April 25, 2024

You’re the Boss Blog: Why Alternative Lenders Should Set Some Standards

Searching for Capital

A broker assesses the small-business lending market.

In my loan brokerage, the phone often rings with small-business owners who want cash quickly for a wide variety of reasons. They may be in a desperate situation, or they may be so fed up with the local banks that they don’t even want to try that route. Or perhaps they’ve been told by friends how frustrating it can be to apply for a Small Business Administration loan.

In many cases, these owners are calling to because they want to know more about merchant cash advance loans, which can be very appealing. They can get money in a few days, and they pay it back with payments that come out of their revenue, typically over a six-month period. “We will lend you $30,000, and you will pay us back $36,000 over six months,” the sales representatives say.

The business owner is enticed, thinking, well, it will only cost me $6,000 — and the interest rate is only 20 percent. The reality, though, is that the interest rate is more than 40 percent, because the term is only six months. And because the term is so short, the business owner is often forced to renew the loan before it’s paid off. If owners do this more than once, their debt expenses can spiral out of control.

These alternative lenders have received a lot of publicity of late. OnDeck Capital, for example, recently announced big investments from the likes of Peter Thiel and Google Ventures. The company borrows money from investors, including Goldman Sachs, and then turns around and lends it in the small-business market at much higher rates. Another alternative lender, Kabbage, which has a different business model, recently announced that it is the first lender to use QuickBooks data to underwrite small-business loans. A Kabbage loan works more like a short-term line of credit, with the merchant making payments monthly instead of daily. On its Web site, Kabbage states that its fees run between 2 percent and 10 percent percent in each of the first two months of a typical loan and then 1 percent a month for the last four months.

As I read these articles, I am torn between being genuinely impressed by the innovation and technology spawned by these companies and feeling the pain that I know their interest rates can cause. I feel these emotions even more strongly when, other options exhausted, I put my own clients into these types of loans — after first advising them of the risks.

I understand that there will always be a broad range of supply and demand in small-business lending. There will always be people or companies willing to lend to almost anybody for the right price. And I also understand that regulators will often be years behind the changes that occur in the industry. And whenever a new set of regulations takes hold, the high risk lenders are likely to shift directions any way. I don’t think this will change. But I do think it’s important to ask whether it should be considered acceptable for established corporations and reputable brands to invest in these lenders and lend them money that will in turn be loaned to small businesses at much higher rates.

The annual percentage rate on an On Deck loan can be as high as 60 percent, which is high enough to make most rational business people shake in their boots and has been termed “near usurious” in Forbes. When the mayor of New York recently honored On Deck with a visit to its new offices, I wondered whether his staffers had briefed him on the interest rates the company charges small businesses. On Deck argues that its prices are considerably lower than those charged by other players in the cash-advance industry, and that is true.

Companies like Advance Me and RapidAdvance charge rates that can exceed 100 percent. And they are backed by Wells Fargo, which mystifies me. I don’t understand how a federally regulated bank can borrow money from the government and then turn around and lend to alternative lenders that charge small businesses those kinds of rates.

Again, though, I do think there is a place for accredited, reputable lenders that innovate and that are willing to take more risk then banks take. And these alternative lenders should be paid more for the risk they take and the additional service they provide. I  know many of the entrepreneurs who started these companies, and I don’t believe that their agenda is to try to damage small-business owners. They are technologists who set out to build platforms to try to make the lending process more efficient and to open up opportunities. And in many cases, they have done just that. They have accomplished things that would have taken the big banks decades to develop.

I also know many of the investors behind these companies, and their focus is not on the high annual percentage rates. These investors are thinking about disruptive technologies and big opportunities. Alternative lending to small businesses fits perfectly into their sweet spot. They are doing their jobs, answering to the people who invest in their funds.

What I wish these companies would do is to set some standards. This would include a commitment for clear and transparent loan pricing and plans to help their clients graduate out of their financing, so it does not become permanent. I would also like to see them leverage their entrepreneurial spirit to try to drive rates down for creditworthy small-business owners. And they could do a better job reporting on their loan volumes.

By coming together, setting standards and striving for improvement, the alternative lenders could bring credibility to an industry that needs it.

Ami Kassar founded MultiFunding, which is based near Philadelphia and helps small businesses find the right sources of financing for their companies.

Article source: http://boss.blogs.nytimes.com/2013/05/22/why-alternative-lenders-should-set-some-standards/?partner=rss&emc=rss

You’re the Boss Blog: Social Media and the Not-So-Sexy Business

Patrick Driscoll (left) with Parker Cook, a carpenter, and Murphy.Courtesy of Patrick Driscoll Residential Remodeling. Patrick Driscoll (left) with Parker Cook, a carpenter, and Murphy.

