Stimulus loans for startups with Brock Blake of Lendio

Brock Blake of Lendio - Podcast Transcript

Scott:	Hey, it’s Scott Orn at Kruze Consulting. Before we get to just a phenomenal podcast with Brock Blake of Lendio, a quick shout out to Rippling. Rippling is an amazing payroll service for startups. They do payroll, they do benefits management, and they also have a software solution that helps you integrate all your new employees, or if you have to let people go, into their web services they use. You hire someone, they’re instantly provisioned into all the cool apps that your company uses, and if you have to let someone go, they’re instantly deprovisioned. You don’t have to spend a ton of time managing passwords and logins, and who gets access to what. Rippling does it all automatically. It’s super powerful. We did a calculation, and we think it saves us $420 every time we hire someone at Kruze Consulting, which has been quite a bit lately. So, shout out to Rippling. We love it. It’s a great service. I encourage everyone to check it out. Also, a quick shout out to Kruze Consulting, the folks who make this podcast doable for me. Thank you to all the hardworking people at Kruze. We do startup accounting. We do startup taxes. We do start up financial modeling. We do everything a startup needs for good financial health. It is a phenomenal team. I’m very proud, and shout out to my wife, the founder Vanessa, but really a shout out to everyone who works at Kruze. Now I hope you enjoy this podcast of Brock. Brock did just drop some serious knowledge on us, and it’s all you need to know about the SBA, the CARES Act, all the stuff that Congress passed this week to help American businesses, including startups. It looks really, really promising for startups, so check out the podcast. Thanks.
Singer:	So, when your troubles are mounting, in tax or accounting, you go to Kruze. They’re founders and friends. It’s Kruze Consulting, founders and friends with your host, Scotty Orn.
Scott:	Welcome to fans and friends podcast with Scott Orn at Kruze Consulting. My very special guest today is Brock Blake of Lendio. Welcome, Brock.
Brock:	Thanks, Scott. Appreciate you having me on.
Scott:	Lendio is a fantastic small business tool to get a great loan, and Brock is a complete expert on SBA loans. With all that’s going on with COVID, we want to have an expert on, because there’s so much financing opportunity for small businesses and startups with all the packages going out from Congress. So, Brock, you are the man of the hour, and I’m so glad you’re on.
Brock:	Thanks. There are a lot of questions these days about lending and SBA loans and the stimulus package, so look forward to walking through all the details.
Scott:	Yeah. Before we get into that, do you mind just telling the Lendio story?
Brock:	Yeah. As you mentioned, we’re a marketplace for business loans, so think of Expedia for hotels, or Yelp for restaurants. That’s what we are for business loans. As a business owner, there’s millions of business owners out there that need capital to fuel their business. They’re great at running their business, but not always an expert at getting a loan. A lot of times they’ll go bank to bank to bank applying for a loan. We make all that easier. You can come to Lendio. It’s a free service. You fill out our application, we then match you up to lenders, and you can comparison shop the rate, the term, the payment amount, and choose the product that’s the best fit for you.
Scott:	I love the analogy of … It’s almost like how you go to Expedia for a travel site to book your travel, but you go, as a small business owner, you go to Lendio to book your loan.
Brock:	Yup, exactly.
Scott:	Before I turned the mic on, we actually had a great discussion about how you started the company. Do you mind sharing the origin story with folks?
Brock:	Yeah, no problem. We started the company back in 2011, and I actually had won an entrepreneurial competition. It was like the TV show The Apprentice, for all those people that remember, without the glitz and glamor and lights and camera, and Donald Trump’s saying, “You’re fired.” We had 100 applicants, and they narrowed it down to 20. The 20 of us went through this eight-week bootcamp where we did sales competitions, and marketing competitions and whatnot, and at the end I won $50,000, and I could use that to start any business that I wanted. Essentially what I was doing was, I was going out and talking to business owners, trying to decide what I should do. Should I buy a business, should I start a business? As I was talking to business owners, it seemed every business owner I talked to during the conversation, they would say, “Man, one of my biggest challenges is just getting capital.” I kept hearing that over and over. It felt like there was a great opportunity to go solve that problem.
