Entrepreneur Addiction Podcast #2 — SBA or Just BS?
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Welcome to episode #2. Patrick Wiscombe hosts the show each week, covering a wide variety of entrepreneur topics that can help small businesses secure more financing, hire more employees and grow their business. Patrick has had many years in the media, and owns the Patrick Wiscombe Podcast Network.
In this issue, Brock Blake, CEO of Lendio, unveils secrets and busts some myths of the SBA. This episode covers:
- The brilliant innovation of SalesForce
- Is the government helping or hurting small business loans?
- Breaking myths of the Small Business Administration (SBA)
- The role of the SBA
- Types of loans through the SBA
- How business owners can position themselves for SBA loans
- Industries that are not a good fit for the SBA
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If you can’t listen, here’s the text:
Cool Voice Guy: Fueling your business success, this is the entrepreneur addiction podcast, breaking the small business loan news you need if you obsess about your company. Heard exclusively on Lendio.com. And now here are our your hosts: Brock Blake, Dan Bischoff and Patrick Wiscombe.
Patrick: It’s the entrepreneur addiction podcast, episode number two. Good morning how are you everybody? My name is Patrick Wiscombe. Thank you for tuning us in and taking us along wherever and however you’re accessing the podcast, whether in be at Lendio.com. By the way, Dan Bischoff is here in the studio with me, and Brock Black who is the CEO of Lendio.com joins us via Skype. How are you this morning?
Brock: Doing great, how are you guys?
Patrick: Doing alright. Dan, it’s good to see you again. It took us a while to get here, but we finally got here.
Dan: Yeah, the morning traffic was no good.
Patrick: I’m beginning to see there’s really no reason for commuting anymore. (Laughter) As long as you’ve got the technology to get where you need to go. I mean Brock, he’s in Utah County right now. He didn’t even drive in, and good thing you didn’t because it would’ve taken you awhile for you to get here.
Dan: I just like to look you in the eye, though.
Patrick: I’m dashing. (Laughter)
Brock: That’s true, you can pretty much do any business wherever you’re at, virtually, and it sure makes it convenient.
Patrick: Have you guys closed any business just via text messaging, or electronically, not face to face, maybe via Skype. The only reason I’m asking that is because I was closing an advertising deal with somebody not too long ago, and I never even talked to the person, ever, face to face. Not even a phone call. We just texted each other the details of the deal. Got it done. Just like that.
Brock: Well, you’re a lot better on text than I am. You’re going to have to teach me some skills. Usually for me it requires at least a phone call. So I’ve got some learning to do.
Patrick: I cannot stand texting on those T9 phones. And I’m looking at Dan’s phone, that ancient thing. What is that?
Dan: It’s an old flip phone.
Brock: I don’t even know what a flip phone is.
Dan: Do you remember when they were cool? I mean it was cool to have a flip phone that was small.
Patrick: Yeah, and the Razor, the Motorola Razor, man, that was it.
Brock: That was cool, like five years ago. (Laughter)
Patrick: I still have one in my closet right now. (More laughter) Alright, coming up on today’s addition on the entrepreneur addiction podcast, we’re going to be talking about Salesforce. Now, Salesforce I think is one of the terrific sales tools. But a few months ago they bought a company called Radiant Six, which I thought was an absolutely brilliant company that would monitor the internet for you, for your name, your company, in real time. And it was almost a little freaky how they could monitor a company in real time, and that’s what we’re going to, at least, kick of the show with. And then we’re going to get into some small business lending and how the government is poking around and making business difficult for companies. I think you guys would agree with that?
Brock: Yeah, I think, you know it’s interesting you mentioned that Salesforce bought Radiant Six. So, Salesforce really started the movement of taking technology from off of your desktop through software downloads and all that stuff that you had to do, which really made your desktop move slow and your computer to move, and they moved all that information into, what they called, the clouds. So they were the ones who really lead that movement of “Let put it all online, store all of your data, all of your information, somewhere where it’s not going to slow down your machine.” And it appears that what we’re seeing now is that they’re really pushing hard on the movement of social. You know, with what’s happening with social media, and there’s a lot of movement in that direction. So it is interesting they picked up Radiant Six, who really was one of the premier companies that knows how to monitor what’s happening in the social atmosphere, or the social sphere, I guess you’d say.
Dan: When Blackberry first started they were known as the email phone. And then they didn’t continue to innovate, and then Google Android and the iPhone and things took over, and Blackberry has disappeared now. So, I mean, Salesforce is doing a pretty awesome job at innovation, for sure.
Patrick: I think Salesforce has a hit a home run with this, with the purchase of Radiant Six. Why would they purchase Radiant Six to monitor their customers, unless I’m just looking at it so myopically that I’m just not getting it?
