Monday Q&A: Turning on the faucet for small businesses

It takes money to make money, and therein lies the challenge for most start-ups.

Alex Cherlin, local owner of Compound Profit, started his business just over a year ago to address that need. Compound Profit is a Texas-based franchise that provides start-ups and small business with various financing options, including offering loans based on a company’s accounts receivable.

Cherlin, 50, has worked a number of sales and management positions throughout his career. Most recently he worked for a seller of operating room lights and tables but was let go after a company reorganization. A resident of the Richmond area since 1996, Cherlin decided to launch a business to help other local businesses get a leg up.

BizSense chatted with Cherlin about his company and the mood of the small businesses he works with. Below is an edited transcript.

Richmond BizSense: What made you decide to go into business for yourself?

Alex Cherlin: I was at a crossroads of “What do I want to do? Where do I want go?” I always wanted to own a business but couldn’t find financing for it. Then I stumbled into Compound Profit. It’s a franchise business and it does small-business financing.

I thought my situation is not unique and that there is a great need for that.

RBS: What types of clients do you work with, and what are their needs?

AC: Most of our clients are purely start-up businesses looking to get some seed money — bootstrap financing-type scenarios. Companies that are growing and have a good strategy for growth but have challenged credit or haven’t been in business long enough, those are our clients.

RBS: What specific industries?

AC: Across the board. A lot of our businesses are trucking and transportation companies, [but we’ve] done work with a propane gas company, service companies and multiple types of business. Anyone that has receivables that are slow paying.

It used to be 30 days payable was the scenario; now it is more like 60. A lot of big companies out there are saying, “We are paying in 60 days,” and that strangles lots of businesses.

RBS: What funding amounts have you provided to businesses?

AC: I’ve done as little as $25,000 and as much as $3 million on an equipment-leasing arrangement, and everything in between.

RBS: Have you had any clients default on loans or lines of credit and had to collect?

AC: We haven’t had any client go out of business. Even if they do, we vet out the companies we are factoring receivables. There is always some exposure to risk, but it is minimized based on the strength of our clients’ customers.

RBS: What is the mood among these companies? What are the biggest problems that they face?

AC: A lot of the businesses I speak to are cash starved. That is their biggest challenge. They want to work with bigger companies and do larger deals, but everyone is pushing receivables out for 30, 40 to 60 days. As they try to grow and need that working capital, they don’t have the cash flow. They feel like if they can get money they can get more equipment to do more work or advertise. Being pinched by slow-paying clients and customers is hurting them more than anything.

RBS: What about their feelings about banks? I assume many come to you after being turned away by a bank first.

AC: We consider ourselves a partner to the bank. A lot of folks come to us upset because the banks aren’t lending. The challenge is that the banks are lending, but we are all a little more dinged up, so we are a higher credit risk. The bank’s capacity to lend isn’t what it was, and they are being more stringent. And they should be.

When someone comes complaining about the banks, I kind of defend the banks and let them know that they want to lend and take on good clients that can pay them back. That is where I come in to work with clients to get them to the point where they are bankable again.