Ami Kassar’s Guide to Raising Capital

November 16, 2020 By Samantha Braffman

Ami Kassar, the author of The Growth Dilemma, is an expert on raising capital. Kassar is one of GLO’s partners in providing our members with strategic advice on how to access capital. On Thursday, Kassar spoke with GLO about the process of acquiring a loan, assessing your level of risk, and making a plan to resolve your organization’s weaknesses.

When Kassar lost his corporate job in the 2008 financial crisis, he founded MultiFunding the next day, a company focused on advising businesses on loans. His journey with MultiFunding has led him to aid dozens of companies to find the best solutions and the right capital to grow their businesses. If you’re interested in raising capital for your company, you’ve come to the right place.

Raising Capital: Debt vs Equity

Kassar’s first step to raising capital is analyzing the pros and cons of using debt or equity. Each business is different, and as an entrepreneur, you must assess what is best for your company.

If you take the equity path, “you’re getting married.” The investor you choose will be at the table for the duration of your business. Before rushing to assume you need equity, Kassar wants you to consider the “Shark Tank myth,” the presumption that the only path to success is equity. Ask yourself, is there a way to do this with debt, and at what cost? Choosing to invest in debt can be a riskier path to take. As a business owner, you will have the responsibility of paying the debt back. This option isn’t black and white, as everyone has their own risk tolerance.

To evaluate the path for your company, Kassar recommends taking these three steps:

1. Understand where you fit into these markets
2. Evaluate your options and make multiple plans
3. Make a decision that’s best for your company

Once you’ve decided on the best option for you, execute your chosen plan with confidence.

Common Mistakes Entrepreneurs Make

The first mistake entrepreneurs make when starting their business is they think they need more money than they actually do. Stop focusing on raising a certain amount of capital. You can do a lot with a smaller amount to push your business to the next level. Kassar would encourage you to plan scenarios to sew hat you can do with different amounts of money,

“People can do a lot more than they think they can do with a lot less money than they think they need”

The second mistake Kassar warns against is not understanding the terms of raising debt or equity. Entrepreneurs often start a business to be their own boss and live the American Dream. When you take on an investor, you acquire another boss. You have to be sure that your vision of the future of the company is in alignment with theirs. You also have to be prepared to pay off the debt and pay the average 6% interest rate for loans. If you assess these mistakes and avoid them, you can evaluate better options for raising capital.

Loan Options for Entrepreneurs

The global pandemic has made the past two quarters incredibly difficult for a business of any size. However, there are still options for raising capital and finding loans.

Kassar emphasizes that there are different capital options for companies in different stages. In terms of startups, it is difficult to invest in debt options with only working capital. However, for existing companies with cash flow, there are debt options to consider. Before seeking a loan, ask yourself:

1. How much money do you want and for what purpose?
2. What do you think this money will do for your company?
3. What are you trying to solve?

With clear intent, your business should be able to acquire a loan. For small businesses, Kassar recommends looking into SBA loans.

Why SBA Loans?

The SBA, or the Small Business Administration of the United States, is a great resource for entrepreneurs to look into when seeking capital. It is a government program that encourages banks and non-bank lenders to make riskier loans than they otherwise would to small businesses in the US.

Kassar addresses the three biggest myths about the SBA that inhibit small business from utilizing this resource:

1. The SBA lends money.
   • FALSE.
   • The SBA is a guarantee program that encourages banks to make riskier loans.
   • You are not borrowing money from the government, just the lender. However, the lender does have a guarantee from the government to get repaid if you default on a loan.
2. I’m not eligible for an SBA loan.
   • FALSE.
   • Entrepreneurs often think that “small” exclude their business, however, you can have up to $5 million of capital and still apply for a loan for partner buyouts, acquiring a business, or working capital.
3. A banker didn’t tell me about it (or) said that I wasn’t qualified, so you believe you’re disqualified.
   • FALSE.
   • If one bank said no, go talk to another. Each bank runs its program differently.
   • You don’t even have to be in the same city as the bank to obtain a loan from them.

Eligibility During Covid

If your company has cash flowing and working capital, you may be able to obtain a loan for working capital. In many cases, a lien on a house scares small businesses away from seeking loans. However, if the loan is $350,000 or lower the SBA doesn’t require it.

If your company doesn’t have cash flowing, it will be much tougher to obtain a loan in this economy. Any bank will be much more hesitant to make a loan based on a forecast. In general, if a business has been badly hit by covid and there is no clear path out of it, it will be more difficult to get an SBA loan.

Risk Tolerance

If you’re curious about assessing your own risk tolerance, you can calculate your score in The Growth Dilemma. To get started, consider the following factors:

1. How do you feel about the future of your own company? Bearish or Bullish?
2. How do you feel about the future of our country?
3. Do you think Covid will be over soon or will last another year?
4. In terms of your personal finances, how much do you have? And how much are you willing to lose?
5. What is the worst thing that can happen? Is that “thing” worth the risk?

In terms of evaluating risk, Kassar states: “We tend to get stuck on the idea of ‘I need this much money’, ‘or only if I had the money.’ This becomes a hold back in getting anything done.” Kassar wants you to question, why aren’t you borrowing the money if you think it will grow your business? If you’re willing to put money into your company, it shows how confident you are in it.

When writing The Growth Dilemma, he asked business owners and entrepreneurs at different stages the same question: if you were given one million dollars this morning, what would you do with it? This probes entrepreneurs to question if you would invest that money in your own business or a mutual fund of your choice.

The takeaway from Kassar’s message is that you have to have faith in your company. Once you determine that you are willing to invest in your company, take the reigns to raise capital in a strategic way. To learn more from Ami Kassar,  you can watch his full interview on GLO’s website.