The Small Business Lending Ecosystem is getting crowded and more confusing by the day. If you’re scratching your head wondering which is right for you? You’re not alone. To help you out, all this week we will be talking about the small business lending world, and the ways in which you can learn more about the system for your own success. We’ve already told you about Tony’s attempt to expand his business and Tracy’s fight with poor credit. Today, we want to share the tale of Kayla, a business owner who owned a very new business and found herself starting to need loans in order to plan for growth in the future.
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Kayla had started a new boutique marketing agency. Her agency had been around for about a year, and its growth had been phenomenal. Kayla focused on Facebook and influencer marketing. She’s a whiz when it comes to using these platforms, but not a financial genius. Kayla’s growth was almost too much for her to manage. She knew she needed to build scale, but didn’t know how best to do it.
Kayla’s story is a familiar one. Given Kayla’s time in business, she faced a dilemma, should she go for equity financing or debt? The question we asked was how much control of the business did she want to maintain, and how much additional administrative expenses did she want to accrue in managing shareholders and/or partners?
This answer is different for everyone. For Kayla, she wanted to keep control. She wanted to be able to take on clients with whom she wanted to work. She didn’t want to be forced into taking any client in order to grow quickly, and that meant starting with loans early to stay strong.
What Did Kayla Do?
It was obvious for the start that Kayla needed to expand. Kayla had her business model down. She was a genius at what she did, but she didn’t know how to hire, train, and replicated the taskings that she was doing. We went through our keep vs. toss exercise with her. Based on her current growth trends, and what we uncovered during our keep vs. toss exercise, it became clear as to which positions she needed to hire and how much capital that would take. We need to get it all down on paper and in a format that we could take to lenders.
So, which lenders were right for Kayla? How did we choose? Well, Kayla was a new business. She was profitable, but didn’t have much in the way of collateral. She was in business a little over a year. Thankfully, she had a good credit score, but her short tenure was problematic.
Given Kayla’s situation, we needed to explore our options carefully. Kayla wasn’t a good fit for a large bank loan nor did she meet the SBA criteria. Therefore, we had to explore alternative lending sources to start getting loans. Kayla needed about $50,000 in non-secured working capital. We knew we had our work cut out for us.
What we did have were some great, flashy, testimonials that Kayla had created. These told a great story. We were able to cut these into a pitch video, which was perfect for the peer-to-peer marketplace lenders. We could use this powerful video to pitch the business on these platforms in order to find several lends who could pool their resources to fund a loan. Kayla was growing quickly and that trend was highly likely to continue. Therefore, we could afford the higher interest rates that loans tend to have.
How Kayla Financed Her Growth, Starting with Loans
Using the peer-to-peer lending network, we were able to find 3 lenders, who were willing to contribute money to support the business. The rate, 15%, wasn’t great, but it wasn’t terrible either since she was growing at about 125%/year. We were able to hire the workers needed. Once we had the new team in place, Kayla continued to grow. So, when she was ready for the next phase of expansion a year later, she was the ideal candidate for an SBA loan.
We used that loan both to refinance her old debt and to use as working capital for her next growth phase.