This is part two of a three-part series where CEO of Reliant Funding, Adam Stettner sits down to talk with BISTalk radio host Bob Ryan and co-host, Montana Smit and color commentator Aaron Cannata. The show focuses on delivering useful financial and business information. They invited Adam on air to discuss Reliant Funding and how the company helps underbanked small business owners.
In this part of the series, Adam talks specifically about the Reliant Funding business model and how the loan application and consideration process is entirely different from a traditional loan from a bank.
Missed part one? Click here.
MONTANA: Welcome back, you’re listening to BISTalk, believing is seeing talk radio. …
BOB: Adam Stettner is with us; CEO of Reliant Funding. Adam, thanks for coming in.
ADAM: Thanks again for having me.
BOB: Your website, is it Reliantfunding.com?
BOB: That’s easy. Reliantfunding.com. And that’s where people can get a hold of you if they’re looking for some information about your services.
ADAM: Yes, please.
BOB: Okay. We were talking about your business model and just to recap, for those that just joined us. You fund loans to small businesses differently than, say, banks do. And you do that with a different underwriting criteria. You look at loans a lot differently than banks might. You see things in borrowers that maybe banks don’t, in terms of their credit worthiness. And you lend the money to the business not necessarily to the owner of the business, correct?
BOB: And the amounts that you do can be significantly smaller than maybe a bank might want to look at. It doesn’t have to be a $5 million loan. It could be a $50,000 loan.
ADAM: Correct. We’ll go as small as $5,000 and in some cases even smaller than that, if it’s needed. And we will go up to $500,000.
BOB: Very cool. And then right before I went to break, Aaron, you were asking about collateral on the loans. Is that how you secure the loans is with some kind of collateral? Or what’s your normal —
ADAM: No, so that’s actually what we’re really looking to do was create the ultimate flexibility for a small business owner. So we put it on us to take a look at the business and underwrite the risk. And the only thing we are really taking a guarantee on is fraud. So if fraud is committed, it triggers a personal guarantee. But otherwise, these are completely uncollateralized.
BOB: But the amount of work that you are talking about, to do the individual underwriting seems similar to what a bank might have to do. How does it make it profitable for you to look at a $5,000, $10,000 loan if you have this extensive amount of underwriting to do?
ADAM: I think that’s a fair and common misconception. But the underwriting process is pretty quick. Someone that contacts us will usually have an approval inside of a day and we can fund as soon as next day. So from initial contact to point of funding is 24 hours. Now it can be longer. There’s no pressure, of course. But the whole point was to move with speed and alacrity that banks can’t.
BOB: Speed and what?
BOB: Oh, that’s a cool word! I’ve got to use that word! What’s alacrity?
ADAM: It’s the ability to move quickly in any direction.
BOB: I’m “alacrilous.”
ADAM: That’s good to know.
BOB: Is that a word?
ADAM: That I can’t answer. I know alacrity is but –
MONTANA: Now that you’ve said it out loud, it’s real.
BOB: So the underwriting isn’t as complex as I am imagining when I’m talking about –
ADAM: Sorry to interrupt you but if we think about traditional underwriting – you mentioned SBA and you mentioned traditional banks; and in both cases, they require a ton of paperwork. So in addition to the application, you’re providing a list of all your assets, tax returns, cash flow statements, etc., usually a business plan, believe it or not. Even if you’re already operating, they want to have an understanding of what you do, why you do it, where you are headed, how the money is going to be used. And then to Aaron’s point, they will take collateral. What we’re really most interested in is cash flow because what we’re trying to figure out is, we want to make sure that the money we’re providing helps and doesn’t hurt. So cash flow really tells the story. And if you think about it, it’s the simplest form. There’s inflow and outflow of money and if your inflow looks like X and your outflow currently looks like Y, if we were to provide a greater inflow of money in the form of a lump sum and then we were to take a repayment out and we take repayment out small pieces on a daily basis rather than one large chunk. The concept again being just, all of us, we think about what’s the payment. Because again, our lives are framed by cash flow; inflow and outflow. If a business’ cash flow looks a certain way, we have formulas that help us determine what kind of daily payment they’ll be able to handle.
BOB: This is interesting. I’ve never heard of this concept before. So they don’t make a monthly payment? It comes out daily?
ADAM: Correct. So let’s just think for a moment, again in the frame of a small business. They’re working, they’re present almost every day. And banks are open and funding actively five days a week and the typical workweek is five days a week. And so what we said was, if we can divide the month into twenty-two business days and instead of taking that payment that is, give or take, $1,000 a month, if we could make it $48 to $50 a day, that’s a lot more palatable to a small business than having to write a check for $1,000.
BOB: I don’t know why that concept makes me happy. But the thought of not having $1,000 a month payment and instead it’s $48 a day –
ADAM: It equates to the same thing.
BOB: But it makes me happy because that $1,000 payment can be really dreaded sometimes.
AARON: It’s a similar calculation, too. Rather than debt to income you are looking at debt servicing ratio to cash flow.
ADAM: That’s exactly right. And so in doing that and looking at the inflow and outflow of their bank statements and really focusing there instead of, how did they pay their vendor a year and a half ago? What does their cash flow look like right now? And if I were to provide them with $50,000, can they make more on that $50,000 than whatever the cost of capital is?
BOB: $48 a day.
ADAM: Right, then whatever the cost of capital is. And in most cases, because it’s not pent up and because it’s not this lump sum, it’s a lot less painful to a business. And that’s the idea here, to service a business and create a repayment structure that works for them. Because if it works for them, A, we’ll be repaid and, B, they will likely come back.
BOB: Reliant Funding is in studio with us. Adam Stettner, the CEO. Reliantfunding.com is the website. I’m amazed. I have not heard about this lending model before. Did you come up with this? Because it’s brilliant.
ADAM: Listen, I appreciate that. It’s really a spin on an ancient form of financing called factoring.
BOB: Seriously, factoring I know about but I never thought of this model.
ADAM: So factoring of receivables, typically what you are doing is you are selling a purchase order. So you have a purchase order in hand, someone’s buying something from you and they’re buying it for X amount of dollars.
BOB: And you’ve given them 30 day terms or something, right?
ADAM: Correct. And then what you do is you want the money right now so you sell that at a discount. So that $1,000 purchase order, for example, you might sell to someone for $850. And you’ll get $850 now and then that person will go collect on your purchase order. So instead, what we do is, we say – small businesses don’t really have purchase orders but what they do have is a steady flow of clients and customers. And so we look at their cash flow and we try to predict what their future sales will be and in essence, we are advancing them money against those future sales using a form of factoring.
BOB: This is got to be like a breath of fresh air to some businesses. Seriously, to be able to pull in capital like this and not have to come up with that monthly payment, be able to do it on a daily basis. Do you withdraw that money out of their bank account daily, is that how that happens?
ADAM: We do. So we sign an ACH agreement with them which permits us only to pull these specific, fixed dollar amount that we’ve agreed upon and that occurs Monday through Friday.
BOB: Excellent. Adam Stettner is here. Reliant Funding is his company. You can check them out at Reliantfunding.com. You are listening to BISTalk, believing is seeing talk radio. I’m Bob Ryan.
MONTANA: I’m Montana Smit.
AARON: And I’m Aaron Cannata.
BOB: Stay with us. More with Adam Stettner when we get back. Don’t go anywhere, folks.
Part three of this series coming soon.