Fox Business Networks Lauren Simonetti discusses small business lending options with Valcor’s David Sussman.
David Sussman: Good, Lauren. Thank you for having me back.
Lauren Simonetti: And just really quickly, can you tell us what Valcor is?
David Sussman: Well, we are a business restructuring firm; we are an advocacy firm that works with small businesses. We help them restructure our debts. We bring in capital acquisition. And we have over a 100 licensees throughout North America.
Lauren Simonetti: Yeah, and accessing financing, and David was really coy when I asked him about it earlier but, it’s hard. It’s hard to get the banks to give you the capital to expand or even to give you the capital to start. So what are some ideas that you have for getting money or alternative ideas for getting the capital that you need?
David Sussman: Well businesses need to be nimble in this environment right now. We are facing a trifecta… Nimble, very nimble. We are facing a trifecta of business problems right now, where are dealing with banks approving… At the end of October 2011, they were approving 48.5% of business loans that were being applied for. At the end of April, we’re down to 31.8%. So the banks may not be the best resource for small businesses. We find that we are dealing with, obviously, international conditions, as you were just talking about with the eurozone, we are dealing with the China slowdown, so manufacturing and factory orders are slow. Banks when they are taking a look at receivables and they are seeing that cashflow is really slow, which is the lifeblood for small businesses; they are not approving most of those loans. So small businesses have to find capital elsewhere. And there a lot of different alternative financing sources that exist out here today for small businesses that are looking for that capital to invest into the business and keep the business going.
Lauren Simonetti: Okay. Let’s go through, let’s go through what those sources are.
David Sussman: Well, alternative sources, really at first, need to focus on asset-based lending. As a business owner, what asset do you currently have that can be borrowed against? Are you looking at… What are your receivables like right now? Do you have money that is owed to you? You can actually finance on those receivables. Do you have commercial real estate that you could borrow against? Do you have equipment that could be borrowed against? Contracts and orders, work in progress – there’s multiple different options that are available for smaller business owner today that may otherwise not have an option with smaller banks.
Lauren Simonetti: We’re going to pull up a full screen that says asset-based lending options, commercial real estate; but I need you to… those two I get. But I need you to explain hard money lending and mezzanine financing. What are those two? Dave?
David Sussman: Well, hard money loan is basically a higher interest loan that is provided for small businesses today, that really don’t have any other options. It wouldn’t be my first choice to recommend a small business owner go in that direction because of the cost of those loans. But for some small businesses, they really don’t have another option.
Lauren Simonetti: Well, how high are the interest rates in some cases?
David Sussman: Well, they can range anywhere from 12 to, in some cases, extremely high, in the high 20% range. We are seeing a lot of those loans right now in the 15, 15-20% range; so yes, they are very expensive. Lenders…
Lauren Simonetti: Are there certain businesses that need that sort of loan? Or typically go for that sort of high interest loan? Do you see it in certain industries than others?
David Sussman: You have to look at it… Well, yes. A lot of industries right now are suffering from short cash flow problems – manufacturing, a lot of companies in construction, right now – have had their lines of credit reduced by the banks. So they need a short-term loan. And a short term loan can be six months to one year. Do not look at this as a long term for your prospect for yourself because it is very, very expensive.
Lauren Simonetti: Right, so you pay that 15, 20% interest rate for a set, short time, in and out and hopefully, you’re back on your feet (inaudible).
David Sussman: And that’s correct, and maybe… Yeah, and Lauren, what they’re looking at is they’re eventually going to get some infusion of cash flow from their clients, which may, haven’t been received yet. Wall Street Journal just reported that the time that small business owners are getting payment from their creditors is being increased dramatically. So people are waiting for that cash to come through, you can borrow against that cash.
Lauren Simonetti: I hear that so often that you have smaller players wait… they have the business; they’re just waiting months before they get paid, by oftentimes their clients, which could be bigger players in the industry. So it’s like you’re struggling to make payroll because you’re embarrassed to ask someone who owes you money – “Ahm, hi, remember I sent you that invoice. Can you follow through on it?” That’s a good point and that’s embarrassing for a lot of small businesses out there. Hey David, what’s mezzanine financing?
David Sussman: Well mezzanine financing, think of it as a second mortgage, if many people watching you today, have got a second mortgage on their house, because they were unable to get the full financing for their first mortgage, the banks weren’t interested in financing, let’s say – a 100 cents on the dollar. So they may get a loan of say 70%; the other 30% would be a higher interest loan. It’s a mezzanine situation and it’s a higher interest case as well.
Lauren Simonetti: What would you say to the fact that someone may say, “Well, strategies like this, kind of, in a way, got us into the crisis that we’re in in 2008 and 2009? It’s kind of like, if you don’t have the money, you shouldn’t be expanding; you shouldn’t be doing things when you don’t have the financing. Don’t play with money you don’t really have.
David Sussman: You’re absolutely correct…. Yeah, you’re absolutely correct when it comes to the consumer but when we’re talking about small business owners… Small businesses are the lifeblood of this country and it is what is going to get this country out of this… Quite frankly I think we are in another recession right now. And so small business… Absolutely it does, for many of our clients as well. Small businesses, when they go to the banks, and the banks take a look at their lack of cash flow; they take a look at their lack of assets. And if you have any blemish on your report, any at all in the past few years, they’re not going to lend to you. So, these small businesses need that cash so that they can go out and hire and reinvest back into their businesses; hire more people, expand. Do research and development and bring out more products. That is what is going to get this country out of this recession, if not depression.
Lauren Simonetti: Yeah, desperate times call for desperate measures and I’m just going to our chats right now. We asked… the question that we asked – do you use these alternatives, the four alternatives? And David Larson writes, “Not really. Some of these are more like loan sharks.” Well, short term fixes, but I guess that’s what some conservative thinkers, like my father, would say. Ahm, we have about a minute left, David. Can you share with us a success story of a business that you advised and they did something extravagant and it really made out extravagantly for them?
David Sussman: When we are talking about some of our clients, we have clients throughout North America. Our focus is to try and get conventional loans for our clients and to do business restructuring by reducing the debts that are owed as well. So just to answer David’s question really quickly, again we are talking about extreme circumstances and I certainly wouldn’t recommend anybody to start looking at hard money as a primary option. It’s really for when you have your back up against the wall.
Lauren Simonetti: Yeah, and you’ve made that clear several times…we appreciate that. Yeah, no, definitely clear.
David Sussman: Okay. As far as a success story goes – we are working with a client right now. We are restructuring a whole consortium of gas stations and convenience stores. This is a situation where the bank is looking to get their loans paid off. We’re talking about 50, $60 million here. And what we’re doing is, we’re wrapping all of their loans up into one situation. We’re reducing the debts that are owed to the banks by doing a takeout situation, by bringing in money from other lenders; and these are more conventional based loans, to buy out the loans at a discounted rate from the primary bank. Allowing this business with hundreds of employees, to stay in business. And obviously when you have hundreds of employees in the business, you’re talking about hundreds of families that are depending upon those paychecks, every single week to put food on the table. And so what we are seeing, by attempting some of these strategies, for some of our small business clients right now, we’re saving companies that are saving jobs. And for us, it’s extremely rewarding to see that, especially in today’s economy.
Lauren Simonetti: Yes, small businesses – the backbone of our economy, probably employ about half of American workers out there right now. David Sussman, thank you so much for coming on again, CEO of Valcor, valcorworldwide.com is your website. And we can find you on twitter at valcorworldwide and on Facebook.com/valcorfb. Thank you…
David Sussman: Thank you, Lauren.