Scott:	I love it. I think I’ve heard you say this before, that Lendio is enabling the American dream. I feel like you are an example of the American dream, going through and winning that business plan competition to get your seed capital. That’s really amazing. That’s hard to do.
Brock:	Yeah, we, we were really fortunate. I think that’s why I’m so passionate about helping small business owners. You said it. We don’t put this up on our walls or whatever. We talk about it a lot, but we say, “Fueling the American dream,” because business owners have this American dream to grow their business and expand, hire employees or whatever, but they need capital to make it happen. We are helping provide that fuel, and it is why we exist. We were quite passionate about helping that business owner. Bringing it back to today, to think about all these business owners that are suffering right now, and closing up shop and laying off employees, it literally breaks my heart. We are working tirelessly to help them get loan options, and help them navigate through this.
Scott:	Yeah, that’s amazing, and thank you for helping the community. My mom actually was a small business owner. She owned a retail shop in Danville, California, and this is the kind of thing that could have knocked her out of business. It’s devastating. For Kruze, we work with so many startup companies who, by nature, are raising money every 18 to 24 months. I know our companies are super curious about the help they can get from SBA and Congress. But before we get to that, I would just love to go over Lendio’s marketplace just real fast, because I think it’s actually a great tool, and there’s a few things in there. I saw that if you do apply, you’re not hurting your credit score, right? It’s not going to affect the business owner?
Brock:	That’s right. So as part of our application process, we are pulling various information from the business owner, including bank data. We’ll do a soft pull on your credit so it doesn’t negatively affect your credit. We look at Google data. We sometimes look at tax returns, or other things like that. But we’re gathering this info … It’s free for the business owner, and then we gather that information, and we have our technology as this algorithm that, based on your profile and the profile of the lenders, we identify which options are the best fit for you, and then present those options for you. One of the things we like to say is high tech, high touch. You can do all that online, but we also assign a funding manager to be there to hold your hand and walk you through that experience, answer any questions for you, help you navigate between lender A and lender B, or things like that. The idea is come explore, see what options you have, and then if there’s one that you like, you choose it and secure the loan, and move forward.
Scott:	I love that you have the … It’s almost like the Main Street feel. The best thing about a physical bank is that you can walk into it and sit down, and talk to somebody. That’s great that you can actually make that available to customers through assigning someone to actually answer their questions. That’s a really powerful service.
Brock:	Yeah, we have probably 4,000 five-star reviews online, because we’ve done over $2 billion in loans on our platform. If you go read those reviews, you’ll see that a lot of times they’ll mention the funding manager by name, and how valuable they were in that process, just to give them guidance and comfort along the way.
Scott:	That’s great. I bet you it’s super rewarding for your employees too, to feel the impact they’re having on all these small businesses?
Brock:	No question.
Scott:	Well, that’s incredible. Let’s talk COVID, let’s talk SBA. Let’s talk Congress. How do you want to start? We’ve actually done a quite a bit of research on this at Kruze, because our clients are asking us, “Do venture-funded companies benefit from this?” Maybe before we segment between small business, the typical small business, cashflow positive business, and a venture backed business, maybe you can just do the greatest hits, the highlights, and I can chime in a little bit? Does that work?
Brock:	Yeah. Are you talking the highlights of what’s happening right now with the different SBA products?
Scott:	Exactly. There’s two. I call it the crisis loan, for lack of a better word. That’s the damaged one, and then, as I understand it, there’s another SBA loan that is turbo-charged, as I understand it. It’s been doubled in size and things like that, but I think you know this stuff better than I do.
