How to Manage Your Credit During a Crisis with Mark Ritter

Recorded in the midst of a global pandemic, my conversation with Mark Ritter, CEO of Member Business Financial Services, gets into the concrete steps you can take to ensure your business has the capital it needs to weather the storm. If you’re a business owner who’s wondering how to safeguard the future of your business, listen in. 

Transcript

spk_0:   0:00
all right, This is a pretty timely episode as it was recorded. This is right in the middle of Corona virus hysteria. Trying to figure out what to do as it we come out of this is going to be tricky for business owners, there's no question. So this timely interview with Mark Ritter couldn't be better. He has decades of experience in the credit and lending business. And despite what you may think about credit or loans one way or the other businesses, we're gonna need capital to get themselves out of what we may end up with as a result of this virus. So in this episode, I talked to Mark Ritter. He's the CEO of M B. F s. They're actually owned by 13 different credit unions. Help support over 70 credit unions nationwide. He's been involved with the business lending of his entire life has tons of knowledge and experience. We get real tactical talk about practical ideas about how you can use lending to help protect your business in the short term and grow your business in the long run without any further ado. Here's

spk_1:   1:01
my interview with Mark. Thanks for being on the show thank you for having me, j looking forward to it. So as

spk_0:   1:13
we're recording this, we're in the midst of one of the most crazy economic worldwide health issues that I can remember and maybe ever at least in modern history in the last 50 or 100 years, and the fallout of this is going to be significant and so as a read through your bio and realized how much experience you have with credit unions and business lending and loans, I'm really excited to have this conversation. Things we really tactical before we jump into those tactical pieces which I want to get, too. I've loved her a little bit about your entrepreneur journey. What led you to the type of work that you're doing today and kind of How have you lasted the test of times in business?

spk_1:   1:52
Sure. When I was younger, I had ah more of a football background kind of that mindset of Go, go, go. And afterwards I found that I was after college. I found that I was really good at numbers and number crunching and analyzing businesses and things like that. And also I really enjoyed helping businesses and kind of morphed my way into commercial credit. But then I found credit unions and I always really enjoyed. There was a combination of a few factors. I always enjoyed more community based financial institutions as opposed to big banks, big corporate Wall Street. That really didn't have much of an interest in me. But we I then more my way in the credit unions. And there was this whole peaks of businesses and industries popping up where credit unions were entering commercial lending. And what happened is I started up a credit union shop from scratch. They hired me and said, We don't know what we're doing And I was there 10 years and built it into my own little business and industry. And then from there I had a bunch of a lot of friends in the industry, and they had a company designed to help credit unions and credit union members gain access to commercial financing. And to put it in perspective of where they were. I was the fifth CEO in five years. Eso things weren't going well, so I started up at this company where it was really failing, so to say, I hate to say it But we had maybe 23 people, and we've really kind of built it into this powerhouse of a company where we worked with dozens of credit unions all over the place to help people get the financing that they need.

spk_0:   3:42
So it's interesting because I think credit unions in general Ah, lot of people maybe don't know the difference between a typical commercial to the typical bank in general and a credit a local credit union just for, you know, education sake. Can you just provide a little bit of clear what what is the big difference from? Something would be called a credit union and something that is just the bank.

spk_1:   4:01
Sure, you know, and a lot of times when you walk in they have checking accounts and they have car loans and you can get home equity loans and people aren't, they say, Oh, this is pretty similar. What really differentiates them is when you lift underneath in terms of the corporate structure. What a credit union is is a non not for profit financial cooperative. It doesn't have stockholders. It's owned and managed by a board of directors, which is elected through the membership of the credit union, and it used to be credit unions had a very tight membership, but that's more than rarity than anything today. Credit unions have usually generally pretty open memberships where if you're driving by them, there's a pretty good chance you can go in and open up an account. So it's really that corporate philosophy that's different and the structure. We're not a for profit corporation, so you can't just merge out your credit unions and sell it to the bigger bank up the street.

spk_0:   5:01
Yeah, I know here locally, I do some business with one of our local credit unions in Florida, and I mean the rates that they have but often seem like they're hard for anybody else to beat incredible rates on loans. And interestingly, I don't know why, but I think I think of my credit union Maur for personal stuff like, I don't have a car loan with one and a great rate, and I have a few other things going on there. But I don't have any my commercial stuff there. So we're credit unions, originally just personal, and they've made that transition over the last decade plus, or what does that look like.