On Social Media

Generating revenue along with the buzz.

My favorite thing about writing for this blog is when someone gives me a social media challenge. On a recent post, Where Should I Invest My Marketing Dollars? a business owner from Texas who identified himself as “PW” left the following comment:

I think the problem businesses like kitchen installers, plumbers, tree trimmers and others are having when it comes to social media is to overcome the fact that their product or service is not necessarily cool. I am one of those business owners and I always think that social media is only for the coffee shop, graphic designer or the bike shop. When you own a roofing company or a cleaning service, is there really a (useful) place for you on FB or Twitter? Let’s be realistic, no one is going to repin the picture of a concrete driveway. So how do you build a network of followers when your product is as unattractive as removing raccoons from attics?

This reader was so frustrated that he came back the next day and left a follow-up comment, “As I read my comment this morning, I realize the answer to the problem: There is no appropriate social media outlet for contractors.”

Actually, it wasn’t much of a challenge at all to find a few examples of not-so-sexy businesses that are doing great things with social media. Here are three stories that may help you see some possibilities.

“If you want it done right, you call Dynamite!” is the slogan of a Philadelphia-based exterminator, Dynamite Pest Control. Led by Rich Foreman, 34 and a second-generation exterminator, the five-person business uses social media as its only form of advertising. Every Valentine’s Day, Mr. Foreman posts a photograph with “I ♥ U” spelled out using dead cockroaches — a promotion that always drives comments to the company’s Facebook page.

Mr. Foreman, who believes that any comment is a good comment, says he is always amazed by the response his photos elicit from fans — and also from a few detractors. “Facebook is our most effective social media tool,” he said. “We post pictures of our work, and people share them, and we believe 75 percent of our new business comes from Facebook.”

He also uses Instagram and his personal LinkedIn profile to generate business. “We’ve been able to build relationships with real estate developers and property managers, which represents 10 percent of clients,” said Mr. Foreman, who also belongs to two LinkedIn groups where pest-control technicians share best practices and strategies. He does acknowledge that he gets complaints from people who are disgusted by his photos, but he says he also gets business. He said he does try not to post anything too bad around lunchtime. “The folks that complain don’t have pest issues,” he said. “The others are glad that we remind them what we do.”

Istueta Roofing is a YouTube superstar that has been putting roofs on Miami homes for more than 28 years. Three years ago, it started working with Surefire Social to update its Web site and to improve its search engine optimization. One of the first strategies it put in place was to start creating videos of the company’s work and to provide educational and how-to videos for homeowners.

One call from a customer ended up changing the business. The customer reported some bats under its roof, and armed with a video camera, Istueta went out to install a new roof. The video that resulted has received nearly two million hits on YouTube and made the company a household name in south Florida. The video sent a lot of traffic to the company’s Web site, and Ariel Istueta, the company’s marketing director, says it increased business significantly. “When we talk to prospective clients,” she said, “the bat video is often mentioned, and other contractors call our owner Batman.”

Patrick Driscoll, who owns Patrick Driscoll Residential Remodeling in Exeter, N.H., is active on many social media channels but credits writing how-to articles with generating most of his leads. For the last five months, Mr. Driscoll has written a monthly column for his local paper, The Portsmouth Herald. He makes use of the column on Facebook by sharing links from it on his fan page and in other social media accounts.

More than half of his new customers, Mr. Driscoll said, hire the four-year-old company after reading his articles. On Facebook, he posts photos of his construction projects along with tips on how to decorate and where to get materials. Being active on Facebook and Twitter, and commenting on remodeling trends for various articles, helps the company’s search ranking on Google, said his wife, Stephanie, who has her own public relations firm and handles Mr. Driscoll’s social media marketing. “This is very helpful for prospective customers, because when they go to Google him and find that he is published in several articles and takes pride in maintaining his image online,” Ms. Driscoll said, “it is often the tipping point for choosing between P.D.R.R. and other contractors.”

How about you? Do you know of a not-so-sexy business that is making the most of social media?

Melinda Emerson is founder and chief executive of Quintessence Multimedia, a social media strategy and content development company. You can follow her on Twitter.

Article source: http://boss.blogs.nytimes.com/2013/03/22/social-media-and-the-not-so-sexy-business/?partner=rss&emc=rss

You’re the Boss Blog: The Truth About Working From Home

From the left: Jessica Johnson, Deirde Lord, Beth Shaw, and Susan Parker.Earl Wilson/The New York Times From the left: Jessica Johnson, Deirde Lord, Beth Shaw, and Susan Parker.

