwide.  

•  When  considering  these  programs,  always  look  for  a  lender  who  is  aggressive  and  has  a  lot  of  experience.      

•  If  one  lender  says  no,  always  try  another  one.  

SBA and USDA LOANS

•  Glass  contractor  in  Oregon  approached  us  to  consolidate  debts,  term  out  payables,  and  gain  access  to  working  capital.  

•  We  managed  to  refinance  their  debts  into  an  18  year  term  SBA  loan,  secured  by  real  estate.  

•  Interest  rates  went  down  from  18  %  to  6  %  and  client  will  save  $100,000  of  finance  charges  per  year.  

SBA EXAMPLE ONE

•  Fire  Restora^on  company  in  Tennessee  approached  us  to  gain  access  to  working  capital.  

•  Through  an  SBA  loan  (secured  by  her  home)  we  achieved  her  goal  and  refinanced  several  equipment  leases  and  credit  cards.  

•  Clients  monthly  finance  fees  reduced  by  $3,000  a  month.  

SBA EXAMPLE TWO

•  Don’t  despair,  there  are  plenty  of  alterna^ves  to  consider.  

•  The  key  issue  is  what  collateral  you  have  to  offer  the  lender.  

IF THE BANKS AND SBA LENDERS SAY NO

•  If  you  have  completed  work  for  other  businesses,  have  invoiced  them  and  are  wai^ng  to  be  paid  for  it,  these  invoices  are  collateral.  

•  Many  lenders  will  advance  you  money  against  the  invoices  so  that  you  can  get  paid  faster  and  improve  your  cash  flow.  

•  Key  issues  that  they  will  consider  are  the  quality  of  your  contract  with  your  client,  and  the  quality  of  the  client.  

•  They  are  underwri^ng  your  client  first,  and  your  business  second.  

ACCOUNTS RECEIVABLE FINANCING

•  We  were  approached  by  a  logis^cs  company  in  Pennsylvania  who  was  struggling  with  cash  flow  issues.  

•  This  company  had  an  exis^ng  line  of  credit  with  their  local  bank.  

•  We  put  them  on  the  Receivables  Exchange  and  they  were  able  to  keep  their  line  of  credit  and  trade  their  receivables.  

A/R FINANCING EXAMPLS

•  Some^mes  a  company  doesn’t  have  receivables  yet,  but  has  a  purchase  order  from  a  credible  business.  

•  A  loan  is  needed  to  advance  money  to  their  suppliers  to  they  can  fulfill  the  order.  

•  Purchase  order  financing  op^ons  are  available  where  the  lender  will  advance  money  to  the  supplier.  

•  These  loans  are  not  cheap  but  can  make  sense  in  high  margin  situa^ons.  

PURCHASE ORDER FINANCING

•  There  are  lenders  who  will  finance  your  inventory.  

•  Some  will  finance  your  inventory  purchases.  

•  Others  will  provide  an  ongoing  line  of  credit  against  your  inventory.  

INVENTORY FINANCING

•  A  ligh^ng  distributor  in  Colorado  approached  us  and  needed  to  buy  inventory  quickly  to  meet  an  order.  

•  Their  supplier  was  not  willing  to  extend  terms.  

•  Our  lender  cuts  the  check  to  the  supplier,  adds  a  fifeen  percent  fees,  and  then  debited  the  money  from  the  client  over  90  days  in  equal  payments.  

•  It’s  expensive  money  but  can  be  done  in  a  week  and  makes  sense  if  no  other  alterna^ves  and  there  is  good  profit  in  a  job.  

INVENTORY PURCHASE LOAN

•  Some^mes  companies  have  accounts  receivable,  inventory,  and  equipment  on  their  balance  sheets.  

•  There  are  Asset  Based  Lenders  who  will  lend  against  all  of  these  categories.  

•  They  can  make  sense  vs.  going  to  an  individual  A/R  ,  Inventory,  or  Equipment  Lender.  

ASSET BASED LENDERS

•  If  you’re  in  the  market  for  a  new  piece  of  equipment  or  sofware,  leasing  is  an  ac^ve  and  viable  op^on.  

•  There  are  many  tax  advantages  to  leasing.  

•  Always  consider  a  $1  buy  back  at  the  end  of  the  term  vs.  a  residual  equipment  value.  

EQUIPMENT LEASING

•  Some^mes  the  only  collateral  a  company  has  is  equipment  that  they  own  that  is  free  and  clear.  

•  In  some  cases  it  is  possible  to  sell  this  equipment  to  the  leasing  company,  who  will  then  lease  it  back  to  you.  

•  The  lender  will  want  to  see  and  understand  what  you  intend  to  use  the  funds  for.  

EQUIPMENT SALES LEASE BACK

•  A  car  wash  in  Dallas  reached  out  to  us  and  needed  cash  quickly  to  pay  off  a  creditor.  

•  His  only  collateral  available  was  his  equipment.  

•  We  managed  to  find  a  lender  to  buy  his  equipment  from  him  at  50%  of  liquida^on  value,  and  sell  it  back  to  him  for  $1  at  end  of  term.  

•  Interest  rate  was  14  %  per  annum.  

EQUIPMENT SALES LEASE BACK EXAMPLE

•  Unfortunately,  many  companies  today  have  no  collateral  that  a  lender  is  interested  in.  

•  If  the  company  takes  credit  cards,  there  are  lenders  who  will  advance  them  money  today  and  take  a  future  daily  percentage  of  their  credit  card  receipts  un^l  their  principle  and  fees  are  paid  back.  

•  Other  lenders  will  do  the  same  in  the  form  of  a  term  loan  from  a  checking  account.  

•  Pay  a%en^on  to  the  term  of  the  loan  when  considering  these  op^ons.  

MERCHANT CASH ADVANCE LOANS

•  An  opportunity  to  sit  down  with  a  client  on  an  annual  review  and  determine  if  their  current  loans  s^ll  make  sense.  

•  Look  for  savings  opportuni^es  – Loan  Markets  Change  

– Business  Condi^ons  Change    

WHAT IS AN ANNUAL DEBT REVIEW ?

Ami  Kassar  Chief  Execu^ve  Officer  www.mul^funding.com  

akassar@mul^funding.com  1-­‐800-­‐276-­‐0690  x  11  

MANY OPPORTUNITES TO WORK TOGETHER

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•  Erica Dowell, Network Coordinator

•  Email: edowell@smallbusinessmajority.org

•  Direct: (202) 535-3244

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