Searching for Capital

A broker assesses the small-business lending market.

I remember learning in business school that business is supposed to be rational and efficient. Markets sort themselves out, supply and demand curves eventually intersect, and spreadsheets and algorithms lead to smart decision making.

In my life as a loan broker, however, it often seems as if the opposite is true. Every day, as I work with small-business owners, I make decisions that are at least partially emotional. And this is particularly tough, because I know that sometimes small-business owners may take my guidance as the last word on whether they can expect to obtain capital, which may affect their dreams and livelihoods, as well as other people’s jobs.

So somewhere I have to find a balance between rational decision making and my own moral compass.

Sometimes the phone rings with an entrepreneur whose business is on life support and who is looking for a last breath of life. Generally, the business already has too much debt. In many cases, it has already layered one merchant cash advance over another. And now it is hoping to find more of the same drug. The temptation is strong — even for me. Who wants to be the bad guy who says no? And as loan products get riskier and more expensive, so do the commissions. I, too, have lights to keep on.

But I wouldn’t be doing my job if I hunted down loans for every owner who calls. If there isn’t a coherent plan for a business to work its way out of an expensive financing, something is wrong. I don’t want to be the one who writes the last loan that sends a business over the edge. The better option might be to sell some assets. Perhaps the owners should reduce their cost of living or cut business expenses. If that’s the real problem, taking another expensive loan isn’t going to solve it. So I try to explain to the client why I am not willing to help. It’s not a message that I enjoy delivering, and it’s rarely well received.

A few months ago, I went to visit a prospective client near my office. As I pulled up to her office, she was sitting in her Range Rover in the parking lot with her child. When we walked into the warehouse, the power was out. She told me that there was an outage, but I suspected the power might have been shut off because the bill hadn’t been paid. Then her husband pulled up in his Jaguar to take the child. When we sat down to review her financials, I saw there was hardly anything in the bank. Ultimately, I passed on trying to help her. She didn’t need another loan, although I might have been able to find one. She and her husband needed to sell the cars and focus on fixing the business.

In other cases, I choose to go into triple battle mode for a business that I think is being penalized by some silly underwriting nuance that makes no sense. In these cases, the business has a plan and a vision, and I can see how money will help it grow. And even if the money is expensive, it’s clear that the business can afford it.

This week I am battling for a company that has more work than it can handle upgrading cellphone towers from 3G to 4G. The underwriters classify the company as a contractor and blindly refuse to lend to it. But to me, the entrepreneur on the other end of the phone line sounds genuine and honest. He is fighting the fight. He deserves an advocate. Sometimes these efforts suck up dozens of hours and bring no results. But when they work, they’re worth it — emotionally and financially.

Perhaps the most important thing I learned in business school came from the economics professor who answered most questions with a smile and the response, “It depends.” He was right.

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/2013/04/08/deciding-when-to-fight-for-a-small-business/?partner=rss&emc=rss