Today, I’m starting a two-part interview with Joseph Lizio, CEO of Business Money Today. Through my solopreneur consulting and participation in online business forums, one of the top topics for discussion is “How can I get money to start (or grow) my small business?”
My focus here at The Solopreneur’s Guide is helping people with finding the right business idea for them; helping them start, restructure and grow their small business. Finance, I leave to other pros. And as you will see from his insightful answers, Joseph is the person to talk to regarding this issue.
I broke the interview into two parts because although I had only 10 questions, Joseph provided a wealth of information.
DD: What is your professional background and what inspired you to start Business Money Today?
JL: I have a MBA in Finance and Entrepreneurship from the University of Oregon as well as a BA in Business Administration from Lewis and Clark College in Portland, Oregon. I have spent the majority of my career in commercial lending with organizations like Silicon Valley Bank and Wells Fargo Bank. I even held a position as a bank examiner. Further, after graduate school, I spent some time as a Senior Financial Analyst with Intel Corporation.
In my last position, prior to starting Business Money Today, I was the Executive Director of a Business Incubator in Texas. It was here that the ideas for Business Money Today began to materialize. One of the hardest issues we had with our incubated businesses was finding them capital sources. Thus, in my research for traditional and alternative business financing sources for my clients, I gleaned a tremendous amount of knowledge about different financial resources for businesses regardless if they were start-up or established entities.
DD: When did you start Business Money Today?
DD: I still hear from quite a few people trying to start a small business that they are struggling to get approval for a loan or find investors. How would you describe the financial environment for small businesses today?
JL: Most financial gurus or those that think they understand business financing will tell you that this is a hard market. But, that is not entirely true. Yes, it may seem harder to find funding today than it was a few years ago, but, the financial industry has really just reverted back to where it should be – a return to equilibrium.
Accessing capital should be hard for new businesses – those without a track record or adequate collateral or cash flow. The reason is not that it protects the banks and their depositors or investors but it is good for new entrepreneurs to struggle a bit and find unique and innovative ways of overcoming their own obstacles instead of just throwing money at a problem. Not only will this struggle make the entrepreneur a better business owner and manager, but it will help the business be better positioned to weather any future storm that may materialize – like another financial crisis.
Businesses that understand how to operate lean and mean (even during good times) are the ones that will survive the next financial disaster, as well as be the company that squeezes the most out of the assets and processes that it employs (that is the goal of business – to generate the greatest return possible for the set of assets the business has to deploy and as a note, cash or capital is just an asset to used in a business – it does not make or break a business).
DD: Do you find a common mistake or assumption that most small business owners make when they are trying to get a loan or other lines of credit?
JL: There are really three common mistakes that business owners make when seeking capital. The first is the assumption that they only need an all-inclusive loan – one loan that they can use to buy equipment, pay rent, use for working capital or to pay employees. The error here is that not all capital (especially in obtaining that capital) is the same. One of the first questions that most bankers or lenders will ask is what are the funds for? This question matters because there are different rules for different uses of capital.
Think about this way – when you go out to play golf, you don’t bring a baseball bat with you even though that baseball bat can hit a golf ball. It is just not the right tool for the job – the same is true when seeking capital. Find the right capital source and type of capital for the job or need – example, short-term financing like lines of credit should not be used to purchase long-term assets or used for long-term needs – but, time and time again, new business owners waste valuable time and money seeking out a line of credit for all their financing needs because someone told them that was the cheapest way to go.
The second mistake most new business owners make is that their personal credit histories do not matter. But, it matters more than they think. If you have shown that you cannot or are unwilling to pay past creditors, then why would a future creditor think you can change? Plus, if you are unable to manage your own life and your own credit situations, then why would a lender think that you will be able to manage a business.
Further, most lenders are looking for the big and easy deals. Thus, one of the first things they do is credit screen. If you fail this measure – they move on and move on quickly as they don’t want to miss the next big deal fighting for your deal with bad credit – a deal that has almost no chance of making it through a credit committee or credit review.
The third mistake most business owners make is that they fail to understand the lender – be it a bank or private lender. Lenders look for two major items when approving a deal.
1) The ability of the borrower to repay a debt. That means, does the borrower have the capacity to repay (at time of application – not what they think they can make in the future). Thus, the borrower must have either personal or business cash flow to service the debt payments (NOW) or adequate collateral (adequate to the lender) that covers the entire loan in the case of default.
And, 2) the willingness to repay the debt which is simply shown by credit history. All the other stuff that people hear about a loan is really just fodder. If you are strong enough in cash flow and credit history – your banker or lender will go to the mat for you – regardless of the rest of the deal (provided it is legal).
DD: If someone was interested in starting a small business in the next six months to a year, and they were planning to apply for some form of funding, what should they start doing now to prepare?
Sorry to cut the interview short, but the complete interview is just too long to have in one post. I want to make sure that you absorb and remember the great insight that Joseph is sharing here.
To get the answer to the last question and more, check back on Monday for Part 2 of this series on funding for small businesses.
In the mean time, if you wish to learn more about Business Money Today or need their help with finding your small business funds, here is their contact information:
Joseph Lizio, CEO
Business Money Today
And if you need help with creating a business idea, performing marketing research, or creating a business plan, I’m here to help.
All the Best,
The Solopreneur’s Guide