Most business owners are of the belief that whatever goes on in their business should stay under wraps—the only people privy to the information being within the company. But that approach has some severe drawbacks when it comes to your finances, and with the need for many small businesses to take out loans, sooner or later, your company will have to bare it all. Merrill Chandler is joined by Tom Hazzard, the Co-Founder and CEO of Brandcasters, Inc. Together, Merrill and Tom talk about why transparency in business can only help your fundability. This is an important subject, so make sure you don’t miss this conversation.
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The #1 Transparency Secret to Getting Approvals
We’ve got part two of our series about why lenders are not lending and the shutdown of the SIC codes. We’ve invited back Tom Hazzard, who’s going to weigh in on even more insider secrets.
Tom Hazzard, welcome back. You have some more information from the last SIC Code, SBA and everything that’s going on with the lack of fundability of certain codes. Catch us up. Will you go back a little bit and cover the highlights for those who didn’t get to that first one? Then let’s get to know what’s going on now.
Merrill, thank you so much for having me back. It’s fun to be here. A little recap, you should go back and read that other episode if you haven’t read it where it talks about the SIC Code. I got a call from QuickBooks Capital because I’m the owner of the business. We had two previous QuickBooks Capital loans, working capital loans in 2019, it was six months loan to get some capital to pay it off. We paid perfectly, there were no problems. They called me because they knew the second one was about to be paid off within days. They said, “As soon as that’s paid off, you can apply for another one.” They’re in the business of lending money, that’s how they make money.
This is key. They called him to set up for the next loan because it was a flawless execution of two previous loans.
I said, “That sounds good. I was thinking we would do that anyway. It was a good thing for us.” Keep in mind, this was before everything got shut down and before the Coronavirus came. In about the week of time that passed between they called me and invited me to apply and then I applied, I was denied. I was like, “That’s funny. I wonder what’s going on here?” When I called them, the reason it said was, “We don’t lend to your type of business.”
By the way, in my bootcamp, I have a whole little section on the SIC Code introducing where I circled that where they can’t deny you for sex, religion, age or whatever, but they can deny you because of the type of business that you’re in.
It was puzzling to me because they had lent to us twice in 2019. I was like, “We were the same company we were then. Why aren’t you lending to us?” I dug deeper more because I was puzzled by this and of course being a student of Merrill’s, you need to know what you don’t know, you’ve got to know the rules or else the system is rigged against you, all this good stuff. I called into QuickBooks Capital and I worked my way up to a very high-level manager in QuickBooks Capital. He gave me his email, so I emailed him and I got his direct dial number. He said to me, “It’s because of your SIC code.” What he told me is when Congress, in a hurry, passed the first PPP, which is the CARES Act with the PPP Loan Paycheck Protection Program, in advance of that being passed, the FDIC knew it was coming. Because QuickBooks Capital, among most lenders in the country, is FDIC insured, they made 78% or 73% of all SIC codes unfundable and no lending institution is allowed to lend any of them.
They flipped the switch and said no to any of them. Remember, the rationale that we talked about last time, there were several reasons. We’re connecting the dots because we weren’t at the table with the FDIC but I’m telling you, I know that they wanted to keep the pipelines open and the books open for all the lenders. They want lenders to be able to push out this PPP loan like Wells Fargo, they had a low asset cap so they couldn’t loan as much unless you stopped lending to all the actual real commercial loans. You have to stop the commercial loans to make way for this behemoth that was coming down the pipe called PPP.
That’s what we learned. First of all, the big issue with us is our SIC code was incorrect and that illuminated to us, we needed to get that fixed. My thinking at that time was I need to get the SIC code changed and then I’ll be able to get a conventional loan because I’ll be in that twenty-some odd percent that they can lend to me. QuickBooks Capital admitted they want to lend to me. They’re in the business of lending money. They don’t like it any more than I did that the SIC codes couldn’t be lent to. I went on that path for a few weeks and I did not apply for a PPP Loan in the first round of the $350 some odd billion in the CARES Act. I didn’t do that. I kept playing this up for a few weeks, I said, “Let’s get the SIC code fixed.” QuickBooks Capital were helping us, “We’ve identified the proper SIC code for you is this but unfortunately, we’re still not going to be able to lend to you right now.”
