Fueling your business with other people’s money, with Jonathan Fodera
Would I prefer cash through debt, or cash through equity?
I would always choose cash through debt - what happens in partnerships is one person always works harder, and there is always some level of resentment towards the other ones; you could always find a coach, you could always find a consultant or a mentor. And typically, you're going to have a lot fewer challenges.
There's good debt and bad debt. Essentially, debt is good when it is funding the purchase, today, of an asset that will create value in the future. This is why, in the consumer lending world, mortgage debt is typically good and credit card debt is, well, less commonly so. There are so ways in which we, as consumers, can be tempted into using debt to purchase consumables. But in the business lending world, that ratio skews more towards the good debt side of the equation, because there are so many more value-generating assets to consider - does the business need a new building, or a new machine, or to hire a team to break into a new region.
Unfortunately, the business lending world can also be overwhelmingly confusing for small business owners. Jonathan Fodera, president at Integrated Business Financing, is here today to help me get my head around the options. Jonathan helps businesses of all sizes grow and scale by finding the best financing solution possible, from SBA loans to equipment financing to working capital lines to invoice factoring to startup loans and more.
You can find Jonathan over on LinkedIn https://www.linkedin.com/in/jonathan-fodera-391a98a1/ (or using jonathan.fodera on the other platforms)
Integrated Business Financing is there, too, but there home page is over here: https://www.integratedbusinessfinancing.com/ for a more direct route to the info you’re after
They also have a YouTube channel if videos are more your thing https://www.youtube.com/channel/UCv9gp1n6t2lmyVicsTXZYeQ
You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect), my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24
If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.
Oh, and if you’re in need of more banking podcasts, you can find related content at https://blog.feedspot.com/banking_podcasts/
Regards,
Brendan
The full written transcript, with timestamps, is below:
Johnathan Fodera 0:00
People that use debt for growth are always going to come out on top.
There's a difference between good debt and bad debt: bad debt is you borrowing $10,000 on the credit card to take the family for vacation, good debt is you buying a piece of equipment that's going to help you bring in more revenue, and good debt is borrowing to launch a new marketing campaign.
So if you think of anyone that's built anything worth building, you'll see that they did it with other people's money, very few people are actually self-funded.
Brendan Le Grange 0:36
There's good credit and bad credit, and so we encourage consumers to think carefully before taking out new credit. When someone is starting a business, they usually start as a consumer, as someone who's often heard that narrative that credit is dangerous - but in the world of small business financing, a lot of credit is good credit. You might want to buy a building, of course, but you also might want to buy a machinery, or upgrade your doctor's rooms, or recruit a sales team in a new region that'll take a year to become profitable. And so we need to maybe reevaluate our fear of credit when we start a business, and see it as the tool that it is.
Welcome to How to Lend Money to Strangers with Brendan Lagrange.
Jonathan Fodera, welcome to the show.
You are currently the president of Integrated Business Financing, a lending marketplace that specialises in getting small businesses into the best financing programmes they qualify for. But this is a position you've reached after 14 years in the business financing game.
So let's start with that - what is your professional background?
Johnathan Fodera 1:57
So, my professional background was not always in small business lending. For a brief time I worked on Wall Street, I, believe it or not, ran a hockey rink. But after working on Wall Street, I got recruited into small business finance, or fintech space. I basically built up a couple of companies, and I wound up consulting for a couple of the large companies out there - I helped them build their internal sales channels, their their sales platforms.
And there were two things I didn't like. The first was I was never in control. So a lot of times I got incentivized with equity and when it came time to pay out, that equity never happened.
Then second - and more to what really bothered me - was there was a lot of times that clients were too qualified, or it wasn't the right programme for what these companies offer. So when this happens, clients need other programmes. And these big FinTech companies don't have them, most of the banks don't have them - like, if you walk into Chase and ask them for invoice factoring, or ask them for equipment financing, or something very specific that your business actually needs, that's the right programme, they don't have it. They don't know it.