Brock: Well, what’s interesting is that in today’s day and age everybody has a voice. And so, you know, Salesforce is a CRM management tool where you can manage your interactions with all of your customers. Well, when you think about social, and all those customers have a voice, for good or for bad, you want to know what they’re saying. So, let’s say, I mean, there’s a bunch of case studies where a customer flew on an airplane and had a bad experience with the stewardess, and then they’re out on Facebook or Twitter or wherever it might be telling the whole world about that negative experience. If you’re not being proactive about monitoring what people are saying about you, then other people are going to control your brand, and you’re going to lose control of it pretty quickly. So this allows you to not only monitor what’s going on but tie it back to customers, and then interact with customers in a way that’s going to benefit your company. So, I’m not a genius, or the expert on this, but I think it’s a smart move just from a business perspective to say, “You know, everyone has a voice; if you’re not a part of the conversation, then you’re going to lose out on the conversation.” So, I think they’re just being proactive about it is kind of my personal opinion.
Patrick: Alright, let move on to the meat of today’s podcast: There’s still a perception that getting a small business loan is difficult because the Federal government is beginning to poke, or they’re getting involved with small business lending. Is that the right way to phrase that?
Dan: It might be, partly, but Brock go ahead.
Brock: Yeah, so let me provide an overview. I think today we’re going to talk a little about the SBA and their role in small business lending. And there’s a few misconceptions that I think we should start off in correcting. You know, the reality is that most business owners across the United Sates think that the SBA is a lender, and that’s the first misconception that needs to be corrected. The SBA is not a lender. What the SBA really is, in its truest sens, is an insurance program for the lenders, for the banks and credit unions. So what that means is that the SBA will go to a financial institution, and they’ll say, “Okay, Mr. Financial Institution, if you make a business loan and it looks like this: A B C, then I’m going to guarantee that loan in the case that loan goes bad, and I’m going to guarantee up to 90% of that loan.” So, the bank still is the one who makes the decision. They’re influenced by the SBA on their underwriting guidelines, and the SBA’s created certain boxes to standardized the loan programs. But at the end of the day, the lending or the financial institution are the ones that underwrites the loan, approves or denies the loan, and services the loan over time. The only time the SBA comes in is when that loan goes bad and the financial institution has to be able to recover something on that loan. Then the financial institution will do all they can to recover the assets, or whatever they can from the business owner. And then whatever else is remaining that they haven’t recovered, they then go to the SBA and say, “I want to claim my guarantee.” Then the SBA, if the loan was underwritten the way that the SBA wanted to, then the SBA will make up the difference on that loss.
Patrick: Okay, I don’t know that. I’m glad you clarified that.
Dan: Sometimes when you say SBA or small business administration people automatically get all hyped up and spit venom. And we put different posts on our blog or on Facebook about the small business administration, and Obama has set aside a certain amount of funds for small business lending, and some different things, and sometimes people just get irate. Without even reading or understanding about it, they just don’t like it.
Brock: From my perspective, the SBA, that type of guarantee has to exist for business loans, and this is why: When you look at lending, and you compare small business loans to other small lending-verticals, so let’s look at auto lending and mortgage lending. When you do a mortgage loan, that mortgage loan is tied to an asset. So if that mortgage goes bad, then the bank goes and recovers the house. They take it over, and they now has an asset to turn around and sell and recoup their money. If you do an auto loan, same thing, that auto loan is tied to an asset, which is a car. Then that car, you can go and recuperate it and you can take that car and resell and you can recoup the loan, when it went bad. If you look at small business loans, there is no, I mean, you have an asset of a business, but it’s not the same. If the loan goes bad, that bank is not going to come in and try to run that business and try to pull it out of its misery, and try to turn that asset into something valuable. And usually the hard assets that the business has, like computers and desks and monitors and all that stuff, it’s not going to cover the amount of the loan. So, to give the financial institution some comfort that if this loan goes bad, and this is just financial sound principle, they’ve got to have something to back up that loan. And if the SBA does not exist, and they don’t have a backup, which means that they’re not going to make a lot of loans, and it’s going to make a tremendous impact on the economy. And so if we really take a step back and look at the big picture of why does the SBA exist, what would really happen if it didn’t exist, I think it would be a lot worse than our current situation. You know, I’m not a huge fan of big government. That’s not what I’m saying at all. But I think that until we come up with another solution that solves that fundamental financial principle of, “There’s got to be some kind of asset to be tied to it around businesses”, we need someone like the SBA to step in.
Patrick: What types of loans are available from the SBA?