They’re still not going to lend to you because they switched them back off after days open.
Weeks passed and I’m keeping in touch with the people at QuickBooks Capital, which I have to say has been a great experience working with them. I had the direct dial number, not cell phone number, of QuickBooks Capital’s manager who seems to be very high-level. He was in meetings where they’re dealing with PPP and then learning about things. This is all new and all that. I could tell you the date, it was on Friday, April 24th, 2020 that I had a call with him and he says, “You qualify for PPP.” I was like, “I know but my business is not one of those that’s desperate and suffering.” We’re doing well and I felt like I shouldn’t do the PPP but what he made clear to me is he said, “It looks like the FDIC is going to continue to make these SIC codes unfundable as long as the second round of PPP is going on. It won’t be for a few weeks after that before you could get a conventional working capital loan.”You put yourself at a disadvantage when you're not transparent. Click To Tweet
When you told me that, that is where I did the math saying they have to keep the pipeline open because the first round of $349 billion, FDIC and the Fed Credit Line was not set up yet. Every lender was filling up their asset and hitting their caps before they could sell those loans back to the Fed. They were tapping out to help the process. They’re shutting down the freeway called the funding mechanism and leaving it only open to the PPP. It’s Martial Law for funding.
It’s been an amazing experience because I learned many things. There’s about the underwriting process, the information you have to communicate to them to apply, and this is all the important things we need to share. He convinced me and he’s like, “Tom, your business qualifies for PPP. You’re not going to be able to get any other capital right now. You should do this for your business.” He didn’t need me to do it. The QuickBooks Capital is going to lend all the money they possibly can. This is the first thing I learned. This is when the second $250 billion had been passed by Congress, the second wave of PPP. He told me that QuickBooks Capital has been allocated $2 billion of that.
That’s barely under a full percentage point of the entire amount was given to QuickBooks Capital because it’s an equalizer. Tons and tons of small businesses use QuickBooks Capital and the access to your books makes it easy for the future.
I learned so much about this. I want to make this clear. Our company uses Intuit QuickBooks to keep our books. It’s electronic, it’s online and we keep it up-to-date and reconciled on a monthly basis. For any of you business owners out there, if you’re not doing that, that is an absolute must, then you’ll understand why you want to do that. Since our books are kept in QuickBooks system and QuickBooks Capital is a part of that company, they’re all connected, they’re sharing all the same data, they were able to go into all of our books and see how much payroll we had in the last three months, how much rent we paid, how much utilities we paid, all the things that qualify with this PPP program.
Tom, what’s that called? Automatic underwriting matching data points. That is weird that automatic underwriting speeds and they trust the data a hundredfold more than any of the forms or spreadsheets or whatever else you’re sending them.
They have all our data. We’ve been doing business with them for years since the beginning of this corporation we started, it’s been on QuickBooks and it’s also connected with our bank accounts. They know everything about us financially. We’re people of integrity, we’re not doing things we’re not supposed to do. They’ve got all the information. It made the application process a breeze, literally five minutes on the QuickBooks Capital tab in your QuickBooks account. They did all the calculations. They take all those expenses and they average them over three months, multiply that by 2.5 and that’s the amount of money you qualify for with PPP.
To update everybody because they haven’t run out of money yet. I don’t know what the pace is but know that it’s the company insurance, it is payroll. It is at least lease and your lease or rent that you’re paying on a traditional building or space, multiplied by 2.5. They want 2.5 months to get through this COVID peaking before it plains out.
I decided I’m going to apply. I’m not going to shut myself off to Capital. I’m in the business too.
Especially when it’s a grant.
Yes because you did that and now having gone through it, it’s not that hard to make it forgivable. Even if it weren’t forgivable, it’s 1% interest. Tell me how you’re going to get a loan from for 1%. I applied and it was a quick process. They had all the information. Basically, I had to confirm my identity and company’s EIM. The important is put your bank account information in there where the proceeds are going to go to, your routing number, account number and apply. This manager for QuickBooks Capital was on the phone with me as I’m doing it and he said, “Let me check.” He was typing on his keyboard. He goes into the backend and then he says, “Your application is in. You’re set as long as the SBA doesn’t have a reason to refuse you, then you’re approved for loan.” I said, “How do you know that already?” He says, “We know because we have all the data and you qualify. The system knows, it’s the software.” This was interesting, he told me, “Now that you’ve applied, your money has been taken away from our $2 billion allocation. It’s reserved.”