Brock:	Yeah. Let’s talk about it. There’s a lot of confusion right now. There’re actually two different types of loans, and everyone is really grouping them together all under the name of SBA. Let’s talk about the first things. The first product is the SBA disaster loan. It’s a $50 billion allocation announced by President Trump about 10 days ago, and it’s executed and delivered and funded by the SBA. The second one is this CARES Act, which is a bill that was just passed today. Let me just clarify the two, because they’re two very, very different. One I’m quite optimistic about, and one I’m not. The one I’m not optimistic about is the SBA disaster loan, and there’s a few reasons why. First off, business owners, to actually qualify for that product, you would have needed to have qualified for an SBA loan prior to the Coronavirus hitting. So cashflow, collateral, it’s all the same documentation process, the length of getting a loan is going to be really long. Showing that the Coronavirus had a negative impact is one thing, but you basically have to show that prior to the Coronavirus, your business would have qualified for an SBA loan anyway. The second reason why I’m not that optimistic about it is the SBA is just not equipped to handle the volume of applications they’re getting.
Scott:	That’s what I was thinking. Their website is just crawling. For people who don’t know, typically SBA loans are administrated through a bank. They’re the silent partner with a bank, right? In this case, what you’re saying is the SBA is going to effectively lend directly, right?
Brock:	Exactly. It’s worse than just crawling; it’s crashed every single day since Trump announced it, literally, every single day. They were putting up a sign to try and prevent crashing. They put up a notice that when you go to the application, they would say, if you’re using Chrome, that’s not going to work. We want you to use Internet Explorer.
Scott:	I saw that. I tried to actually do it in Internet Explorer to see what would happen, and it was actually a worse experience, so I went back to Chrome.
Brock:	Right. So then if that’s not bad enough, then it crashed again two days ago. Now if you go to the application process, what they have is they say, here are 10 PDF documents of all the things you need to fill out to get this loan. We want you to download the PDF, pull out a pen, and fill it out by hand, pen and paper, and then you can either scan the documents and upload them, or you can mail them to this mailing address.
Scott:	Wow. That’s going to take months to process. That’s crazy.
Brock:	In California, that’s 750,000 applications. You think they’re going to have enough people to go decipher everyone’s handwritten documents?
Scott:	Oh, God.
Brock:	I just don’t have a lot of confidence or expectation around that now, so that’s the bad news. The good news is I do think that … If I’m a business owner, I wouldn’t even spend time on that. You can. Everyone’s telling you to do that. I wouldn’t. Now, what I would be excited about is the stimulus package product that’s coming out, this bill that’s passed, because essentially what they’ve said is that to qualify for the stimulus package, you have to prove two things; one, that you’re a real business, and two, that you’ve been negatively affected by the Coronavirus, and three, that you’re actually a small business, which is the definition of fewer than 500 employees. If you prove those three things, then you should be able to qualify for this loan. It will be the lowest cost loan you’ll ever get as a business. It’s 3.75% interest, and the loan size is calculated like this. What they do is, they say take your monthly payroll, plus your monthly rent, plus your monthly utilities and times that by two and a half. That’s essentially what you’ll qualify for, and it will be-
Scott:	That will be actually really helpful for the audience. I wasn’t sure how they were going to determine what you were eligible for.
Brock:	Yep. That’s the formula, and instead of it being distributed by the SBA, it’s going to be distributed by lenders. In my opinion, there won’t be this disaster that they have now. The way we believe it will work is that a lender will be able to validate those things, fund the business, and then they’ll get a reimbursement from the treasury a couple of days later. Lenders will be able to process these, and there won’t be the crazy backup that they have now.
Scott:	Now, to qualify, do you still have to be the normal SBA target of a cashflow positive company?
Brock:	No, not for the stimulus product.
Scott:	Not for the congressional one, right, that came out?
Brock:	Right. The other one, the disaster relief product, you would, but not the stimulus product.
Scott:	That’s fantastic. This is so helpful. Thank you so much. One of the things we were looking at was there are some payroll relief provisions, where it looked like if you didn’t terminate people or hire them back, if you did terminate them, you could actually be eligible for a month or two of effectively like a payroll reimbursement? They would forgive that portion of the loan for those [crosstalk 00:15:07]?
Brock:	That’s right.
Scott:	Is that in the congressional one? Maybe you could talk a little bit more about that.
Brock:	Yeah, that’s in the stimulus, the CARES Act. Basically, you’ll be eligible for loan forgiveness equal to the amount spent by the borrower during an eight-week period from the origination date of the loan. Basically, any money that you spend on payroll costs or mortgage, to keep people employed and keep your place of business, that will be forgiven. That amount will actually just be a grant for you.