Brock: Yeah, so there’s really three or four buckets of loan programs, and then within each of those buckets, there may be five or six specific loan products. Well, they’re maybe more than a few more than just three or four. So, you’ve got a 504 loan program, which is really focused on business that are trying to buy real estate to be able to grow or expand or, in some small cases, start their business. So, usually the loan amounts are larger. They’re tied to real estate, but they’re also tied to your business. And they’re going to look at your ability to pay back, so cash flow. They’re going to look at your credit score. They’re going to look at, “Do you have any down payment to assist in the purchase of the property.” And those are kind of the key main components. They’re definitely going to want to make sure you’re well prepared with a business plan and financial model. But those loan programs go up to, I think, about 5 million dollars. So that’s one. They’ve got another one’s that a 7a express loan program. So, 7a would be similar. They’ve got some components that might tie into real estate, but they’ve got other components, like a community express loan, which is five to twenty-five thousand dollar loan. They’ve also got a veteran loan, which is basically, if you or business partner or your spouse or anyone in your family is a veteran, then they give some nice benefits and loan options for veterans. They’ve got an export express loan program, which is “Hey, I want to be able to build a business around exporting or importing,” and they want to encourage that. So, they’ve got loan programs for them. Then they’ve got a few other loan programs that are more around like, you know, rural America. So, if you’re not in one of the metropolitan areas and you want to get your business off the ground, then they’ve got some preferential loan program for those individuals as well. Again, they use these loan programs, they define them, and then they take all that paperwork and underwriting and they say, “Okay, bank ABC and bank 123, here are the buckets with which, you know, if you’re going to get a loan guarantee, the loan needs to look like one of these.” Then the financial institution takes the application, underwrites loan, and services the loan over time.
Patrick: Are there any minimum qualification that any person applying for a loan has to meet?
Brock: That’s a great question. Business owner in general, you know, if there were three key components, or tips of advice, that they’re going to hear me talk about over and over again on this podcast: the first is just your personal credit. So much of your business loan opportunity, or getting approved for a loan, is tied back to your personal credit score. So, if you’ve managed your finances well, you’ve got good credit, and I’m going to say, to really get into the best loan programs, you’re going to need to be at about a 700 or above.
Patrick: So a decent credit score?
Brock: Yeah, so a decent credit score is number one. Number two, you know, time in business is a big deal, just because, again, this is a risk scenario, and they’re saying, “Well, if you’ve been in business for a year, and better yet, if you’ve been in business two year, then that means you’ve been around the block a little bit, you’ve scraped your knee, and you’re still in existence. And that give us a little bit more confidence that you’re going to be able to repay that loan.” So, time in business is another factor. And then I’d say two more: The third factor would be your revenues and cash flow. Do you have revenues coming through the door? Do you have a financial situation that gives confidence that you’ll be able to repay the loan back? The fourth component is really your preparation going into the lenders. So, you can make up for some of the other three components we’ve talked about by just really being prepared. You know, you’ve really thought through your business plan, and you’ve written one that really displays well, and gives them confidence in you and in your business, or a financial model and things like that. You know, if I were to narrow it down, there’s those four components that are the most important things. Now, I will also say, if you don’t have every single one of those components, it doesn’t mean you can’t get a loan. There’s lots of different other loan option. It just means you’re probably going to have give up something. Maybe the interest rate is going to be a little bit higher. Maybe the loan amount is going to be quite as high. You know, various things like.
Patrick: Are there certain industries that regardless of the ethics of the business or the type of business that it is, that the lending institution or SBA just simply will not back. They just say, “You know what, no way.”?
Brock: Ah, yeah. You know, I don’t think you can say regardless of the ethical or whatever because I think those are the exact industries that financial institutions aren’t going to back. You know, I mean, actually, maybe I shouldn’t tie it directly to ethics. I always think, going down the road of, you know, a lot of times adult content or bail bonds companies or things like that, they’re going to have a hard time getting a loan. In addition to that, any house-flippers, you know, if you want to buy a house and turn around and sell it, it’s going to be really, really hard because they’ve had so many of those go under. Some real estate agents would be difficult. There’s others as well, I can’t think off the top of my head. But there are certain industries that they have deemed as high risk industries, just because they have years and years of experience, and they’ve shown more often than not that they have a lack of an ability to repay the loan. They’re very high risk. So the SBA actually guides some of that, telling the lenders, “You know, we’ve got all this data, and these are the industries where the loans have gone bad.” And they classify it as a high-risk industry.
Patrick: What kind of information do you ask for?
Brock: You know for us, it’s really an information ‘decision tree’, and it’s really hard to gauge character via the internet. And really our lenders have not asked us to do that. That’s not really the role we’re playing, but we gather significant information about the business. When a business owner comes in, we will gather information. We obviously pull their credit through Equifax, and as we mentioned last week it’s a soft pull so it doesn’t negatively effect their credit score. But we pull their credit. We gather information about revenues, profits, time in business… Do they except credit cards? Are they doing exporting? What’s their personal income look like? You know, we gather I think it’s about 70 pieces of information to really help us understand: Who is this business? What do they look like? And then we take that information and make it very easy for that business owner to get matched up with lenders based off the information we just gathered.
