This guest article was written by Kanishka Khanna, a risk analyst for BlueVine, where he oversees a portfolio of thousands of small and medium-sized businesses. Coming from a family of entrepreneurs, Kanishka believes pure grit and access to working capital separate small business owners from giants of industry. He subsists almost entirely on California burritos and New York style pizza.
I love my Monday morning commute. It’s a strange thing to say since we know millions of Americans suffer the Monday blues.
But it’s true: I eagerly wait for those 45 minutes with a certain childlike glee. And the reason is a podcast program called How I Built This. The show features interviews with successful entrepreneurs and the path that led them to success.
I enjoy the show partly because work that I do involves helping entrepreneurs succeed. I’m a risk analyst for an online business lending startup.
It’s exciting work mainly because I get to help small businesses wrestle with a typical challenge: plugging financing gaps. Fast and flexible working capital is so important for young, growing businesses. Where I work, we pivot, hustle, we try to be creative.
On Monday mornings, while listening to How I Built This, I reflect on the role I play in helping other creative, daring and hard-working entrepreneurs succeed.
I’m hardly in the minority when it comes to wanting insight into the success of rock star businesspeople.
Understanding the origin stories of wildly successful businesses has become a national pastime with movies like The Social Network or Jobs storming the box offices over the years.
However, the examination of Facebook, Apple, and their ilk is often limited to the story of the initial “Aha!” moment, the meteoric rise, seemingly insurmountable hurdle, and the final tipping point.
In fact, hidden in the shadows of those archetypes are the small but brilliant decisions that help ensure the survival of these then small businesses.
One Monday, I listened to Airbnb’s Joe Gebbia musings on selling re-branded cereal in a politically charged environment in order to make business credit card payments.
Another week, I heard Richard Branson describing how he once had to physically push his banker out of his house when confronted with imminent shutdown on the weekend of Virgin Airlines’ launch.
Even Gordon Segal of Crate & Barrel failed to find an investor for his first $10,000 order. The industries and stories mentioned are widespread, the commonalities are simple to spot—when confronted with the need to finance their ideas, these dreamers had to hustle, pivot, and become creative.
I’ve worked with small business owners who’ve also had to hustle, pivot, and become creative, especially when it comes to an important aspect of running a business: money.
During my tenure as an underwriter, applications from thousands of such dreamers have come across my desk. I’ve learned that while not all small businesses are alike, their struggles often are.
Specifically, I’ve seen owner-operators celebrate their first big order only to realize that fulfillment requires capital they don’t have. They come in as perfect fits for a line of credit. In other circumstances, they are able to fulfill the order without outside help but can’t afford to pay their employees until the invoice is paid in 30, 60, sometimes even 90 days.
Waiting weeks, even months, for a customer to pay you back can be a huge problem. Having a business line of credit or a term loan would certainly help.
Getting a cash advance on an invoice, a system called invoice factoring or invoice financing, also helps entrepreneurs keep their business functioning and their employees happy. I admire these dreamers because they aren’t afraid to ask for help, and they recognize that an outside financing partner is the surest key to success.
Of the thousands of cases I’ve reviewed, financing, or lack thereof, was almost the final nail in the coffin.
This problem is usually rooted in the rusty legacy systems and thought processes of banks.
When a small business owner walks into their local branch looking for financing, they’re confronted with the mountains of paperwork, red tape, and runarounds seemingly designed to slow down the process.
The banks want proof of prior success in heaping mounds—it’s their finest attempt at bulletproof risk management. But any small business owner can attest to the fact that at this time of need, the success is around the corner and time is of the essence. In 2017, the solution for these small businesses has to be, and is, superior.
This is where fintech is changing the rules and creating new paths for aspiring business owners. I work for a company that has made access to everyday funding easier and faster. (You can check out this guide we published on small business loans and financing.)
A year ago, I reviewed a staffing agency that provides personnel to large retail brands to staff their floor on a seasonal basis. When we originally onboarded the business, it was catering to one large customer. After being introduced to the factoring product, I’ve watched as their cash flow has grown 38% over the past year and their business could expand to support three major customers.
On the flip side, I’ve seen a seemingly solid wholesale business fall apart because they didn’t understand the seasonality of their product and how leverage would affect their cash flow. As they pushed to grow with increasing debt obligations, they did not weigh the consequences of having just one major customer with whom they did business for a three month period every year. The operator didn’t recognize that financing is a tool: a scalpel, not a hammer.
Ultimately, the slow season dried up cash flow and the business was unable to meet their payments. Today, they are working out their outstanding debt.
The stories I’ve listened to week after week and those I see on a daily basis have financing as a hurdle to success. But increasingly, thanks to fintech, it is an obstacle that has become much more manageable.