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Entrepreneur Addiction Episode #3
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.
This episode has a special guest in Bob Coleman, author, frequent guest on Fox Business News, and one of the premier experts in small business lending for the last two decades. He talks about:
- Optimism for small business
- Applying for loans now vs. 5 years ago
- How important is a good credit score?
- SBA vs Conventional Loans.
- Surprising economic success of government spending
- How young entrepreneurs can have success
- Shocking small business stats
- Real-world MBAs
Click below to Play.
Go here to download on iTunes. Click to download the mp3
If you can’t listen to the Entrepreneur Addiction Podcast, 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. Good morning. My name is Patrick Wiscombe. Thank you as always for tuning us in and taking us along wherever and however you’re accessing the podcast. We’ve got a very special guest this morning. Not only is Brock Black here, the CEO of Lendio, but we also have a gentlemen and author of a book called Money, Money Everywhere But Not a Drop For Main Street: Ten Things You Need to Know to Get a Small Business Loan Today. Bob Coleman author of the book, I understand you’re in San Diego this morning.
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Bob: I am, Patrick. Thank you very much for having me on your podcast. I’m looking over at the bay, so it’s a rough duty, but someone has to do it.
Patrick: Well, San Diego is one of my favorite places to visit, and especially where you’re staying, I can’t think of a better view.
Bob: I am here speaking to small business development … if you’re listeners don’t know about those entities, they should get to know them very quickly. They are great nonprofit companies that are normally associated with colleges, and they provide a wealth of information, primarily for entrepreneurs in the very early stages.
Patrick: If people don’t know who Bob Coleman, and I know I’m speaking to a very small audience, because there’s a lot of people who do know Bob Coleman, tell us a little about what you do and how long you’ve been associated with small business lending and anything related to money.
Bob: I started right out of college back in the seventies in Southern California as a small business banker, and about twenty years ago I started a newsletter for small business banker about what’s going on in small business lending. And that’s my niche, that’s my passion, I deal with bankers, and we talk about… capital on Main Street. I know that sounds strange, but that’s what we do, and there’s a lot of satisfaction in watching these companies grow.
Brock: You know, I’ve known Bob for a really long time, and he’s the premier expert in the small business lending space. We are very lucky to have him on-board. You know, Bob, you’ve got your daily newsletter that goes out, that I’ve subscribed to for a long time. In fact, I recommend that others do it as well. It just talks about what’s happening in small business lending, and this morning when I woke up and saw on the newsletter some interesting news: Wells Fargo is announcing they’ve putting out about a billion dollars out onto the street via the SBA 7a loan program. And I think that’s the very first time any lender has put a billion dollars out on the street in one year. You know, it seemed like a nice milestone for Wells Fargo.
Bob: Yeah, Brock … I’ll give you another interesting statistic. If you read this months INC 500 issue, SBA has always been criticized that it doesn’t do that much. It’s a small portion of the small business financing market. 6% of INC 500 companies started with an SBA loan. Only 4% got a conventional loan. So, SBA financing has become very, very important to the entrepreneur. And I’ve got to put in my one thing on this: I know there’s a concern about government, about what’s happening, and about what these programs cost, but just remember this, SBA didn’t need a bailout. The program pays for itself from fees from both the bank and the borrowers.
Brock: You know, that’s a great point, and I’ll put in a plug. We were one of those companies on the INC 500 list this year…
Bob: Congratulations! I didn’t realize?
Brock: Yeah! Thank you. So, second year in a row, but we were one of those 6% of companies that actually received an SBA loan to be able to help us get started. So, I have a personal affinity for the SBA. We talked a lot about the SBA last week to try and correct some of the misconceptions that are in the market about that government program.
Bob: Well, and also for your listeners, for the entrepreneurs, they have streamlined it so much that this is not your father’s SBA. It really is a bank loan, and there’s a couple of other things that you have to do. But it’s a bank loan, that’s all it really is.
Brock: Bob is out speaking regularly, nationally at conferences talking about what’s happening in the market. So, maybe first let’s start off on, “What are you seeing in the market right now as far as small business loans?”
Bob: We go back to what you originally said, Brock, about Wells Fargo. There are lenders that are lending. No lenders has hit a billion dollars in this niche. There are a number of community banks that have stepped up throughout the country. We read about these larger banks that are constrained by regulators, who are constrained by capital concerns that they can’t get the money out. We read about the small business lending funds through treasury that the banks aren’t accessing. So you read those dire stories, and then on the flip side there are companies that are lending to entrepreneurs who are proving to the bank that they have a solid concept, and that they are providing quality and great services for their Main Street customers. So, I’m optimistic. We are certainly not at the bottom of the trough, where we were a couple years ago. And we’re coming out of it. And yeah, there’s going to bumps and highs and lows. But there are banks, primarily those community banks, that are lending money to Main Street.
