Dashboard: The Real Problem with EIDL Money

[Music] welcome to another 21 hats dashboard I'm Lauren Felman and I'm here with Amy casar who is founder and CEO of multifunding Amy is an all-around expert on small business finance who has been a guest here many times welcome back Amy last week you may have seen the Wall Street Journal ran a story reporting that the fed's half a point interest rate cut had jolted that's the word they used had jolted the small business owners uh in this country into reassessing their plans uh the reporter found several owners who said that either because the cost of capital had come down or because their customers had more money in the pocket to spend they were looking to invest more in their businesses I wanted to pick up back up on a point that you made you were talking about how much of a difference a half-point cut would make in someone who's interested in in borrowing money to invest in the business I'm curious it just seems to me that if a deal makes sense if it makes economic sense if there's an Roi on the investment in Half Point probably doesn't make that big a difference am I right yeah I mean that's really the point Lauren so if you came to us two weeks ago and wanted to get a $100,000 SBA loan over a 10e anization to grow your business and then you came to us today today it's about $30 cheaper a month to borrow $100,000 or it's $300 cheaper month to borrow a million dollarss so in the big picture of things the number it's more of an emotional thing right now than a numbers thing now maybe people will get carried away by the emotion and be happy and excited about it that's so good but from a dollars and cents perspective uh it's not going to make all that much difference yet do you have a sense of how much the rates would have to fall for it to really make a difference well again I've always been super hesitant as you know to call or predict what's going to happen in the economy I didn't mean to suggest that you predict how much or when but just what would make a difference no but I think rat two to three points will really from a dollars and perent perspective make a difference and that's not going to happen overnight but is my sense that if what I see going on in the small business Market is right and there's this domino effect of a lot of Co cash running out and the higher inflation that to Spur small businesses and their activity and stabilize many of them if that is in fact a priority for the feds as I think it will be uh rates are going to have to drop a lot fairly quickly in my opinion got it um you know all of this points out something that I think has confused a lot of people which is you know if you read the mainstream business press uh the macro picture of how the economy has been doing has been pretty good um you know there there are always things to worry about there are always concerns there are always possibilities but by and large it hasn't been bad but when I talk to business owners and I think this is true of you too when you talk to business owners you get a very different View and I think that there seems to be a discrepancy between the macro economy and the small business economy is do you think that's right I I think it's totally right so but it it also hits the smaller businesses first right so uh I think I wrote a cumn about this several months ago that I was starting to get a little anxious because I started to see some weirdness in the small business lending market and lenders pulling out and toughness or changes of credit criteria and that started to be reminiscent to me of like 2008 that's not a good thing yeah and if you look at the patterns now it's usually the smaller businesses um who've got less um less um strength start to get hit first and it's not all businesses and there are plenty of businesses out there that are still doing fine but there are plenty of businesses out there today that are struggling and the difference here between 2008 and now is 2008 was driven by other issues but here you have a lot of small businesses that got bolstered with Co cash in the last couple years and now not for all of them but for many of them that Co cash is gone and that it's not getting replaced and that certainly I'm not sure anyone knows how to deal with that I think we are going to see a a decent amount of bankruptcy in the small business space and Entrepreneur Space over the next year or two I think what you suggested in that uh column you ref referring to is that there are a lot of businesses out there that got used to having the what you refer to as the covid cash where it whether it's uh a loan that they got um an eidl uh or a PPP loan or whether it was just because their customers um were supported by covid cash and had money to spend and that money was drying up um and they the the the situation I I guess if that money had been used to build the business or improve the business it would be one thing if the money is has just been used uh for General operating purposes and then stops coming in that's the problem you're referring to yeah so but again I've always argued and this is a lot of my beef with a lot of changes that this SBA Administration has made and a lot of underwriting criteria trying to make it much simpler and faster for people to get an SBA loan without going through a proper cash flow analysis is that if you give a small business owner or an entrepreneur more money than they can afford to pay back or at once there's a really good chance they're going to screw it up so with the covid idle money specifically when we were giving large trenches out of it um during the end of the pandemic to many businesses without proof of economic injury many people suddenly had more cash in their bank account than they would ever have dreamed about and they didn't have to start making interest payments for two or three years and some of them spend it fraudulently and I have uh no empathy for them but many of them just went along about trying to invest and grow in their business but suring in a maybe in a bit of a fat and lazy way because suddenly they had all this cash that they had never dreamed about so as an example I spoke to an entrepreneur just earlier this week who got a $2 million Idol and now the payments are due