I want us to pay attention to the words that are coming out of Tom’s mouth. What we’re getting is a human being confirming the process of automatic underwriting. We’re getting Tom’s data points get measured up against the criteria that have been set up by the FDIC and the Feds and literally say, “Check.” Remember in the bootcamp, everywhere I talked about, “Check, green light, approved.” That’s exactly this process. We happened to have human confirmation of how it works.
Thank you, Merrill, but I’ve got to tell you, there’s more to the story. I know you geek out on these details and things. I do too. I somehow developed a good rapport with this manager at QuickBooks Capital to the point where he’s like, “You’re one of four companies that I’m hyper being aware of and your QuickBooks account is in a tab on my browser and I’m watching it.” He gave me his cellphone number, not just his direct dial number that’s VoIP line that gets forwarded to him when you called. I’ve got his cell phone number and he said, “I’m going to keep in touch with you over the weekend.” Remember this was Friday, April 24th, so I’ve got Saturday and Sunday. The other interesting stuff is that all of the data from loans that QuickBooks Capital has had people apply through them and they’ve been approved through automatic underwriting were starting to be transmitted to the SBA on Monday, the 27th of April 2020 at 7:30 in the morning Eastern Time. He says that’s when it goes in. I also learned some other interesting stuff. They worked in conjunction with a bank in New Jersey called Cross River Bank.
The SBA does or QuickBooks Capital?
QuickBooks Capital decided to further with that.
All FinTechs have a depository institution.
They had developed a relationship with Cross River Bank in New Jersey specifically because of a little-known electronic system called eTran, which the SBA uses to transmit loan information, loan data and then for the SBA to transmit back approvals or denials. It’s a pipeline. It’s a conduit into the SBA, a mechanism of transmitting all this stuff. They worked with Cross River Bank because they had a particularly robust infrastructure for doing that. You’re not pushing paper to get loans for this all electronic data.
I want to tell you to compare contrast. We always talk about manual versus automatic underwriting. I have clients who send emails to me that are saying, “I’m still waiting for my PPP.” The email from Wells Fargo, while the second half was being approved said, “We’re waiting, you’re in line.” Another email they sent and said, “We’re now processing new loans. We have mobilized hundreds of team members to ensure that we get you through this process.” I’m sitting here going data point and QuickBooks on a tab in the application versus $20, $30, $50 an hour to mobilize hundreds of employees, game over. Here’s the thing, in commercial lending, Wells Fargo is a superstar when it comes to automatic underwriting but it’s vertically integrated with systems that are not what we’re talking about here. It isn’t pivot in seconds and be able to add some fields on your website, fill in those apps and off to the races we go. This is a perfect compare and contrast of what’s going on out there.
One of the things I was impressed to learn about QuickBooks Capital, I’m a customer there, I’m not being paid to push them. I’m impressed by them.
This is amazing.
The thing about the PPP is here’s a law that was passed by Congress in a rush the first time. There were no systems in place to process this loan. They’re all new rules. What I learned is some differences happened from the first round of $350 billion roughly to the second round of $250 billion. QuickBooks Capital had to reprogram certain things in the process on their website and how it happens. Interestingly, I get a call from QuickBooks Capital, not from my inside contact, saying, “The SBA is now requiring some additional information on your application in order for it to be processed properly. You need to log back into your QuickBooks account, go to the Capital tab and provide this other information.” I said, “I’ll do that.” I got that call before it was possible for me to go in and do anything because they hadn’t programmed it yet. They were programming it on the fly. What it ended up being was the SBA had learned from the first round that there were some foreign corporations that do business in the United States that were applying for PPP loans and getting them initially. They wanted to make sure the person applying, the owner of the business, was a US citizen number one. It was about US citizenship.
One more thing about identity. Notice that identity is the number one that moves you through automatic underwriting or it cuts you off. Identity is always central to this. I jump up and down about it all the time because I’m the geek, but as we come to this awareness, everything they ask for is more about data. Is this truly a person that we want to lend to and who’s backstopping this loan grant, whatever it is that we want to call it?