And what happens is, it's kind of like building a house with the wrong tools. And eventually, when you cut enough corners, the house is going to fall.
Well, same thing with a business. If you're not using the right tools to help solve that challenge of either growth, scaling, or an emergency, you can only use patchwork solutions so long and so much. So what I did was I made it a point to go and study all these other programmes, figure out who had the best process the best rates and results. And then I brought them all under one umbrella where hey, we really will wind up getting you into the best solution possible for your business.
Instead of just being the guy to get money, you're the guy for most types of business growth needs, and our clients wind up sticking around much longer. And we get a lot more referrals because of it.
Brendan Le Grange 3:50
You've come into this as a small business owner yourself. And I don't just mean Integrated Business Financing, you said you've run an ice rink as well and you own two gyms in your portfolio.
You know what it means to be a small business owner trading with the public - what has that taught you about the needs are of your clients?
Johnathan Fodera 4:10
That's a great question. So if I could look back on making the investment, I did it because I wanted to diversify. And I did it because I believe in the mission, right? I believe in having people live a healthier life. So owning these two fitness studios. It's been, definitely a learning process because I am not used to that, I'm used to business lending and working strictly B2B, well, B2C is a different game! Retail, when you're local, is a different game.
Integrated Business Financing is a national company, so we help people from all over the country and I even do have a coaching programme now along with Integrated to give small business owners the guidance they need - called Integrated Growth Solution - and so what we do is we're guiding them step by step how to grow their business. Well, owning a gym and owning a national company - they're so different. There's different are challenges on each.
For the gym? It's mostly people. You have to have the right people in there. For Integrated, it's all - what are the lead costs? Where are we reaching our clients? Are they qualified? If they're not qualified, what do we do with them? Because we still want to be able to at least make a positive impact somehow. So you'll learn a lot. I mean, I do real estate investing, too, and that is way more hands off than either the other two businesses. So yeah, it's definitely a great learning experience, I can tell you that.
Brendan Le Grange 5:01
I think you touched on this a little bit - my own background, I'm now a very small business owner, not yet large enough to warrant financing, but if I thought about what that might look like, I think I might just assume from my years working in the banks, that there isn't really much in the way of business financing. It's something for the big corporates or some angel investors - ut what sort of businesses are you helping? Am I mistaken there, are there more options in the market than maybe people think at first?
Yeah, I think there's way more options.
Johnathan Fodera 5:33
Part of the coaching group I have, is to give everybody a review for free. Basically, with that report on their personal credit, a soft pull on their business credit, and then we're doing a cash flow analysis. So even if you're a small business - I would think the majority of my clients are doing around $600,000 a year, I have some that are doing close to $20 million a year, and I have some that might be doing $120,000 - but even if you're doing $30,000 a month, you can qualify for a line of credit.
If you're doing less than that, but you have good margins and good credit, you can maybe get an SBA loan or some type of equipment financing. Or what we do a lot of, is when someone has really good credit and they can prove their income, we do a term loan. So doesn't matter how large you are, I think there's certain key metrics that you want to just make sure in line, you know, and a couple of those are: you want to have good personal credit, you want to have good business credit, the one thing no one really can control is how long they've been in business but that's another key factor to it; and then last but not least, is cashflow, you want to be able to keep at least 10% of your monthly sales in the bank at all times. So if you're doing $30,000 a month, you want to have at least $3,000 in the bank at all times.
All right, so there's a little little key metrics that if you keep in line, it'll help. And other things like we do in those reviews for our clients, you'd be shocked at what we find and what we pick up - like anybody that that's using Stripe, Square or PayPal to accept payments, we automatically tell them we can switch them to get them (1) better customer service, (2) a better setup and better equipment, and (3), save them a lot of money. So we look for ways, no matter who the business owner is, to optimise their business. So as they grow and scale one day keeping more profits to themselves and to getting into the right programmes a little bit easier.