Scott:	Wow. That’s incredible. Incredible. There was one other thing that I noticed. It looked like I really couldn’t … I didn’t know how to interpret this correctly. It looked like there was a cap for employees that make over $100,000. Our clientele, this is a little different from the typical small business, but the venture backed companies have a lot of engineers, and they tend to make over $100K. Was that reimbursement up to $100K per employee, or they’re effective $100K salary, or were employees who made over $100K just excluded from the calculation in total?
Brock:	Well, yes, if you make over $100K, then you are not getting the consumer portion of this CARES act. So, each consumer and couple, like husband and wife, or whatever, two spouses, they can get $1,200 each in this stimulus package unless you make over $100,000, and then you don’t qualify for it. But to my understanding, to the calculation of the loan size, they just take your total payroll including those that make $100,000 as part of the calculation. I don’t think they pull that out.
Scott:	There is so much information going so fast, that it’s really hard to dial in. The weekend’s going to be super helpful for everybody. But I did see something that I thought said, for the loan, for their reimbursement of payroll obligations, that loan forgiveness, I think there was something around that $100K number, but we’ll do a little more research on that if we don’t know it off the top of our head.
Brock:	I don’t know it off the top of my head. I’m not sure, to be honest with you.
Scott:	That’s all good. Our clientele is kind of high … That’s something that really impacts our clientele, because our clientele does employ so many engineers. At a more typical small business, there’s probably less $100K employees. There was one other thing I wanted to talk about. I don’t know if you had a chance to look at this, but there was some affiliate language in the CARES Act that made it so that it might not work for venture capital backed companies. Are you familiar with that?
Brock:	Yeah. So, in the language as it’s drafted right now, there is this provision where it says if a VC owns or controls larger than a certain percentage of the company, then that business will be treated as an affiliate to the venture fund, and their employees will be added to all the other number of employees from all the other portfolio companies. If there’s five of their portfolio companies, and you all have 100, and now you’re over the 500 limits, then that would mean that none of the portfolio companies could actually qualify for the loan.
Scott:	Yeah.
Brock:	I’ve been on calls on this all day, and from what we’re hearing, the intention was not … That’s an unintended consequence of the draft as is. There is confidence that the SBA and the treasury, because now the actual specifics of implementing this program are now being handed to them, that when they come out with the specifics, they will clarify that. Now, I can’t guarantee that, but I’m optimistic that they will allow venture backed companies to participate in it.
Scott:	That’s fantastic. I’m optimistic as well, because I’ve just some friends that know things. They keep saying the same thing that you said, which is, they were in such a hurry to pass the bill, they didn’t have time to really rewrite that affiliate language. The affiliate language, as it’s written now, as I understand it, does block the VC backed companies, because there were also some disclosure issues around that, stuff that VCs wouldn’t want to disclose, like all the portfolio, the money raised, and all kinds of stuff, and personal finances. But the goal was not to block venture capital backed companies. In fact, the National Venture Capital Association, the NVCA, has been the forefront of lobbying to get this. Correct me if I’m wrong, but they were able to get the personal guarantee out of it, right?
Brock:	Yes. That’s correct.
Scott:	That’s huge for startup owners, because they’re not … Lendio is probably in a super strong place, but if you go back eight years ago where you were when you were just starting, you probably didn’t want to give a personal guarantee on Lendio. It was just too risky.
Brock:	Oh, for sure. Yeah.
Scott:	We actually discourage our clients from ever doing that, because you can end up wrecking your personal finances as well as the company’s finances if the company goes down. But kudos to the NVCA for getting that out. It’s great to hear you say that you think the affiliate language will get amended, because I’ve been hearing that, but I think you’re more plugged in than I am. That’s super cool and super promising for our clients.
Brock:	That’s the messaging we’re getting. I was on the phone today with the staff of Senator Mitt Romney, and I know I’ve got colleagues who’ve been on the phone with Senator Marco Rubio. We are getting all the right responses to this question. Now we just have to wait to see when it comes out in detail.