Patrick: Give us the state of the industry as it was back in 2008. What is the basis of the book? Why did you write it?
Bob: I wrote the book because I wanted to address the fact… the very simple issue of how you get the unemployment down. We’re at 9%. Everyone agrees that that’s too high. It’s a bipartisan issue. This is not a political statement. The way to get that down is to get capital to Main Street, to small business. Small business creates two-thirds of all the jobs in the company. It’s very difficult when you’re at a 9% unemployment, and that local restaurant has had their revenues drop because people aren’t coming in and ordering food. So I wanted to address the issue of, “Hey, this a big concern!” But if you’re that Main Street entrepreneur in today’s tough times, there are ways to navigate through the choppy seas to be able to get a loan. Let me give you one more interesting fact, Patrick: 25% of my subscribers lost their jobs in 2008-2009, small business bankers.
Bob: Yeah, and that’s scary. A lot of those have come back, but the purpose of the book is very simple. I’m an entrepreneur. I survived the Great Recession. I’m a lot smarted than I was five years ago. The banks aren’t talking to me, and I just lay it, “Banks are lending, and this is what you have to do.”
Brock: Well, maybe let’s just dive a little deeper into that. You know, from our perspective at Lendio, that’s kind of the way we see it as well. The market is at a good timing right now for the small business owner. Banks are lending and are anxious to grow their lending portfolio. Yet, at the same time, they’re not just going to lend to anyone. They’ve gone through that mistake before. Let’s talk about if you are an entrepreneur or business owner, and you outlined some of these guidance and steps in this book. But maybe we can just dive a little bit deeper. What are the things that a business owner needs to do and focus on to make sure they’re prepared when they go in to talk to their bank or their credit union.
Bob: Very simple: They simply have to prove that they’re smarter than the management of General Motor, of Chrysler, of Lehman Brothers… (laughter), you know, so they’re not going to go bankrupt. You know, that’s obviously tongue-in-cheek, but how do they do that? They demonstrate two things to the banker: That, one, they’re passionate about what they do, and that they’re an expert in what they do. If you want to be a watch repairmen in Yuma, Arizona, you have to demonstrate two competencies: You know that Yuma market cold, you know your competition, you know the demographics, and you are passionate about repairing watches. Those are the two initial hurtles that bankers want to see.
Patrick: What about financial position. Let’s just say you have a terrific business idea. Let’s say that your credit is, oh, okay. Is it a possible to get a loan if you’ve just got this killer idea, but maybe your personal finances aren’t that great.
Bob: Everyone’s credit score is down. Every entrepreneur has had credit line slashed. Revenue are down. Profits are down, if they’re is any profits at all. Of course, the banks are going to be looking at the financial statement. You have to have the financial statements. Bluntly, if it’s a start up, you’re going to the three F’s: Friends, Fools, or Family. That’s where you’re going to get the financing. In fact, Brock, 70% of the INC 500 companies started that way, with friends or family.
Bob: So, you have to have the financials. What the real problem is, are the companies that have been around for ten to fifteen to twenty years that can’t get the financing. So, you have to have the financials to support what you’re doing. Absolutely. And a lot of companies are hunkering down. But there are certain things you can do in terms of preparing, and one of the simple things is simply talking cash flow. Accelerated the cash that coming into your business, and manage that. That’s what all the Fortune 500 companies are doing, and that’s what small business has to do as well.
Patrick: How does a company accelerated cash flow? I mean, I understand you can make more sales. But are there certain techniques that can be used to accelerate cash flow, or is it just that you have to change your mindset?
Bob: It’s good management. If you’re a retailer, shorten up that inventory. If you are… in today’s environment it’s very, for a small business person, it really doesn’t make sense for you to be the bank. Get those credit card numbers, and I have a very simple quote in the book, “If you have your accounts receivable in the form of cash sitting in the bank, you will be sleeping better at night.”
Patrick: (Laughter) That sounds pretty basic. (Laughter)
Bob: This isn’t rocket science. What it is, is we’re demonstrating that whether you’re the banker sitting across the desk or you’re the mainstream entrepreneur, we’ve all got a lot smarter in the last five years. We’re running our businesses better. We’ve have much more access to information. I know, Brock, in terms of what you guys are doing using the internet and databases’ information to accrue much better lenders. And the industry’s moving in that direction.
Patrick: In your book you talk about the new bank lending model, and the new small business lenders. Tell us a little more about that.