So yeah, there's financing programmes out there for everybody. I mean, the smallest deal we've done is probably $5,000, but for the most part, I would say our average deal size is is going to be closer to $70,000 or £80,000. And a lot of that is skewed because there's a new programme SP flash cap, that's basically a 7A but with much less documentation, way quicker underwriting times, you know, it actually goes off a 30% of the top line revenue - so if somebody's doing $500,000 a year, we can get him $150,000 at a clip.
Brendan Le Grange 8:17
So yeah, I saw you on your LinkedIn, you've got a little video primer there just to give some people a few pointers and they can probably go there and and have a look, but for those of us outside of the business financing space - maybe we could take a step back and just talk first about what is SBA?
Johnathan Fodera 8:32
An SBA loan is a is a loan that a bank writes that is guaranteed by the Small Business Administration. So basically, the only time the SBA ever underwrote, "deals" or "loans" was when they had the disaster relief programmes, other than that, the bank underwrites it and writes the deal entirely. And then the SBA gives it a stamp of approval and says, 'yes, this works will guarantee it'.
Brendan Le Grange 8:55
Okay, so you get to benefit in terms of rates and availability, by having that cosigner coming from the SBA.
Johnathan Fodera 9:03
Correct. And not only that, but an SBA loan is traditionally a little bit longer a little bit harder to get, but it's usually 6.75% over 10 years - and that varies according to interest rates. So if interest rates go up, that rate go up a little bit, if interest rates go down, you know, that'll go down a little bit.
Brendan Le Grange 9:23
Now, my background is all in the consumer side, and in terms of consumer lending, the basic idea is that consumer lenders will try and form large groups of similar customers so that they can sell a product that feels customised (because they'll be able to get a bit more margin there) but they want the back end to actually be one-size-fits-all (so that their costs are down). And so you're always looking at 10s of 1000s, hundreds of 1000s of customers at a time.
But obviously small business, it can't be that way. Every business is so different. That is a different approach. If you put yourself in the mindset of a small business lender, what are these lenders looking at, what are they thinking about?
And maybe how could a small business use that knowledge to plan ahead so that they are in the best position possible when they do want to apply for credit to grow their business to take him to a new market?
Johnathan Fodera 10:12
That's a great question. So it boils down to four factors.
It's going to be credit - and when I say credit, it's both business and personal. A lot of people don't understand that their business actually has a credit score, and that it's something that you actively have to work on. It's actually something that a service we provide for our clients. Next is personal credit. Just like when you go to buy a car or house, you need strong personal credit, because that's tied into it as well.
The next is going to be your time in business. That's one factor that you can't really control. But the longer you've been in business, the less risky that business is to lend to, right. So think about it, most businesses fail in the first two years, so once you make it past there, you're a different risk category. Once you make it past five years, you're in a different risk category.
And most businesses fail because of cash flow, which is the next point. So having strong cash flow, cash flow encompasses a lot of different things. It's what are your monthly sales? What are your average daily balances? How many deposits Do you have? So if you have, let's say, 100 transactions a month, you're pulling from a good group of clients at any one time, if you have four deposits a month? Well, you may only have four clients that matters. And then you know, cash flow, like when I say cash flow, how much you're keeping it in the bank at all times? Are there any negative days? You know, are there any low low balance days? Or are you keeping that 10% in the bank at all times.
And then when you're discussing more bankable programmes, because some of our programmes are, you know, working capital summer line of credits, and those are all done through FinTech companies, but the other programmes like equipment financing, SBA loans, you know, those are going to go off of credit and your profit margins as well. So they look at your two years of tax returns, they see are you able to claim, you know, $40,000 in profit last year, so theoretically, you could probably afford a $3,500 a month payment, if you're getting this piece of equipment, or if you're taking out an SBA.
The other thing that a lot of people don't know is, there's certain magic numbers to hit - for every $45,000 in profit, that you claim on your taxes, you can get basically $350k over 10 years on a 7a. So what I like to tell people is, alright, let's plan out your growth for the next year or two. If you know you need $700,000 to buy a building or a million to buy a building, well, you have to have your profit margins aligned with that and and typically, what you would take out is you subtract the rent that you're currently paying, because you're gonna replace that rent with a mortgage payment.
