I Don't Like the Red Flags I'm Seeing

When we try to help businesses with their capital needs, we review their profit-and-loss statements. These days, around half of the statements we see are down compared to last year.

By Ami Kassar

I am always hesitant to make predictions about the economy. I am skeptical of so much I read and often wonder about the timeliness of data that the government produces. I have said for years that there has yet to be a playbook for understanding the impact of the trillions of dollars injected into the economy because of Covid-19. And for several years now, many have insisted that a recession must be around the corner. Yet, it has felt for a long time that we are coming in for a relatively soft landing.  

But now I’m seeing some red flags. In our work at MultiFunding, when we deal with the financing issues of small business owners and entrepreneurs around the country, our vantage point gives us some interesting insight into what is happening in the economy. A few months ago, we started to see shifts in the underwriting criteria of several small business lenders, which is often an indicator of troubling times ahead. I began to wonder if changes were coming. And now, I see more changes that I consider worrisome.

Over the last several weeks, we have received far more calls than usual from businesses that have hit cash walls or are approaching unexpected bumps in the road. Their businesses have slowed, and they are scrambling to figure out what to do. They are worried about making payroll or paying rent. In many cases, it’s been a long time since they have faced these kinds of issues.

When we try to help businesses with their capital needs, we review their profit-and-loss statements. These days, around half of the statements we see are down compared to last year. For a business in that situation, it is much more difficult to get a loan at a reasonable rate.

We see the world from the perspective of borrowers looking for money to build their businesses and lenders who are businesses, too, and also need to make a profit. These days, lenders are more complicated to read. For every optimistic and hungry lender, another one has tightened up and is operating more conservatively. But is what we are seeing at MultiFunding indicative of the economy as a whole? To test the environment, I conducted a quick survey with entrepreneurs in a few WhatsApp groups. Interestingly, about half the responders are having great years, and the others see softness in their businesses. 

I want to be clear that I am not painting a doomsday scenario. Economies don’t grow in straight lines, and companies rarely do either. And these times are especially unsettling: I think what we see for many is a concerning mix of higher expenses (including borrowing costs), Covid money starting to dry up, and the uncertainty of the looming election.

I do think, though, that interest rates will soon start to come down. And then it will take some time for us to find a new economic equilibrium. We must prepare to hold on for the ride and plan accordingly. At our company, we have adjusted budgets and made some tough choices, including reducing personnel to weather this storm. These decisions are never easy, but I think it’s the responsible thing to do.

For more on these issues, you can listen to my 21 Hats Podcast conversation with Loren Feldman.

Ami Kassar is CEO of MultiFunding.