Winning at the Business Loan Game

"Money makes the world go around." These are more than just famous song lyrics from Cabaret, it's also the core philosophy of the business world. Yet today the common lament is that there is no money to be had anymore, and this may cause that world of ours to stop spinning.

Not so fast. I recently caught up with small business financing expert Ami Kassar, CEO of MultiFunding.com, a young company that helps small business owners get funding. Kassar says there's plenty of money out there for small businesses owners ... if they have collateral.

Kassar started MultiFunding because after his decade-long history of providing financial solutions for small business owners, he realized entrepreneurs were suffering from a "real confusion and lack of education about their options for borrowing money."

Kassar explains that there are four primary ways for business owners to borrow money:

1. SBA loans (which are provided by a bank, as the SBA is not a direct lender)
2. Term bank loans
3. Hard-money loans (which come from private investors and carry a high interest rate)
4. Factoring or a receivables-based loan

There are "tradeoffs in every offer," says Kassar, and it's important to pick the best loan solution for your business. In many cases, Kassar says, his clients end up with a different type of loan than they originally thought they needed.

He is a big proponent of SBA loans, especially now since the terms are long and the interest rates are low. Not every business owner can qualify for an SBA loan, cautions Kassar, but "if your business has been around a while and you have collateral, the SBA can do some amazing things for you." Even these loans come with tradeoffs though: These are variable rate loans and at some point the rates are bound to go up.

The biggest problem with SBA loans, Kassar explains, is that business owners don't know enough about collateral. "There's not enough collateral education. Receivables, for instance, while sometimes considered collateral by banks, are not classified that way by the SBA," he says.

Kassar advises business owners to avoid the big banks. "It's much easier to get [a loan from] small community banks. There are fewer layers, rules, and regulations to deal with," he says, "and you can get it done faster." In fact, he recently helped a customer complete a real estate deal that had been sitting in a big bank for months. Instead, MultiFunding went to a community bank and closed the deal in a week. "There's no doubt," Kassar says, "going to the big banks is not worth the time and effort."

Kassar believes hard-money loans are "the option of last resort." He explains that it's very "expensive" money and borrowers need to decide if the high interest rates are worth it.

Obviously, entrepreneurs who own tangible goods like inventory or business real estate are at an advantage, as these things can be used as collateral. For many business owners, however, the collateral is usually personal, such as your house or stock portfolio.

On the positive side, Kassar says the lending climate is "a little better today than it was a year ago." He says, "[Banks] are more prudent, more methodical, more careful" before making a loan. "That's the way it should be," he believes. "The reality may be harsh now, but ultimately this will make it better."

Kassar predicts that things will get even better by next year and that "banks will soon start lending again, since they need to lend money to make money." But he warns that today's lending environment is the new norm and business owners need to get used to it.

I've heard from many business owners who are angry because they can't get access to capital. Kassar says before you get angry, put yourself in the lender's shoes and ask yourself if you would lend money to your business. His final advice? "Stop waiting for the good old days to return, they won't. Figure out what you really need and not what you want, and go out and build your business!"