Bob: What lenders are finding out that is small business lending is a profitable niche. It’s a product no different than if you’re selling high-end lobsters or quick service tacos on the back end. And lender have found out that small business lending can be profitable if done correctly. There are a number of lenders that failed. Brock mentioned that we have Wells Fargo being the first billion dollar lender in SBA. If you go back and look at the numbers five-six years ago, five of those top SBA loan businesses are out of business. They went bankrupt. They got absorbed. They have a worse track record than Main Street. So, lenders have become smarter in term of how they do business, and it’s very important for the small business owner to understand that. For example, five years ago you walked into the bank, you shook their hand, and you started from there. Even before you walked in to that appointment, your banker has already Googled you and will find on the internet who you are. So, right there you have to become savvy at social media, and savvy on how to protect your name on Google. You didn’t have to worry about that five years ago.
Brock: Bob, from your perspective, how much does a persons credit score play in to getting a loan.
Bob: Everything’s important. Credit scores are important. If you have a bad credit score, bluntly, you’re not going to get a loan. Don’t even waste your money with the credit repair people. If you have a bad credit score, you can over time fix it. And some of these strategies there are no quick fixes, but everything’s important.
Brock: Last week we talked a lot about the SBA and the various loan programs. Maybe, from your perspective, can you outline the difference between an SBA loan and a traditional loan or conventional loan.
Bob: That’s interesting because when you say conventional loan, part of the new lending models are, there are new products. For example, you can go out and get a loan based upon your expected credit card receipts and pay them back daily. That model wasn’t around five years ago. There’s a lot of different conventional products. I would say the biggest difference with an SBA loan over a conventional loan is, that an SBA loan can go over a longer term, you can pay it back seven, ten, fifteen year. The interest rates are going to be competitive or comparable, maybe a little bit lower. I would go to sort of big picture. For the entrepreneur there was not that much of a difference. Don’t be scared of the horror stories you hear about the amount of paperwork that SBA financing needs because in reality you have to provide that same paperwork for a conventional loan.
Brock: So there’s been a lot lately in the press about the government initiated small business lending fund, this $30 billion fund that they are using to be able to deliver capital to lenders who are able to put that capital in the street. Can you talk to us a little about the small business lending fund and your opinion on whether it’s working or whether it was the right move or your opinion overall.
Bob: Yeah, not to get too technical — A, it was the right move. B, the reality is it’s too expensive. C, the bank can go to the Fed and borrow the money at what, a quarter of a percent or half a percent, they don’t need it. So, it’s not a negative, it’s nto a positive, it was a good idea. But these banks are saying, ‘I don’t want to borrow the money and pay the government 3% or 1% when I can go to the discount window and pay a half percent. And that’s really all it is.
Brock: And I think the data is backing that up because they said they were going to set aside $30 billion, and now a year into it there’s only been $1.8 billion, so not even close to the 30. That program is I think, coming to an end. It was a certain year timeframe. It’s showing a lack of demand as you’re saying from the banks.
Bob: Yeah, it’ll be interesting to see what happens. Let me give you one more statistic, Patrick not to overwhelm your people. And again, I’m not a partisan person. The issues facing our country are going to be solved with bipartisanship and I’m not going to take sides, but we all agree we have to get capital to Main Street. But here’s the issue: we had a stimulus program that waived the fees for the borrower, which put money into the borrowers pocket instead of writing a check to the government so they could hire people. And induced the banks by increasing a guarantee from 75% to 90%. The industry did %10 billion worth of loans in the first quarter of 2011. In the last 7 months we’ve only done $7 billion. So that stimulus, which was a very low cost to the taxpayer, the amount of jobs created by that more than paid for the program simply through what the employees are paying through taxes. So there we have a microcosm of what is happening and how to stimulate the economy. So there, that program worked.
Patrick: Did I just understand you right that this stimulus did do something right.
Patrick: Because the perception out there is there is $700 billion in waste.
Bob: When you’re talking about bailing out Wall Street, I am not about to get in and defend that part of it (laughing)
Patrick: Oh. OK, alright, sorry.
Brock: Bob, so you’re just talking that there’s a sliver of that stimulus that was focused on SBA lending.
Patrick: Alright, sorry, wow. I didn’t mean to lump that whole thing together. I was like, did I just hear him defend that? (laughing)
Bob: Well, I thank you for clarifying that, because I don’t want to be the defender of the Wall Street bailout (laughing). But what I was saying is that in part of the mini observations, the part that went to small business lending worked. It absolutely worked. And when you compare $200 million to $700+ million, there’s no comparison.
Patrick: I’m glad we had that slight clarification there. Now, how come we don’t hear about the good things that worked? It seems like everything gets lumped in together and that’s why I made that comment.