So a lot of people do not plan out ahead, a lot of people kind of run a business by the seat of their pants, I think that's one of the biggest mistakes that we see. And I've been guilty of it at times, believe it or not, you know, you have to have good bookkeeping, you have to have monthly statements and financials then you have to review them to understand the real direction that your business is going.
Brendan Le Grange 13:01
A couple of years into lockdowns and things now, a lot of people left their work, they went to start a business on their own working out the spare bedroom, there's a big temptation to spend a year or two getting it up off the ground, and then worry about it in the future that 'okay, when it's big enough, I will start it as an official business and I'll do all that stuff'. But clearly, the sooner you start officially as a business, and you've got your books in order, even if it's gonna take you a year or two to hit those profits, the more that you've got in the background, that in the right format that's registered and stamped and everything's in place, the quicker you're going to be able to get things going. You don't want to be two years down the line and then only registering a company and then having to wait two years just till someone will give you a load.
So I think it is worth bringing this up when people think about that extra few $100 for an accountant upfront, if you're planning ahead, you can really pay off and I think in terms of what you've said, so far, this is clearly what is different to me just going to a bank and looking for a loan. I'd never sit with a banker who's gonna then tell me 'let's plan two years ahead and maybe you shouldn't be doing this'.
You know, often people get into business because they love the industry, they are not as strict as they like the idea of business. And we don't know until somebody says no to us, and we find out. If I just made $5,000 more a year, I would have now be ready to buy a building or something pretty dramatic for the life of a business. So that's great to hear. And so you're providing this sort of support, but what other products and services are under this integrated business financing umbrella.
Johnathan Fodera 14:31
So we do everything from SBA loans, equipment, financing, invoice factoring, lines of credit ABL lines, working capital ones or cash advances term loans, term loans is really our only programme that people can use if they don't own a business, it's just gonna go off their credit and their approval income. And so in that case, you know, you can use it to consolidate credit card debt or the money for startup costs.
We also help people with their payment processing we help people build their business credit. We have done some PO financing, some project funding. So we really do have every programme that an entrepreneur could want or need.
And then we just added, like I said, that element of coaching and consulting in there. So basically what I did was I took experts in personal credit, business credit growth strategies, marketing, branding, website, building taxes, accounting, bookkeeping, and I put them into one group, it's a very low monthly fee to start now. And basically, they'll get discounts on your services Plus, they get, you know, we do five hour long q&a days a month to kind of help business owners get the right information.
Obviously, people can go on YouTube but there's so many people on YouTube that put out misinformation, there's so many people or coaches that have truly never run a business that have no idea really what they're doing, they just built a little bit of a coaching programme. So our goal was kind of to eliminate that and to essentially find people that are willing to help them grow their business, whether you're seven figures, and you want to go to eight to nine, or you're just trying to get the business up off the ground.
Small businesses are the lifeblood of this country, most people are employed by a small business, and we still produce most of the country's GDP. And it feels like the last three years small businesses been under attack. Without small business, a lot of the opportunity that we have in this country is gone. And that's why I put this stuff together. That's why I care so much.
Brendan Le Grange 16:26
Yeah. And if somebody was traditionally thinking, well, I need a bit of money but I also need a mentor, I need somebody to tell me which questions I need to be looking into - they might be thinking of, okay, I need an investor.
And I've seen you talk through quite passionately about why people should really think carefully before they set up some equity early on. So what are your thoughts about credit - often it gets a bad name and so maybe people think, oh, I should stay away from credit.
Johnathan Fodera 16:51
Oh, I'm a little jaded. So I've had three or four failed partnerships. What happens in partnerships is one person always works harder, and is always some level of resentment towards the other ones. And traditionally, that's definitely been my case, the only time you should ever partner up is when you thoroughly know the person and know their work habits.