She Owns It

Portraits of women entrepreneurs.

At the most recent meeting of the She Owns It business group, the owners talked about the pros and cons of allowing workers to do their jobs from home.

“I’m a huge advocate of having everyone together for the sharing of ideas and communication, but I think that, as a business owner, you need to be flexible,” said Beth Shaw, who owns YogaFit. She said she had had both successful — and unsuccessful — remote-work arrangements. Her chief financial officer worked remotely from 2002 to 2009. “It started to really not work at all to not have your main accounting person in the building,” Ms. Shaw said.

But YogaFit has found several positions can be handled effectively from outside the office. For example, the company’s hosting manager, who books YogaFit’s trainings, works from home four days a week. Additionally, the company’s conference manager and the person who manages YogaFit’s trainers work remotely.

Jessica Johnson, who owns Johnson Security Bureau, wanted to know whether Ms. Shaw required her remote workers to provide her with any sort of reporting or documentation.

“I mostly leave them to their own devices,” Ms. Shaw said, although she does require the hosting manager to report how many trainings the company has each month, how many people attend each training and how many sessions are canceled. She said these numbers provided “a really good barometer of whether she’s booking correctly.”

Susan Parker, who owns dress manufacturer Bari Jay, said the employees’ roles dictated where they could work. For example, her customer service staff must be in the office between 9 a.m and 5:30 p.m. because that’s when the phones ring. But Bari Jay’s designer has more flexibility. “If she says she needs to work from home, great, go do it,” said Ms. Parker, who added that she knew the designer would get her job done.

Additionally, Ms. Parker’s sales manager works remotely — and effectively — from Florida. “He’s calling me all day nonstop, so I know he’s working,” Ms. Parker said. “For someone to work from home, you have to trust that they’re going to do what they need to do.”

“I totally agree,” said Deirdre Lord, who owns the Megawatt Hour, an energy-related start-up. “I think it depends on the individual, your relationship with that individual, or the manager’s relationship with that individual. It’s very hard I think to set rules, but the issue is some people, if they see you making certain things work for some people, then they say, ‘What about me — why can’t I work from home?’”

That is a big concern, said Alexandra Mayzler, who owns Thinking Caps Group, which recently changed its name from Thinking Caps Tutoring — and got a new Web site. “I think there’s something to be said for set vacation days that you have to take and ‘set-ish’ hours to work because I think when you’re working from home, you start feeling like you’re working all the time,” she said.

“I’ve worked from home and had that experience,” said Ms. Shaw. In fact, she added, “I have that experience now.”

Ms. Mayzler said she struggled with setting different rules for different employees. She is currently dealing with this issue in her New York office, where she has found it can create friction when one employee has more flexibility than another. While employees may logically understand that different roles have different demands, “it’s hard to care when everybody went home and you didn’t,” she said.

She says she thinks the problem can be especially pronounced in a small business. “If you have 1,000 people, and people are coming in and out, that’s one thing,” she said. “But when you have three people, and you only have one person who’s constantly there from 9 to 5, it doesn’t feel good.”

Ms. Lord said that as her company, which has five employees, shifted from product development to sales and marketing mode, she and her colleagues were primarily working remotely. “I don’t worry about this group getting their work done, which is really nice,” she said.

Plus, Ms. Shaw pointed out, hours logged in the office are no guarantee of productivity.

Ms. Lord said her co-founder, with whom she has worked on and off since 1998, is “the definition of an effective remote worker.” He can always be reached, gets his work done, and is proactive when it comes to initiatives. “I think those people are quite unusual, to be honest,” she said.

“What I’m learning is, most people need structure,” Ms. Mayzler said — even if they think they don’t.

Ms. Johnson, who used to work in pharmaceutical sales, said the use of reporting and metrics could help provide structure. As a sales representative, she covered a large multistate territory, and her employers required daily or weekly reports from her. “They basically had a measure of security that the people in the field were doing what they were supposed to do and a level of accountability,” she said. Additionally, she and her manager reviewed metrics such as number of daily or weekly sales calls made. “You know how they say, ‘If it’s not measured, it won’t get done,’” she said.

“Right,” Ms. Lord said.

Ms. Johnson says she thinks it critical for companies that employ remote workers to determine the metrics relevant to their jobs and at least start them on some type of reporting system. While she said she disliked generalizations, she thought it was particularly important to impose structure on younger workers. “They’re so used to being independent but really don’t understand the responsibility that comes with being independent,” she said.

