What is the Definition of a Small Business?


June 21, 2013

By Bob Coleman
Editor, Coleman Report

We sat down with Ami Kassar, CEO and Founder of MultiFunding to discuss how small businesses are being defined. Ami is a nationally renowned leader in small business planning and lending. Ami is published weekly in the You’re the Boss New York Times Blog covering small business.

Bob Coleman: Now I’m a smart person, I think you’re a smart person. Tell me what a small business loan is, I can’t seem to get a definition.

Ami Kassar: Well, Bob, I think that’s one of the real problems that we face today. I was in Washington last week and there were a bunch of great conferences and conversations going on about small business lending. And one of the questions that wasn’t discussed and I thought to myself if President Obama walked in here and he asked this group of about 150 of us in small business lending, up, down, left or right, or how’s it going. The truth of the matter is I don’t think anybody can answer him. We know if SBA lending is up, down, left or right. We know if certain categories are up, down, left or right. But with no universally agreed upon definition of what constitutes a small business and no requirements from all these alternative lenders out there to report on their lending, we live in this hazy land of not really knowing what’s happening.

Bob Coleman: I know you’ve been pushing for definitions. Let’s talk about the alternative lenders, you brought them up. There’s what, 50, 60 of them? First of all, define alternative lenders and why is that important to the people listening in today?

Ami Kassar: To me, an alternative lending, if anybody out there lending money or trying to lend money to small businesses or entrepreneurs through a nonbank platform. And I beg to differ, I think there are hundreds of them out there, Bob, I don’t think there are 50 or 60 of them. We see a dozen new cash advance lenders popping up everyday and we see literally between the different choices and options out there, hundreds and hundreds of people trying to capitalize on the opportunity and the void left by the banks and to lend money to small businesses at high interest rates.

Bob Coleman: High interest rates. They’re getting what, 30, 40, 50 percent annum?

Ami Kassar: Oh, Bob, that’s low.

Bob Coleman: I talk to them, they say they’re getting 8 to 12 percent, how do you reconcile the two numbers?

Ami Kassar: Is that a week or a month?

Bob Coleman: But what do we care? What do we care if these alternative lenders charge whatever they want to charge? They’re not using depositor money, they’re using hedge fund money, what do we care?

Ami Kassar: Well, why I think we care is that what’s evolving as a group or a generation of small business owners and entrepreneurs who form expensive money is becoming the norm. And after they’ve taken one, two, three, four, or five of these loans, they put themselves on what we like to call the high-interest treadmill. It’s very hard to get off of it, you live on the stuff.

Bob Coleman: Is this really payday lending for Main Street?

Ami Kassar: A lot of it is, Bob.

Bob Coleman: Yeah, but they claim they can compete with the banks because of speed of the market. They’re saying Main Street would rather pay a few extra points knowing that if they apply today they’ll have the money in their account by Friday.

Ami Kassar: And that’s true and we see it. I put a small business in a loan a couple of months ago, he landed up paying 24 percent APR, he would have well been qualified for a 6 percent loan. He was very clearly articulated the differences. He didn’t want to deal with the hassle and the aggravation. These guys are providing speed and convenience and in many respects they’ve built great technologies. The issue –

Bob Coleman: Go ahead. I’m sorry, finish your thought.

Ami Kassar: The issue is we’ve got to find a way, I feel we have a responsibility to get affordable capital in the hands of small business owners and entrepreneurs, otherwise we’re a bubble waiting to burst.

View the 4:00 min interview here