Bob: ‘Cause a lot of it hasn’t worked when you open up the paper and look at the unemployment number. That’s the bottom line. The government has smart people on both sides of the aisle, we all agree that we want unemployment down, but unfortunately most proposals simply haven’t worked.
Patrick: Are there any businesses out there that just wow you with what you’re seeing and the product or service they’re coming out with?
Bob: I’m a fan of tracking technologies. I love reading about what’s going on in Silicon Valley in terms of what these people are coming out with.
Patrick: Any in particular. When I hear Silicon Valley, Apple comes to mind.
Bob: I think it’s not necessarily a company, but talking to individual entrepreneurs and how they are adapting and taking advantage of new technology. In seeing very good management practices. You can go to something as low tech as my dry cleaner. He can see you in the parking lot, and first of all he talks to you and memorizes your phone number and when you come in your clothes are hanging on next to the cash register ready to go. You see more and more best practices where these entrepreneurs are truly renaissance men and women. They have to know marketing, social media, accounting, HR, and they’re doing it very well, and that’s exciting when you’re talking to entrepreneurs across the country.
Brock: Bob, I want to give a quick shoutout to your newsletter and some of the content you guys produce, your webinars, underwriting guides, things like that. If I’m listening to this podcast, where can I go to learn more about Bob, about your stuff or sign up for you newsletter?
Bob: Well I appreciate that very much. ColemanPublishing.com or just Google my name “Bob Coleman”
Brock: I was out in the LA area and we shared a breakfast a few weeks ago, and Bob is just one of the good guys in this space, and not only is he a premier expert and people want to speak to him all the time, but he produces great content and has a great book. We appreciate you joining us on this podcast, we’re very lucky to have you today.
Bob: Well, you’re more than gracious for saying that, I appreciate the kind remarks.
Patrick: Again, tell us what you’re doing down there. Who else is appearing on the panel?
Bob: We’re appearing with a number of other lenders, a gentlemen named Bruce Thompson, he’s the executive director for an organization for SBA 504 lenders, Frank Dinsmore a 504 SBA specialty, David Nayer. We’re talking to small business development companies taht work with entrepreneurs throughout the country. They will sit down with you, they will guide you.
Patrick: If you have one piece of advice for anyone listening to this podcast, you mention renaissance men and women that have to do multiple things, they have to know it all, if someone young is listening to this podcast that loves business, if there’s one piece of advice that you could give them, what would you tell them to do?
Bob: If I was a young person, I would get myself involved with a networking/mentoring type of club. There all over the country, associated with small business development companies. There are several of these clubs that will come together and focus on your business plan and what you want to do, and you’ll talk with people who have done it. I like to say that I have two MBAs, I have an MBA from USC and a real world MBA that cost me thousands of dollars from the mistakes I’ve made. You will find out that business owners that are passionate about what they do, talk to them. People love to share ideas. There are no secrets. Talk to them, it’s all about execution.
Patrick: Bob Coleman, man I can’t thank you enough. It’s an absolute thrill for me personally to talk to you. You had no idea that I was a Coleman Report fan, and a Bob Coleman fan. I sincerely appreciate your time on the Entrepreneur Addiction Podcast.
Bob: Thank you, thank you very much.
Patrick: Tell everyone where they can pick up your book “Money Money Everywhere But Not a Drop for Main Street.”
Bob: Come to ColemanPublishing.com or just Google me at “Bob Coleman” and through “SBA” after that and you’ll come to my website and get it there. We’ll get it on Amazon soon, but we’re not there yet.
Patrick: OK, ColemanPublishing.com, pick up his book there. Bob Coleman, author of “Money Money Everywhere But Not a Drop for Main Street” and a frequent guest on Fox Business News and a lot of the money related stuff. Aren’t you part of Wall Street Journal there, I think I’ve see you there, too.
Bob: I’ve been fortunate to be quoted by a lot of organizations, so that’s fun. What’s fun for me is I get to talk about small business and I get to talk about my passion.
Patrick: Alright, Bob Coleman, our guest on the Entrepreneur Addiction Podcast, so we’ll wrap it up there.
Brock: Thanks for joining us today, Bob. We got to get you out to Salt Lake City soon. I’ll treat you to breakfast.
Bob: Well, thank you. But it may take me awhile because I’m really falling in love with San Diego and looking out over the bay.
Brock: Hey, we don’t have the beach but we have some pretty nice mountains.
Patrick: So for Bob Coleman, Brock Blake, CEO of Lendio.com, be sure to check out his website if you need a small business loan. So for Brock and Bob, I’m Patrick Wiscombe, we’ll see you next week.
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.