November 26, 2020

Conversations: Small-Business Credit Markets, Assessed by a Loan Broker

He formed MultiFunding, a broker that helps arrange loans for small businesses. It was hardly an auspicious time to open any business, but Mr. Kassar’s challenge was particularly daunting: the freeze in small commercial loans was only beginning to thaw. Plus, business loan brokering has been a fairly obscure and even somewhat shadowy field — but one that Mr. Kassar says he believes serves a growing need.

Running both a start-up and a loan broker, Mr. Kassar has had an unusual perspective on the small-business credit crisis. Based near Philadelphia, MultiFunding, which observed its first anniversary last week, now employs four people full time and has completed 12 transactions. It is presently helping 120 clients in 23 states secure financing.

Mr. Kassar, who works with companies that seek at least $250,000, said that he was able to help from one-third to one-half of his prospective clients. When MultiFunding procures financing, it takes as a fee either a percentage of the financed loan — from 1 to 2.5 percent — or, in the case of a refinancing, two months’ worth of saving over the original debt service.

Mr. Kassar recently spoke about his business and the market for small-business lending. This is a condensed version of that conversation.

Q. What accounts for MultiFunding’s growth — marketing, or a worsening economic environment for businesses?

A. I think there’s a yearning and crying out for transparency and knowledge and understanding. Most small-business owners are more tradesmen than they are businessmen, and they don’t really understand the finances.

Q. What don’t they understand?

A. I think people have a hard time with the whole collateral concept. Also, when you get into a loan, it’s extremely important to know what it’s going to take to get out of it if you choose to get out of it early. A few weeks ago, we were refinancing a loan and the prepayment penalty the bank was trying to charge the client was 19.5 percent of the face value of the loan. The guy didn’t even realize he had a prepayment penalty.

Q. I would guess that 15 years ago not many small businesses went to intermediaries to help them find loans. Why do businesses come to you?

A. Banks push the products or services that they have to offer. In today’s world, a bank’s portfolio of options represent maybe five or 10 of the options available to the customer. And in all the confusion out there with all these different structures and options, I think it’s very difficult for the average small-business owner to figure out what is going on. We have lending products in our portfolio that are as low as 4 percent annual interest to as high as 60 percent annual interest. The goal is to get them the cheapest possible loan that we think we can get them.

Q. Is a 60 percent loan ever good for a business?

A. I am not a fan of 60 percent loans, but if you need money to fulfill a purchase order or buy some inventory, and you have no other collateral to work with. … Sixty percent a year is 5 percent a month, and if you borrow that money for two months at 10 percent and you make 30 percent on it, you’re still better off than you were without it. I would rather that they be aware of the choice and then they can make the decision for themselves. I don’t always agree with the decisions my clients make.

But we try to bring some innovative and creative thinking. There’s a client who is currently backed up on payroll taxes with the I.R.S. and their business has dropped by about a half this year, but they have plenty of collateral. We are putting them into a factoring arrangement so he can pay off the I.R.S. quickly, and then flip him into an S.B.A. loan where he can pay off the other debts.

Q. Are there people who should get loans that you can’t get bank loans for at this point?

A. I think the people who aren’t getting loans today are appropriately not getting loans.

Q. What disqualifies people right now?

A. Collateral. The value of their houses has collapsed, or the value of their equipment or commercial properties has collapsed. This most likely disqualifies people from S.B.A. loans or traditional commercial mortgages and drags them into factoring or asset-based lending or private money. That’s about half of our fundable clients. No one is addressing that.

Q. What could be done?

Article source: http://feeds.nytimes.com/click.phdo?i=7d7bf17c677f1d1ef203ddab399ab8d4

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