“Panic Induces Panic”: David Goldin on Small Business Funding and the Coronavirus

With companies in Australia, Britain, and the United States, David Goldin has weathered storms of various sizes and seriousness over the past two decades. Whether it was the recent wildfires that saw state-sized infernos engulf the Australian countryside, the regulatory upheaval that is Brexit, or the unprecedented shockwaves sent by the 2008 financial crisis, the CEO has seen his fair share of global disruption.

So when deBanked got in touch with Goldin about his perspective on the coronavirus pandemic, how it compares to what he’s seen before, and what funders should do to combat contagion, he was happy to discuss the insights he’s garnered from twenty years in business.

The following Q&A has been lightly edited for clarity and succinctness:

deBanked: Generally speaking, how bad do you think the coronavirus pandemic is going to get?

“I don’t think anyone knows the outcome. I think what you’re going to see is the industry completely change over the next few days. In the last 48 hours you went from mild cancellations to, today alone, the NBA, NHL, and MLB. And Cuomo just announced in New York that there can be no more than 500 people at events, colleges are shutting down left and right, and schools as well. Basically, we’re heading in the direction of shutting down the entire country at some point.

So I think funders have two issues. One is their existing customers, right? And how do you lend in this market? There’s the obvious and the not so obvious, because, for example, a deal that may have been great a few days ago, let’s say there’s a college bar near SUNY Albany, and they just announced this shutting down of schools, that bar may not see any business for who knows how long.

I’m not the CDC, I’m not the WHO, I’m not a medical expert, but I know in life, people are always afraid of the unknown and panic induces panic, but this is just my opinion. So I think once people start getting this virus, which is inevitable, and they recover from it, I think that’s going to offset some of the panic.

I think you’re going to have a couple of more shock factors. I would not be surprised if we learn in the next few weeks that the President of the United States has it.”

And what about our industry specifically?

“I think right now, lenders will say, ‘Well, if I [tighten up], typically what happens in our industry is if a company runs into trouble, it’s usually just that company,’ right? So if they start tightening up, they lose the business.

The entire playing field will be level by Monday or Tuesday of next week, by the latest. I think some of the playbook will be that some funders may take the position to stop funding for the next couple of weeks and look to see what happens because no one knows how bad this is going to get.”

Do you have any advice for funders?

“I think you have to price the risk because I think everyone is foolish to think that the bolts are not going to go off. So you’re either going to have to increase the pricing to the customer or raise the rates to the broker and limit the amount they could charge the customer temporarily for the increased risk your portfolio is now going to take.

I think you need to shorten the term. During the 2008 recession, the industry was at a 1.35 to a 1.37 factor rate, averaging six or seven months. There weren’t too many providers back then going past a year, there really was no such things as a second or third position.

This is a much different world we live in. So I think, unfortunately, some of the platforms that tend to be longer-term players which do one year, two years, three years, even four years, I think they’re going to be in a lot of trouble. Their ships are too far out to sea and I think they’re really going to have to focus on portfolio management and collections.

There’s going to be opportunities in the marketplace for those that don’t take a prudent approach, but I think in the short term people have to shorten their terms, potentially raise pricing for risk, and decrease the amount of capital that they’re taking out of a customer’s gross sales.”

What lessons do you think can be learned from this?

“I think as a platform you have to look at redundancy of capital, and that the time to raise money is when you don’t need it. So I think this could be a lesson for all to perhaps have more than one funding source.

I think brokers are going to really have to diversify. There’s good and bad, I think the approval rates at companies are going to fall through the floor, but I think you’ll get a lot of borrowers over the next few weeks that can typically go to a bank that won’t be able to go to a bank. But you’re going to see a lot of watching and waiting right now. And you’re going to see the industry revert back to where it was a while ago: shorter term deals, pricing in the risk, lower gross sales taken.”

How does this compare to previous crises?

“So I think this one’s a little bit different. It’s affecting everything and your playbook is going to change literally daily. This will be affecting the majority of the major cities. When you’re shutting down things like the MLB, the NBA, the NHL, shutting down colleges and universities, I don’t think this country or the world has ever experienced anything like this for this extended period of time.

Now that doesn’t mean everyone’s going to go out of business, there’ll be a redistribution. For example, if it was a restaurant in midtown Manhattan that relied a lot on people going from work, and these people are now working from home, perhaps their local restaurants or supermarket may see an uptick in business.

I think you’re going to see decisions slowing down and really digging a lot deeper into the underwriting, understanding what the business actually does, how it’s potentially affected.”

What should funders be doing to combat contagion?

“They should be testing a disaster recovery plan to work remotely.

But most importantly it’s really about everyone being healthy, helping their families and their employees. That’s first and foremost.”