and he's almost out of cash and when you asked I asked him how much his loss was last year it was about $650,000 and when I asked him how much money he thinks he's going to need to get to break even in his business his answer was he's not sure somewhere between half a million and a million dollars and that's a very scary place to be in because now he has a $2 million IOU to the US government he would have in order ordinary times and I don't know if his business was hurt or Not by covid never in a million years in a regular loan being able to borrow two million bucks but that money gave him a full sense of security that sadly will be very very hard for him to work his way out of what would have been the right thing for him to do with that money well the right thing first of all would have been for the government not to give it him that much okay that's a side story but um I always say if you borrow money and you're going to invest it in your business do it with a carefully calibrated plan and significant financial metrics as to what it is you're trying to accomplish um and if you and check yourself against it and don't spend it all at once okay so I'm not sure exactly what this guy did and with his money and how he used it but and maybe his plan didn't go to plan and maybe he had a plan it just didn't work but there are so many stories like that now it does seem in this guy's case he put it into his business it wasn't fraudulent you're saying it wasn't fraudulent um but and there are plenty of fraudulent cases but really Ian there a bigger question of was his business he been hurt by Co which I don't know the details of so seems like it might have been a violation of the principle of the idol program but there is so so much of that is what you're saying here Amy that the big difference between the covid cash loans the idol loans and a more typical situation is there just has never been an opportunity to get money like that without a rigorous plan that in a normal situation you have to go to a bank and tell them what you're going to do with the money and you've got to back it up and be prepared for a lot of tough questions whereas in this case there were no tough questions 100% so I'm going to make a guess that if that guy had come to me for a conventional SBA loan at that time he he he might have been lucky to get a couple hundred thousand doar on a 10year note and the lender would have that would have all been based on his ability to pay back the loan and he would have had to start Mak his payments right away and he would have had to present a business plan as to how he was going to uh pay back the loan and that would be responsible and prudent lending and maybe his plan would wouldn't have worked but he would have had $350,000 which was clear that he could afford to payback he probably got here six times that much money now on a less aggressive payback schedule but suddenly he felt quite rich and happy especially because he didn't have to make p payments for two and a half years that's really interesting I hadn't really thought about it that way previously it's kind of like we've run an experiment here you know what happens if you inject a bunch of businesses with more money than they need yeah and I don't think the story is going to end well for any for not for most people well let's talk about something a a little bit more positive which is the column you've written that we're going to publish at 21h hats.com uh later this week and that's your acknowledgement that times have been turbulent and tough and difficult for a lot of businesses but that even in really difficult times there can be opportunities tell us about that I mean that's totally right so it's important and I think talk about in the column about running businesses like running a football team and any good football team uh really only works without a good off well only works with a good offense and defense and it's super important to realize and recognize that all these turbulent Economic Times were in also create opportunities for your company you might be able to buy a company really cheaply or a competitor could go bankrupt or or you might be able to pick up really good talent that you would never been able to get before or um there might be new opportunities for new service lines or products in your Market uh maybe at different price points or different things based on differing consumer habits or patterns so it's you kind of have to look at the world through both lenses you certainly have to play defense and worry about costs and and expenses and overhead and all that that's one thing but you also have to look out there and say what are the opportunities here have you seen any opportunities for multifunding oh I totally have I think one is economy related and one is not economy related but um we will um we manag to add an incredibly talented s A lender to our team um that whom I don't think we could have got picked up in a different economy and he's starting next week and I think he will be a great addition to us and I'm not sure we would have got him a year or two ago in a different market and so that's on one side now we're super excited we're going to be launching in the month with a new banking partner Lauren and I'll be excited to share the details as it comes out um but as you know I've been trying to uh launch a suite of products banking services for entrepreneurs for two and a half years and I'm in a state of delight and disbelief that um I family pound a partner that we're going to do that with in 11 states which is where they are presently active and we will launch that at the end of October at the EO conference eccentric conference conference in Fort Worth and I'm really excited about that as well now that opportunity is uh not related to the economy per se but um it's just fortuitous that I found it during you know pretty tough time in our business the last couple months that sounds great I hope you will share the details in your 21 hats column it'll be coming up I promise all right amasar is founder and CEO of multifunding which helps businesses with their financing needs thanks for taking the time ammy laen it's my pleasure and my friend always and have have a good one have a great week everybody [Music]