And I would never take up partner in this stage for cash: (1) because it's too easy to get debt and (2) because when you do succeed, giving up that equity for life is always going to be substantially more expensive, both in monetary terms and in peace of mind terms. So I don't like the whole partnership model, I truly, truly don't.
I like JVs a lot. I do a lot of them with certain companies, you know, like a marketing company, a payment processing company with for other companies that serve in the same same clients and see how we can help each other. But in terms of would I prefer cash through debt, or cash through equity, I would always choose cash through debt, you know, you could always find a coach, you could always find a consultant or a mentor. And typically, you're going to have a lot less challenging. And, you know, anytime there's disagreement, depending on how quickly that disagreement escalates. I mean, that can be very, very expensive. And truth be told, it's just not worth it.
Brendan Le Grange 18:08
And I think that's where, again, a service like yours, where you take away some of that fear, because it can be daunting, you can think, well, let me research what I don't want to do and go on to YouTube, go to get some books from Amazon, and just think, nah, there's too much going on here and lean towards an ownership. And as you said, forgetting that to 25%, you give away now is 25% for life, and when you've gone from $10,000 to a million that 25% is gonna look really expensive compared to what a loan was.
So yeah, I think it's great to hear that there's channels available to entrepreneurs to think through more than just he has a menu of loans, but somebody in their corner that can talk them through it and help them prepare. So that's great to hear.
And I think what was interesting for me as well, sort of looking through some of your clients, and you've mentioned it already before, but they really has a wide range of different people that you're helping out from doctors financing new new practices to heavy machinery and manufacturing versus small business, small business in all its forms, you're able to finance people that are doing pretty much any type of business.
Johnathan Fodera 19:13
I even work with franchises. I mean, it's just about finding how this owner how this business qualifies and what they're looking to do and then matching up the programme to what what they need in order to accomplish their goals. And what somebody needs in their first let's say two years isn't what they're going to need from year two to year five, and year five year ten.
Sometimes it is like SBA loans work for everybody lines of credit work for everybody. Equipment Financing usually works for everybody except the new guys, but it's having somebody I think one of the coolest things I've heard it's very true is if you don't have a bank or you don't have a bank, well, banks can't serve you at a certain level. So you need to find that person that can't and there's that's really really the key to growth is having the right people in your corner building the right network and building the right relationships.
Brendan Le Grange 20:06
We're obviously in pretty turbulent times. Now, for consumers and for small businesses, you are kind of at the coalface I guess, seeing the impact on a number of different businesses in different ways. How are you suggesting business owners think about the credit situation in the wake of runaway inflation and sort of general cost of living rises? Is that changing how people should approach credit?
Johnathan Fodera 20:30
That's a really good question. There's a couple of different things I want to touch on.
First, I think that everybody should know where they stand. So if anyone wants to come in for a review, just hit up one of the links of the sites and ask for a review, we'll do that for you. But one, you always want to be in a really strong position to borrow meaning have personal credit, in order, have your business credit in order. And if they're not be willing to, pay a pro to have them help you to understand your cash flow, understand the models, and then three, every single business should have a line of credit.
And with how easy this flash cap programme is, I've told all my clients to go and get it, I'm actually getting it myself. Because having that extra cash, gives you flexibility in the future, to one jump on opportunities and to play a little defense if things get a little crazy.
Now, you asked the question about, you know, what's going on with inflation, having the cash in the bank is kind of counterintuitive to inflation, right? As inflation is going up that cash is worth less than less, however, cash is still going to be king in this this time. And yes, we have, we're dealing with crazy, crazy inflation. But we're also dealing with things that we've really never dealt with before, when in terms of supply chain issues.
So retail is going to have a little bit more of a challenge, because they have to make sure that they can handle getting the inventory and getting it consistent. That means reaching out to other brands. I do think that as this economy contracts, people, we're going to have to get really, really strategic, not only have the cash on hand, have a line of credit, open, unavailable, but look for people who serve the same clients, and serve the same clients well, and see how you can work together those JVs or joint ventures, right, because that'll bring down marketing costs or your acquisition costs, you can't have enough of those relationships going into these times.
