Expert Interview with Chinwe Onyeagoro on Funding a Small Business

Filling out a loan application isn't exactly a fun process, no matter how excited you might be about the business venture that loan is going toward.

And the most tedious and difficult part of the process is pulling together all of your business and personal financial documents - tax returns, profit and loss statements, balance sheets, etc., says Chinwe Onyeagoro, CEO and cofounder of FundWell, which helps small business owners find capital.

"If you want to get a jump on the process, then make sure that you update and review your accounting records regularly throughout the year, ideally monthly," she says. "And be sure to file your business and personal taxes on time."

We recently caught up with Chinwe to learn about how FundWell can help small business owners and entrepreneurs get a handle on their financials. Here's what she had to say:

Can you tell us a little bit about the history of FundWell? What services do you offer?

FundWell was founded by two serial entrepreneurs and small business advocates, Chinwe Onyeagoro and Sharon Jones. Their previous venture was a successful consulting business that advised the U.S. Small Business Administration and cities around the country on helping small businesses grow.

They raised more than $120 million of capital for organizations. In doing that work, they saw firsthand how challenging it is for entrepreneurs to raise funding for operations and growth.

Committed to changing that status quo, they launched FundWell to level the playing field for businesses and help them access capital. FundWell's online platform provides loan matching, lender referrals, loan application assistance, financial health monitoring, coaching and refinancing assistance.

What's the process you use to coach clients?

FundWell's coaching process includes:

  • Assessing client funding eligibility
  • Prequalifying and matching small business clients with banks and alternative lenders
  • Reviewing client financial documents and providing tips on how to improve them
  • Helping to complete all documents required for each lender application
  • Presenting directly to lenders and following up with them until clients get approved
  • Helping to evaluate multiple loan offers and terms
  • Providing easy-to-execute tips, advising on personalized action plans to improve client fundability, and accessing more funding at a lower interest rate
  • Offering clients loan refinancing opportunities as soon as they qualify for more and/or better funding options

What's the makeup of your average and/or ideal client?

  • Small businesses in the United States
  • All industries
  • Existing businesses
  • $100K to $25 million in revenues
  • Seeking $5K to $5 million in loan funding
  • No prior bankruptcies

What is FundWell's Scorecard? What information does it give to clients? How is this information determined?

The loan matching process starts after the borrower answers a few simple questions on the site. Then a FundWell Scorecard is presented, which includes the FundWell score, thresholds for eligible funding amount, days to close, interest rate, and up to three lender referrals.

Included is a goal score, which can be achieved if you take steps to improve your financial health. The higher your score, the more fundable you are and the better the interest rate you will get on a loan. The FundWell Scorecard is powered by FundWell's proprietary algorithm, which includes underwriting criteria from more than 200 different bank and alternative lenders across the country.

What is considered low-cost capital, and why is it so difficult for small business owners to find it?

A low cost of capital is both a relative and an absolute concept. Each type of loan product is targeted to businesses that represent a different financial health profile.

The healthiest businesses are eligible for traditional bank loans with interest rates that are as low as prime (3.25 percent) and can go up to 6.00 percent. However, very financially unhealthy businesses have much fewer funding options, the majority of which are much more expensive, which can range from 20 percent up to 150 percent effective annual interest.

Low-cost capital isn't difficult to find for all businesses. However, it is close to impossible to get for those entrepreneurs that are not financially healthy. That is why FundWell focuses on helping businesses understand the cost of funding that they qualify for today and what they have to do to become eligible to refinance to lower cost funding in the future.

What kind of basic financial education do you think every small business owner should have? Where can they get it?

The traditional model of financial education is broken. It is too generalized and delivered out of context, which is why it does not effectively motivate business owners to make better financial management choices.

FundWell's approach is to provide personalized financial guidance to small business owners based on their cash flow activity, credit profile and other financial indicators/trends.

We provide regular insights on how entrepreneurs are performing against key business and personal financial indicators and targeted recommendations on what more they need to do in order to achieve their funding goals.

What do you think are the biggest mistakes business owners make when it comes to seeking money to operate? What methods do you recommend they steer clear of?

Biggest Mistakes:

  • Delay: Wait too long before applying for much-needed capital
  • Overreach: Apply for more funding than they can afford
  • Settle: Take loans that are too expensive

Recommendations

  • Know Your Options: Avoid applying to just one lender, especially if you need money fast. Always have several loan offers to consider; it is the only way to know for sure that you got the best deal.
  • Refinance Fast: If you have to take a loan that is expensive (i.e., interest rates of 10+ percent), figure out what you need to do to qualify and refinance to a lower cost loan, and then DO IT as soon as possible.

How do personal finances and small business finances intersect for small business owners?

For businesses that generate less than $25 million in revenues, a business owner's personal finances matter in the loan decision. When reviewing your loan package, most low-cost lenders analyze something called your "global cash flow."

A business owner's global cash flow is basically a combination of their personal and business income net of all regular cash expenses (e.g., rent/mortgage payments, utilities, food, transportation, payroll, interest, etc.). Lenders evaluate your global cash flow position because they want to know that if things don't go as planned with your business's financial performance, you have something else to fall back on in order to live, meet your current debt obligations, and to service the new loan you are applying for.

See some quick tips below to ensure that your global cash flow position is always strong:

  • Aim to show business profits each year, and then reflect those profits on your business tax returns.
  • Don't take on any huge personal loans and/or obligations that you can't comfortably pay for with your personal income, including salary/freelance income, investment/retirement income, etc. Target a 25 percent or less debt-to-income ratio, which means for every $100 of monthly income you make, you should not be paying more than $25 per month in principal and interest on all of your personal loan obligations, including student loans, car loan, mortgage loan, credit card payments, etc.
  • Only take necessary deductions on your business and personal tax returns. Don't do creative accounting, just to avoid paying "Uncle Sam," because lenders will assume that those obligations are real and that you have less global cash flow to commit to paying back a loan.

What are some new, under-the-radar or unique ways businesses are finding to get off the ground?

There are lots of new strategies business owners are using to pursue their entrepreneurial dreams, including:

  • Launching crowd-funding campaigns that help them immediately gain visibility in the market for their products/services, generate advanced sales from customers, and obtain funding to cover start-up/product development costs.
  • Participating in accelerators/incubators that help them refine their business concepts, network/share information with peers, get mentorship from experienced entrepreneurs/service providers and showcase their company to prospective investors.
  • Lending circles/credit builder programs that allow businesses that have experience credit issues to pool resources, loan each other money, provide peer support and rebuild their credit.

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