I made sure I filled out that information. I texted and called my inside guy and said, “I did all this. You want to make sure it looks good? As long as I have you to be able to communicate with, let’s verify it.” He said, “I verified it. Everything looks good, no problem.” We kept in touch throughout when the money went in and we were communicating every other day, every third day for the following week to ten days. What I noticed in my QuickBooks account online, it said, “Your application has been received,” but the status didn’t change. That’s not a big surprise because they haven’t programmed this thing with a lot of experience. Even though they have this very fast pipeline and they communicate everything, the SBA was throttling the transmission of data and only taking so much at a time and who they’re taking it from. I don’t know how they do all this, but it all got communicated in.There are an awful lot of lending institutions that are not modernized as much as they need to be. Click To Tweet
A couple of days down the road, I’m talking to him and he says, “You’re approved. Unless the SBA comes back and finds you have some disqualifying event in the last ten years, you’re going to be approved. In fact, all the denials came back from the SBA first. If you applied and you had a disqualifying factor in the eyes of the SBA, that came back first and your QuickBooks Capital tab for the loan because you would have said you’ve been denied.” Those of us that did not have a denial after a couple of days, you knew you were getting approved.
It’s the processing time to hit every one of it. What’s fascinating is as you say that, it does make a lot of sense because denial is going to come back like identity and citizenship, or you’re a corporation. We did a Facebook Live about how many big corporations like Shake Shack and all these big huge corporations, Ruth’s Chris Steak House, were getting millions of dollars that didn’t deserve, they’re not small businesses and they got approved. It makes sense that the denials would come first simply because they’ve got their underwriting criteria down the second round compared to the first.
They learned a lot from the first to the second. Eventually, even my guy was using me as a beta tester for their software and their system. He said to me, “Can you check your QuickBooks Capital tab and tell me if it looks any different?” I was like, “No, it looks the same.” “I’ll get back to you.” They were doing stuff. Then the first notice was an email that said, “You’ve been approved. Click this button to review the terms whether you agree to the terms, understand the repayment obligation, the requirements and how you get it forgiven.” We reviewed it and I’m like, “What’s not to love about this? I’m going to accept that.” It said, “Your money will be transferred within a couple of days and then you’re done.”
It went through the whole process. What it illuminated to me is if you’re a company that uses a payroll system other than QuickBooks Capital, even if you did your books there but you use a different payroll service, there are lots of payroll services out there. There would be another level of verification that have to go through to make sure that information is verified with the group. To me it was like, “There are a lot of companies out there that for whatever reason have decided they’re going to do their books in a certain way, that they’re going to use certain systems to do it. They’ve never ever considered automatic underwriting in the decisions that they’re making.”
In the old days, when you were getting commercial loans from them, the reason why it was such an easy process is because they have all of your books. Some people get nervous saying, “This is all private. I want this to be private.” I don’t disagree with them. What I teach is that if you’re going to play this game, you’ve got to get into the game. You’ve got to suit up, you’ve got to get the right equipment, you’ve got to practice and train to play this funding game. One of those is access and transparency. We talked about transparency for your QFE, your Qualified Fundable Entity. They need to be able to see through to you and what you did with QuickBooks is exactly that. Identity was clear, citizenship was clear and it was a clear vista. It was straight through. They could see through your entity, see through your books to be able to fund you. To me, the rewards and being able to capitalize on capital is worth far more, especially as I’m going to give those books to the Feds when I file my taxes or otherwise. I give them to investors if someone’s looking to invest. They’re not private documents if you want to scale and become more and more influential in your space.
You put yourself at a disadvantage if you’re going to not be transparent, and maybe you’re still a person of integrity and your business is completely on the up and up on the right side of the legal line of things and that’s fine. Clearly, there are businesses out there that are not in integrity and on the right side of the legal line of things, and that makes them disqualified easily. It’s cliché and it’s a little bit old but I’m hearing Al Gore on my mind about the information superhighway. Remember when he called the internet that? The reality is that’s what this all is. It’s an information data superhighway for not only doing business properly as a company. That makes things easy at the end of the year when it’s tax time to figure out your taxes, you don’t have to try to reconstruct your books from a whole bunch of money. You’ve got it up-to-date because you should and you need it up-to-date.
It’s transparent between your banking accounts, everything that’s coming in, it filters all your expenses because you tagged them already.