Also make sure that you're really taking care of your clients, and that you're not treating it like a transaction, because there's never been a better time to build brand loyalty, build customer loyalty than in difficult times. Because that's what's going to help everybody get through.
And then another one that I see a lot of people make this mistake, they're not omnipresent. And they're certainly not consistent posting on social media. And a lot of people think when you post on social media, it should be "buy my sh*t, buy my sh*t, buy my sh*t". Sorry, Brendan, right if we can't curse on this, but a lot of people get that wrong. You should be putting yourself in your clients mind and thinking, hey, what can really help them.
So maybe show them what goes on behind the scenes, show them how they can get some additional results that usually help them just by staying at home, right, you want to have a captive audience. And the way to build a captive audience is by giving them value on a daily basis that has to do with what you know why they're coming into your store, why they use your services. So if you can look for things like that, and be in a strong financial position, heading into this recession, and we've already been in it, and it's a recession that has inflation.
Basically, it's stagflation.
Because we have a shrinking economy, we have inflation going up, and we have unemployment going up. That's really how I would focus and play the next six to 12, six to 24 months. And because we have all those different things happening with the supply chain issues, I actually feel like it's a good opportunity for those that really put the blinders on and just charge ahead forward and play a little bit of offence, because most people are not playing like that most people are getting very defensive, and they're going to lose market share. So a lot of people have a great opportunity. If you have the right mindset, the right coaching and the right relationships behind you.
Brendan Le Grange 24:17
Yeah, so having that war chest to allow you to be flexible. I think you're right, it's going to be more important than ever in the next few years.
Now, you mentioned coaching there. Earlier, we mentioned the two gyms you own but you've also been an ice hockey coach, I see, for 16 years, which, yeah, maybe it's just a way to get out of the Florida heat, I don't know, but what do you bring to your professional life from your experience coaching kids how to play ice hockey?
Johnathan Fodera 24:41
That's funny. I actually haven't coached in a while. I coached up until a year ago when I moved from New York to Tampa, and I was coaching in New York for 15/ 16 years prior. I've coached kids that have been drafted that went on to have D1 scholarships and I actually coached my son last, about a year and a half ago. And that was some of the most rewarding stuff I've done. I still play - usually still played twice a week. But in terms of coaching, since we made the move, haven't been coaching down there, just because I've been so focused on and to get both those gym locations up and get my main office setup.
So now that that's all set up, I think maybe in the fall, or maybe soon, I'll get back into that side of it, if my son wants to do that, because it's a really big commitment.
Brendan Le Grange 25:25
If people want to speak to you about your business coaching, if they want to speak to you about understanding better the way to get themselves, you know, properly funded ahead of what's coming, if they just want to make sure that they're in the right position in terms of their credit profile and want to go through a quick audit with you where's the best place for them to go and find out more about integrated business financing?
Johnathan Fodera 25:47
You go to the YouTube, which is just Integrated Business Financing. Or online, it's just Jonathan.Fodera on Instagram, and I believe it's the same on Facebook or they could go through this podcast, I'm sure you'll have the links. Yeah, please reach out mentioned in the show, and I'd be happy to help anybody.
Brendan Le Grange 26:04
Perfect. Yeah, I'll put all those notes down in the show notes here as well. Jonathan, thank you so much for making the time tonight. It's been a pleasure hearing from you.
Johnathan Fodera 26:12
Thanks for having me. It's been a pleasure.
Brendan Le Grange 26:14
And thank you all for listening. If you enjoyed that, please do rate and review on your preferred podcast platform and share widely including on LinkedIn. And while you're there, send me a connection request. The show is written and recorded by myself Brendan le Grange in Brighton, England and edited with assistance by Kane Hunter. Show music is by Iam_wake and you can find full written transcripts, show notes and more content at www.HowtoLendMoneytoStrangers.show
And I'll see you again next Thursday.