Patrick: Okay, to that end, do you manually walk this information to certain lenders, or do you give access, Lendio that is, do you give access to these lenders to take a look at these people, the person who’s applying for the loan, do you give them access to your information. Or do you have people in the office that say, “Hey, XYZ company might be a good match for ABC financial.”?
Brock: Yeah, it’s all automated, which is really nice.
Patrick: Oh, you’re kidding? Really?
Brock: Yeah, the business owner comes in, we’ve really built a complex technology that, when that match happens, not only do we tell the business owner, we say, “Hey, business owner, here are the four banks or the five banks or the ten banks that you match up with. You’re kind of pre-approved for this banks. Here’s the bank name. Here’s the rep. Here’s the phone number. Here’s the email address. And in most cases you don’t even have to contact them outside of Lendio. You just hit ‘inquire online’ right through our platform, and all your information will get send to a lender.” On the flip side of that, we do the same thing for the lender. So, we tell the lending institution, we get a notification saying, “Hey, Mr. Banker, you’ve just got a new potential burrower that showed up. Here’s the contact information. We encourage you to reach out and to start establishing a relationship with that individual right now.” And so, they reach out, you know, hopefully within 48 hours or so. And we’re just kind of try to play matchmaker and put these two people together, so they can go and purse that loan.
Patrick: I hope you pay your technology team well because if this whole process is automated, Brock, that is just stinking impressive.
Brock: You know, it really is a shout-out to our development team. They are lead by our CTO Trent Miskin. They are phenomenal. We have a very, very good team, not a huge team…
Patrick: Just a smart team.
Brock: Yeah, not a huge team, but a really talented, smart team: We’ve got Ben and Noah and Trent and Jeff Neslen and Zach and Dave Perry. They’re just very, very good. We’re lucky to have them.
Patrick: I’m genuinely impressed that you can automate this whole process. And I think that’s probably part of the problem with businesses: They don’t use the technology, or they don’t know the people who can implement all of this technology to automate their businesses. My hat’s off to you, Brock. (Clapping) (Laughing)
Brock: Well, thank you. You know, this podcast, the entrepreneur addiction, we’re addicted to this ourselves, and that’s why we wanted to do a podcast, was to help give confidence to other business owners that are trying to get their business off the ground: to give them not only the confidence, give them the tools, resources, and the knowledge that they need to be able to build their business, learn about small business loans, get access to capital, and continue to grow. So, that passion really comes through with that technology that you talked about. So, I appreciate the opportunity to do this podcast each week with you.
Patrick: I really enjoy companies that, regardless of the company, who really try to innovate. Because I think that’s what drives this country. Any company that continually innovates, and I realize maybe in lending you can only innovate so much because it still boils down to credit scores and a persons basic financial picture. But my point is, instead of getting bogged down in all the paper work, like traditional banks do, or at least that’s my perception of it, Lendio is coming out and trying to automate the whole process. And so congratulations, I really hope that Lendio takes off.
Brock: Well, thank you.
Patrick: Alright, guys, let’s go ahead and wrap it up there. So for Brock Blake, the CEO of Lendio.com, be sure to check them out. If you’re a small business looking for a loan, check them out. Lendio.com. Also coming up here, in about what, in 48 hours, Dan? That the podcast will be on Lendio.com, and we’ll have a full transcript and everything?
Dan: That’s right. Every Monday.
Patrick: Okay, yeah, so every Monday the podcast is released. We’ll have a transcript: Lendio.com. It will also be at my website: PatrickWiscombe.com. And just make sure that if you know anybody who is in business that’s looking for lending, go to Lendio.com. And I’ve also got a link to it at PatrickWiscombe.com.
Brock: One more shout out if you don’t mind?
Patrick: Yeah, go ahead.
Brock: Everyone needs to really… Next week we’ve got a phenomenal guest that’s going to be on board. And that is Bob Coleman. Bob is one of the premier experts, if not the premier expert, in the country on small business loans. He’s got a book that has come out. He literally speaks almost every other week at some other conference about small business loans. He’s just that good. So, we’re lucky to have him on board. Everyone needs to tune in next week.
Patrick: Alright, so, Bob Coleman next week right here on the entrepreneur addiction podcast. So, for Brock Blake, CEO of Lendio, Dan Bischoff, Director of Communication at Lendio.com, my names is Patrick Wiscombe. Thank you for listening to the entrepreneur addiction podcast. We’ll talk to you next Monday. See you.
Cool Voice Guy: Making business loans simple, this has been the entrepreneur addiction podcast, helping you secure the capital you need, with your host Brock Blake, Dan Bischoff, and Patrick Wiscombe. Heard exclusively at Lendio.com.