This interview was conducted with Tammy Magid of TMC Working Solutions, a lender offering microloans, business coaching, and education for San Francisco Bay Area entrepreneurs. I first encountered Tammy when I contacted her company regarding a microloan for my own business. After talking with her for awhile, I became aware of the depth and breadth of her knowledge in her industry. She agreed to an interview, which follows. I found this interview to be extremely informative, and at the same time accessible.
LINDSAY: How did you get involved with financial lending as a career?
TAMMY: It was an accident. I applied to Wells Fargo Bank in 2001 for an administrative assistant position to a mortgage banking group. Through the interview process I was offered a bigger position assisting the number two producer of mortgages for the Private Mortgage Banking group. I steadily grew from being an assistant and was groomed over the next 2.5 years to become a banker. I developed my own business and closed over $17.5M in mortgages. Our program was unique in that the opportunity was quite entrepreneurial. I essentially ran my own small business within our company. I wrote a business plan and projections to meet my quarterly and annual financial goals. Wells Fargo backed me and provided all the infrastructure to operate.
LINDSAY: Describe some of your best and worst experiences in lending to small businesses.
Currently, I handle the intake process that qualifies businesses to our program criteria in order to apply to our loan program. I vet businesses daily.
My best experiences include seeing a small business owner go through our process and ends up being funded. Small business owners are the hardest working and most dedicated people I have ever met. Their passion is infectious.
Worst experience: when a borrower defaults because the business is undercapitalized or wasn’t prepared to undertake the risks associated with being a small business owner.
LINDSAY: What are some common mistakes made by entrepreneurs when applying for a loan?
TAMMY: Not having a solid business plan. A myth that microlenders do not have criteria to meet in order to enter the application pathway. Lack of financial projections. We require a two year projection for startup and existing businesses.
LINDSAY: What is the role of a personal guarantee in the lending process for small businesses?
TAMMY: We enter into loan agreement with the intention that all businesses will be wildly successful. Unfortunately, this isn’t always the case. The personal guarantee gives our organization recourse in the in event the borrow defaults on the loan. Even if they shut down their business voluntarily they are still personally responsible for making payments until the loan is paid off. We have a handful of borrowers who have closed and are paying us back to this day. Our organization does not pledge assets, or encumber real property, so the personal guarantee functions a control and measure of accountability. It is pretty standard in our space.
LINDSAY: What percentage of a loan can potentially be used as “working capital”?
TAMMY: Businesses can borrow up to 100% of the to be used for working capital. However, we require that applicants submit a capital deployment plan that earmarks the funds for specific use. It’s rare that any business wants the financing for 100% working capital. Nearly all businesses need the financing to facilitate a specific activity, task or purchase of equipment to startup or expand their business.
LINDSAY: Does business experience factor into risk assessment?
TAMMY: Our program requires startup business to have 1.5 years of paid industry experience within the last 6years in the business they plan on starting up. Business operating continuously for 12 months do not need to adhere to the industry experience requirement.
LINDSAY: How do you assess the risk of a new (under 3 years) business?
TAMMY: Our organization performs a full due diligence, one colleague meets extensively with each business to vet the business plan and dissect the financial projections. We assemble a loan committee twice a month that every business who applies to our program must present to for approval. The committee assesses the risk for pre-revenue startups to businesses that have been operating for over 30 years. They make the final decision. It’s a very rigorous approval process. Our committee member consist of bankers, community partners, and small business owners, and industry experts.
LINDSAY: If a new business is started by individuals who have no assets, poor credit, and no business experience, what first steps should they take toward getting a business loan?
TAMMY: If the individuals have industry experience they are starting off on the right foot. We suggest pulling your credit report to see if you have any derogatory credit. If so, work on getting it current. We don’t require zero balances but corrective actions should be taken and to show intent of paying back their creditors. Build up capital for owner equity injection. We require 10-20% of the loan amount to be invested by the owner in order to move forward. This can be gift not a loan. Keep receipts for purchases you made for equipment or other items that might qualify towards the equity injection. Every business needs to have some “skin in the game”. Contact SCORE- they offer free one- to- one business coaching/ counseling. They can help new owners put their business plan down on paper. Use the free or low cost resources to gain knowledge and improve your opportunity to be successful business owner. Gut check- make sure this is really what you want do and understand the responsibility of running a small business. It’s 24/7 and it can be a lonely world.
LINDSAY: How do credit cards impact a loan decision?
TAMMY: We factor in all debt service during the underwriting process. We understand that many businesses ‘’bootstrap” to startup. The purpose of t he creating the cashflow projections is to ensure the business can repay the loan. Think about a debt management for all loans and credit cards. Be mindful and understand any lender will want to have some comfort in the ability of the business and borrower to cover all debt service.
LINDSAY: Tips on making the most of a small business loan?
TAMMY:
Have a solid plan.
Know how much you need to borrow.
Understand the numbers and become a student.
Seek to understand more than you know and be realistic about what you can handle. Borrow what you need and work hard being successful
Good luck. Small businesses are the engine of this country. They create jobs and build community. We want to lend more to qualified applicants. Take risks but do not fear it.
