Charles H. Green - Bankers Guide to New Small Business Finance: Venture Deals, Crowdfunding, Private Equity, and Technology

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CHARLES H. GREEN

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Copyright 2014 by Charles H. Green. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

ISBN 978-1-118-83787-0 (Hardcover)

ISBN 978-1-118-94086-0 (ePDF)

ISBN 978-1-118-94085-3 (ePub)

This book is dedicated to the tireless women and men who perform the detailed tasks required to deliver financing to small businesses. To all those lenders and brokers who engage in countless conversations, answer thousands of questions, and drive hundreds of miles, and whose work takes them to diverse places like dry cleaners, convenience stores, doughnut shops, mills, loading docks, funeral homes, dentist offices, manufacturing plants, highway motels, and every other door on Main Street.

An innovation that is disruptive allows a whole new population of consumers at the bottom of a market access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.

Dr. Clayton Christensen

1. Quality of Financial Information versus Loan Size
2. Common Loan Application Requirements
3. Sources of Small Business Financing
4. Small Business Financing Applications versus Approvals
5. Bank Funding/Loan Approval Cycle
6. Reasons Borrowers Seek Peer-to-Peer Loans (as of November, 2013)
7. Loan Migration over Nine Months (as of August, September, and October, 2012)

1. Small Business Size Standards
2. The Cost of 90 Days of Financial Chaos
3. Typical Merchant Cash Advance Scenario
4. Average Borrower at Lending Club (as of November, 2013)

My introduction to the real world of banking, beyond lofty finance courses taken in college, was found on my first bank office desk in a stack of pages filled with columns of blank grids, matched with an adjacent column of accounting terms on the left side of the pages. These papers were spreadsheets, designed to be populated with numbers found in the hundreds of business financial statements collected by the bank from clients as obligated through their loan agreement covenants.

Behind these sheets were musty stacks of file folders of varying age, size, and degree of disorganization, which contained evidence used by the bank previously to decide whether to make each loan. Many of them actually had multiple financial statements inside while many were missing any such information.

My new purpose in life became to open and read every one of these financial statements and transcribe them by hand and pencil, writing every number from every financial account listed into the corresponding grid in every client files respective spreadsheet. My hand began to ache just thinking about the task ahead. Should I have majored in economics?

These spreadsheets were organized to detail up to four years balance sheets on the front side and four years income statements on the back side, with succeeding years listed from left to right. At the bottom of the back side was space for calculating some financial ratios to measure working capital, liquidity, and leverage. Still more impressive was the fifth column on both sides of the page, which was reserved to include the latest years industry average for each financial account, copiously transcribed from the fine print found in the Robert Morris Associates (now known as the Risk Management Association) Financial Statement Studies (cost = $29.95 in 1979low whistle).

My boss thought his small-town bank was finally hitting the big leagues, just like the money center banksfinancial analysis. How sophisticated! But others grumbled that a college kid with no lending or business experience had been hired to second guess or opine about credit decisions already made. They were right, of course, as I discovered in my first loan review discussion with one of the banks most senior lenders, its chairman, who patiently illuminated how much I had to learn.