While some are reporting that big banks are approving more small business loans than they have since the 2008 recession, nearly 80 percent are still denied. Today I’m going to share with you a short Q&A session I was privileged enough to have with Jack Jeter of Arca Funding about the state of small business financing.
How did Arca Funding get started?
Before I started Arca Funding I had a credit card processing company based down town off of Wall Street. We focused primarily on saving people money on their processing but we had relationships in place to provide financing for our merchants if needed. During the great recession in 2008 banks stopped lending to everyone especially small businesses. Lines of credit dried up and it became very hard for businesses to get any type of financing. We had a large pool of clients that would contact us regularly about our funding programs. I saw right away that we were uniquely positioned to help businesses where no one else could. I started Arca Funding as a way to focus on these financial products and use my experience and knowledge to help businesses all across the country. We helped many businesses survive the worst economic climate of our lifetimes.
What would you say is the biggest challenge for small business owners looking for financing or investors? What mistakes do you see being made most often that they can avoid?
I think the biggest challenge to small businesses owners these days is knowing when to take on an investor or financing and when not to. I see a lot of business owners over leveraging themselves, with no clear end game. It think it’s important for merchants to work with a partner or banker that will not only make sure that their immediate cash flow needs are met, but that they aren’t being undercapitalized or over leveraged in the process. Many brokers out there are selling products that aren’t necessarily in the merchants best interests. At Arca Funding we work with merchants to really understand their needs and their business so we can create a long term strategy with multiple options.
There’s no shortage of different financing products and services out there, but always finding one that fits the business isn’t easy. What would you say to business owners that feel overwhelmed by this?
The best advice I can give is to be careful who you apply with and/or send your paperwork to. Unfortunately there are a plethora of brokers who are calling businesses off the hook. Most of these brokers don’t have the relationships or critical experience needed to best serve their prospective clients. They invariably end up brokering out the merchant’s application to ten different lenders with identical products, looking to see which one will pay them the highest commissions. The unintended, but catastrophic result, is the applicants personal credit gets destroyed. I’ve seen borrowers who were working with multiple brokers and had over two dozen credit pulls. Needless to say besides seriously effecting your FICO score this looks very bad from an underwriting standpoint. Being a direct lender allows us at Arca to streamline the process and prevent a lot of this type of overlap. This not only helps merchants protect their personal credit scores, but we can typically cut down the full underwriting process by over a week. It is not uncommon for us to get merchants funded within 48 hours.
Big banks are very often hesitant to provide the help that small and medium sized businesses need. Why and how does that tie into what Arca Funding offers?
It’s no secret Bank’s aren’t lending the way they used to. Those who do qualify often times have to put up their own homes or other significant assets as collateral. That’s a big commitment for a small business owner who has already risked a lot of himself financially, and otherwise, to be an entrepreneur. Although these loans typically have the best rates, it’s not always the best option. I have spent a lot of time seeking-out and developing relationships with lenders and investors across the financial world. This allows Arca Funding to offer truly out-of-the-box solutions to all of our clients.
Is a business owner with not-so-great credit just out of luck?
Absolutely not. We’ve provided financing for merchants with sub 500 FICO Scores. We understand how difficult it can be to be a business owner. Our experienced team of underwriters look for merit in the applicant beyond their credit. I am pro business, I like to look for reasons to fund rather than not too.
Crowdfunding and business competitions may be non traditional ways to fund a business, but they’re rapidly becoming mainstream. What’s your thought on this? Are they a viable way for your typical small business to get financing? Why or why not?
Crowd funding is an excellent fund raising tool for the right entrepreneur. The potential down sides are they can be labor intensive, high fees, and when all is said and done you may not hit your funding goal. I don’t see this as a realistic source of immediate working capital just yet.
What kinds of businesses borrow from Arca?
We’ve really opened up our funding guidelines to include every type of business in the last few years. Recently we’ve been funding a lot of major government contractors and manufacturers, but we still do a lot of large restaurants and retailers, which is where the industry started. As a whole we really excel at funding larger business. We have an average loan size of more than double our competitors, but we treat every client with the same level of care and diligence. Our incredible customer service is something that I take great pride in.
Can you elaborate on Arca Funding’s business model?
Originally when I started Arca Funding we were focused on providing Merchant Cash Advances to merchants with consistent credit card processing receivables. Getting them the best possible rate on a single product. Today we offer everything from Term Loans to Sale-Lease Backs. Our model has always been to help our merchants meet their financial needs in a way that is sustainable for their business. To provide the highest level of care and transparence while working as a team to help our clients reach their goals. At Arca Funding you don’t just have a banker you have a consultant and a friend.
Is there anything else you’d like to share?
It is incredible how far this industry has grown in just the last five years. I think a lot of merchants who had bad experiences with other funders or brokers in the past would be surprised with the level of professionalism and the low rates that Arca Funding can provide.