I feel like I took a supersonic jet across the Atlantic Ocean to the UK and got there in a couple of hours, rather than taking what could be a boat.
I’m telling you, if funding is at the other end of this transatlantic journey on the supersonic, then I’m all in because transparency is transparency and everybody’s going to look for and know. I used to be way more interested in what I called privacy. There’s a lot of mythology around what privacy is. I’m not saying everybody should know everything about everything but I am saying that if you’re going to go into Wrigley Field and you’re going to go up against the Cubs, you’ve got to suit up. You can’t bring a football, you’re bringing a baseball. You’ve got to play that game. We can’t stand on the sidelines or out of the park going, “Why can’t I get any money?” You’re not willing to get in and play the game that’s being played. I’m all in on that. That’s what I love you being able to come back and share with me with this whole new level.
I’ve been saying more lately than I typically say but I’m enjoying being right. I thank heavens I’m humble and gentle shoeshine boy. It’s awesome to be able to see the validation in stress times and recession times when we’re coming up against the more and more times where the funding target is getting smaller. If we’ve already been hitting the bullseye in our fundability, we don’t care about that it’s shrinking. We’re still fundable here in this middle. Tom, thank you so much. Any other bits and pieces from this conversation or what you got as a result of all of this?
The biggest thing that I got is that there are an awful lot of lending institutions that are not modernized as much as they need to be efficient in this. The reality is we learned that the government, I don’t know what part of the federal government Treasury is, but it allocates percentages of the total funds to different institutions. It’s not that all one bank that communicates the fastest has all the money. That’s not true. We learned that. There is an efficiency and there is an advantage. As a business owner, I see completely the benefits of being transparent. I have to be honest, Merrill, years ago, I was of the mindset that privacy is more important than transparency. My thinking has changed on that. It’s because of the rules of the system. I learned a lot of this from you and your bootcamp because we did not use our resident’s address as the address on our driver’s license as the billing address for our personal credit cards, and all that stuff. After going through your program, we had to unwind all that and change it because we were trying to be private about our residents regarding that. You can choose to do that but it’s going to come with a price.
I’ve come to the same conclusion like your thoughts and your a-has on privacy. I love my privacy. I also know that I want to play this game and I play it big. I coach huge teams of people who all want to play it big. I go back to the same hard press metaphor. If you’re going to play this game, play it to win, that means you’ve got to go all in.
You’ve got to go in, you’ve got to be transparent and I highly recommend keeping all your business finances, your payroll and all that in an integrated system. It makes all of this so much easier because I want to align myself with the software that’s going to say yes now than get kicked out in the manual underwriting, have somebody take ages to make a decision and then I get less and less for a higher rate and all this stuff. What’s the algorithm? Let’s do it.
Tom, as always, it’s a pleasure. We have a blast. I love it when you texted me and say, “You’re not going to believe this. This is awesome. I can’t wait to share this with you.” I know we’ll have you back. Thank you again, Tom. Get all this information, find out as much as possible, then go to GetFundableBook.com and find out the principles. Go to GetFundableBootcamp.com, find out the strategies to start implementing because what we’re talking about here is high-level stuff and you learn it all in these platforms. Thanks again, Tom. You’re my superhero.
It’s my pleasure. Thanks for having me on, Merrill.
Be well and see you later.
- Tom Hazzard
- Previous episode – The SIC Code Mess with Tom Hazzard
- QuickBooks Capital
About Tom Hazzard
Award-winning strategic product design & development expert, Tom Hazzard, is a forward-thinking entrepreneur with great sales conversion skills. In addition to co-hosting the Forbes-featured fast growth WTFFF?! 3D Printing Podcast and the Feed Your Brand Podcast, he successfully launched over 250 consumer products raking in over $2 Billion at e-commerce and mass-market retailers with his wife and business partner, Tracy.
He believes that the goal of any product, service, marketing or business launch is to make “it” sell itself, that is why he often talks about streamlining business processes to keep marketing expenses at a minimum. Tom loves being in podcasting because he gets to meet people from many varied industries, and because he gets to broaden his perspective from all the widely different areas of interests he encounters at work.
Tom loves to work on his 1972 Volkswagen Karmann Ghia, a car that was handed down to him by his Grandmother.
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