Scott:	For our folks who say, “Hey, why didn’t they just write it correctly the first time?” They could have, but it would have taken probably another week, and this is such an urgent thing. This is one of the times where I’m glad Congress acted and moved quickly. It’s important to get the wheels turning on this, so kudos to Congress. It’s great that it’s been through.
Brock:	For sure. One of our lender partners did a survey to over 500 businesses, and one of the stats that just stood out to me was that 41% of business owners will likely need to shut their doors within three to four weeks. Every single day that this carries on, there are going to be more businesses that have to shut their door. There are going to be more layoffs. You know there were 3.3 million layoffs this week, nearly five times higher than the record prior to this week, which was in 1982. Next week’s probably going to be the same. It’s just so devastating. We need to get this capital into the hands of business owners as soon as possible.
Scott:	Yeah. Well, I think the cool thing about Lendio is you work with existing SBA lenders, right? You can actually be a really strong conduit for the audience, for people to actually apply for these loans.
Brock:	No question. That’s what we do. Our goal is to navigate through all these lenders and their different criteria, and their qualifications, and their paperwork, and the documentation. We can simplify that and make it easy for the business owners, so they don’t have to. They can run their business, they can focus on growing and all of that. Let us navigate through all the lenders, and the qualification criteria, and the application process, and all of those things. We do that with SBA loans, but we also do it every other type of loan, equipment loans, real estate loans, lines of credit, term loans, accounts receivable loans. It’s a true marketplace across a lot of different loan products.
Scott:	I love it. I love it. Now folks who are listening, and they’ll probably be a heavy percentage as venture backed startups, do they need to go through the regular flow, or should they … If they want to just apply for the CARES Act loan, how should they do it?
Brock:	Yeah. It’s going to be probably another week before, and that’s being optimistic, before that starts to happen, so what I would say is you can come sign up to Lendio the minute you’re available. There are loan options available for you. We’re going to make you aware, and then just streamline you through that process. In the future when that’s announced, you can also go to your bank. That bank may or may not be approved to be able to fund those loans. All the rates, all the terms and everything, is standard. I guess I would just say we’ll walk you through it so it’s easier for them to get approved and qualified and funded as quickly as possible.
Scott:	I love it. Thank you so much for coming by. You are by far an expert. You’re much more knowledgeable than me, and you’ve done the startup community a huge favor by just explaining this stuff in a way that we can all understand. So, Brock, I really appreciate it. Can you tell everyone where they can find Lendio, and how to reach out to you? Or maybe not you, maybe some of your associates that you work with, but how can they get [crosstalk 00:24:25]?
Brock:	Yeah, come to lendio.com, check us out. You can find me on Twitter. Brock Blake is a good place for LinkedIn, and if there’s ways that we can be helpful, let us know.
Scott:	Awesome. Thank you, sir. I really appreciate your time.
Brock:	Yeah, thanks for having me on, Scott. Appreciate it.
Scott:	Cool.
Singer:	So, when your troubles are mounting, in tax or accounting, you go to Kruze. They’re founders and friends. It’s Kruze Consulting, founders and friends with your host, Scotty Orn.
Scott:	All right. That was a fantastic podcast from Brock. Wow. Tons of knowledge, really helpful, super applicable. Thank you, Brock and Lendio, for coming on the Kruze Consulting podcast. Before we go, a quick shout out to Rippling. We talked about it at the beginning of the podcast, but it’s a phenomenal payroll service benefits platform, and the IT solution that integrates into all the web apps that you need your team to use. It’s just so powerful. It saves people so much time, so check out Rippling. One quick special shout out to the Kruze Consulting team. We’re going to have a lot more content coming on the Kruze podcast. We’ve been taping a bunch of stuff this week, because the audience… Thank you, everyone, for sending in emails. Thanks to all the clients sending in emails asking about financing options, the SBA loans, the CARES Act. We are trying to answer all those questions through podcast and through emails. Thanks. Talk to you soon. Bye.

Stimulus loans for startups with Brock Blake of Lendio

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