“I actually could not agree more,” said Ms. Lord, who recalled getting her very first job and thinking she couldn’t leave her desk for a second — not even to go to the post office. “I don’t think the world is ever going to operate that way again,” she said. “There’s a generation of people who are like, ‘I want to go kayaking. Can I kayak today, instead?’”

To harness the talent and creativity of this generation requires a hard-to-balance combination of imposed discipline and the creation of something they want to be a part of, Ms. Lord said. “I think actually that’s really what Marissa Mayer is trying to do,” she added, referring to the chief executive of Yahoo, which recently said it would require employees to work in-house. “It sounds like no one at Yahoo ever wanted to darken the doors of that place.” Which is why, she continued, Ms. Mayer “took the draconian route, and I don’t think I blame her for that.”

“Really shaking it up,” Ms. Mayzler said.

“She had to shake it up,” Ms. Lord said. “And then maybe she’ll create a culture that everyone’s really excited about — then she can give that flexibility back.”

You can follow Adriana Gardella on Twitter.

Article source: http://boss.blogs.nytimes.com/2013/03/19/the-truth-about-working-from-home/?partner=rss&emc=rss

You’re the Boss Blog: Can This Company Recover From a Cyberattack?

Peter Justen believed his company was worth $100 million.Daniel Rosenbaum for The New York Times Peter Justen believed his company was worth $100 million.

Case Study

What would you do with this business?

A case study we’ve just published explains the challenges faced by Peter Justen, chief executive of MyBizHomepage, a Middleburg, Va., provider of business accounting software. The business was shut down by a wave of cyber attacks that apparently came from a disgruntled former employee.

Mr. Justen founded the company in 2006 to give small-business owners an easy way to view their financials and isolate important metrics. A serial entrepreneur, Mr. Justen raised several million dollars from investors to start the company, which its investors valued at $100 million at its peak in 2008. At about that time, Mr. Justen and his board, seeing tremendous growth opportunity for the business, especially in international markets, turned down an offer to buy the company.

Mr. Justen believes the decision not to sell rankled the company’s chief technology officer, who decided to try to form a competing software company. Upon learning of his technology officer’s action, Mr. Justen says he fired him. A series of cyber attacks against the MyBizHomepage Web site followed and essentially shut the company down. You can read the case study to learn the details.

We asked a business owner and several experts in the realm of digital law and security what they thought Mr. Justen should do to save his company. Please tell us what you think in the comments section below, and next week, we’ll follow up with another blog post that will explain what Mr. Justen decided to do.

Norm Brodsky, a serial entrepreneur and columnist for Inc. magazine in New York City: “Mr. Justen should focus on restructuring or starting a new company using his intellectual property. Bankruptcy won’t help. His only asset is his software, which they will just auction off and sell to the highest bidder. He should also be honest about how he played a role in what went wrong. Why didn’t he run a background check on his C.T.O.? And why did he fire him without first putting a plan in place to protect the software? He can’t afford to make those mistakes again. I always say you should trust everyone but also keep your eyes open.”

Mark Davis, senior director at the White House Writers Group, a consulting company in Washington, and the co-author of “Digital Assassination,” a book on cyber-terrorism: “Mr. Justen has no choice but to go public with an apology and an explanation. He should put up a YouTube video explaining what happened and what action steps they are taking to rectify the situation and make sure it won’t happen again. On a personal level, he should take the time to snail mail everyone who received a fake e-mail from him as a way to set things right.”

Joy Butler, a business and entertainment lawyer in Washington who wrote “The Cyber Citizen’s Guide Through the Legal Jungle”: “Mr. Justen and his company have limited legal options going forward unless they can locate the C.T.O. The company might then seek redress by suing for breach of any non-compete or confidentiality provisions that may have been in the former C.T.O.’s employment agreement. I would also caution Mr. Justen about how much information he discloses about the events at his company. On the other hand, he does need to let his customers know about the fact that there was a security breach or the company could face legal ramifications itself.”

John Mutch, chief executive of BeyondTrust, a global provider of security software: “I think the first wave of security was focused on external threats. Now people are realizing that the threat from the insider is a malicious threat that can be catastrophic in a lot of ways. Unfortunately for Mr. Justen, he probably needed to lock the system down before firing his C.T.O. If he decides to go forward, he should consider building role-based security around his company’s critical assets that limits who can access what.”

What do you think?

Article source: http://boss.blogs.nytimes.com/2012/08/22/can-this-company-recover-from-a-cyberattack/?partner=rss&emc=rss