spk_1:   5:32
Interestingly enough, the original credit unions, when they were first form, were just for businesses. This is going way back in history, and they have morphed into the credit union for the local teachers group or the local factory or the local military base. And what happens really is over. And 100 million Americans belong. The credit union's almost 1/3 of Americans and people generally like their credit union, and what happened over time was more and more people left their employer and started up their own business. Or they had a spouse debt or that had a business. And back in the late nineties, the Congress loosened up. The law's a little bit to allow credit unions to get into the business lending and commercial finances. And it's really grown since then, to the point where last year there was over $24 billion of commercial loans done through credit unions and people. That my biggest challenge today isn't telling people that they should consider a credit union because most people have a pretty good impression of their credit union. Nobody's protest ng in the streets against their local credit union, but it's getting them to consider that for that next step for the complete relationship, whether they have a business, whether they have real estate investments or or they're looking to start a business,

spk_0:   7:06
that's really interesting. And I never knew any of that With regard to the history of credit unions. I'd love to dig in a little bit on some real practical stuff because, well, we don't know what the economy is going to do right now. Well, I don't have a pretty good idea. It's not gonna be doing very well for at least a short period of time, Hopefully a short period of time. And businesses are going to need resource. Is there going to capital there needs something to help bridge the gap, if you will, between whatever is happening right now in the economy and hopefully the turn when it goes and grows again. So, I mean, we're literally right in the middle of this thing right now with not a lot of visibility for the future. Depending when people listen to this, they may have more visibility. But what are you seeing right now? That would be busy. Some advice that you would give the business owners and business leaders. They need to be thinking, considering as it relates to cash investments and ultimately lending.

spk_1:   7:57
Right now, people really need to look and see. Are they dealing with a bad event, or is the inherent nature of their business under stress? And I hate to give you a good example, but I'll give you a good example of if you're in the travel business and you focus on being a travel agent for cruises. For the longer term period, you're going to have a stress or to your business. If you have a nice restaurant cash flow, you don't. It's our is going to be brutal for a little bit, and I don't know how much people can really help other than waiting it out. But if you have maybe a business to business economy, it's gonna be a bump in the road, and I think we're gonna be okay overall. Now, if you have those lines of credit established already, now what? You find out what type of documentation you really have, because banks either have discretionary lines of credit where they can call the notes at any time or they have committed and obligated lines of credit, where therefore a set terms. If you have a discretionary line of credit, go ahead and pull that down right away, so you can have access to that cash. But if they still call of alone, you could have some trouble. Now, if you have a term based line of credit where you have control over a certain period of time, you don't have to rush out and pay interest right away. There's also a lot of great SP a programs out there today. The one piece that I'll say about about credit unions is we don't have people rushing to our door to draw down their lines of credit because during the recession 10 12 years ago, we really made a commitment when there's government shutdowns, other at the federal or state level credit unions, air co operatives here for our members. And it's not in our best interest to just be harsh for people. And we really want to work with people.

spk_0:   10:00
Yeah, that makes a lot of sense. So the two different types of line of credits discretionary in term, when when somebody wanna have a discretionary women, when would they want to have a term. Is there one to spend together? Well, the

spk_1:   10:11
banks always would rather have a discretionary one. And you would wanna have kind of those term loans or obligatory where there committed to keeping you the line of credit open. So you really wanna watch your those loan documents now? And sometimes you if you see the term payable on demand, that means they could end that term than that line of credit this afternoon. One thing it and I think credit unions air Great. There's a lot of good banks out there right now. We're all in a mode off. We want to keep people in business. Yeah, So if you're not in operations than we can't get paid back on our money and it's not good for the economy for anybody. So we're all in a mode right now off. How can we defer payments? We finance hotels. Obviously not many people are staying at hotels Now. We finance restaurants with very few exceptions for those carry out type places. Restaurants are struggling, so in those cases were just deferring payments. The key is understanding your situation and having a path off just waiting it out or how you can alter the fundamental course of your business in the future and having those pro active conversations with your lender with your contact. You don't wanna wait 23 months from now and then make the phone call when you're 45 60 75 days delinquent. You want to do it now where it's a relatively short term event and have those conversations on how you convey both. Get through this together.

spk_0:   11:55
Yeah, that's really good, counsel, because I know it would be easy to end up in the situation room really kind of scared and even embarrassed that you maybe don't have the money that you need to take care of things, even if I mean the truth is, none of us could have done anything about the reality of what's going on. I mean, what we could all do is be in a better position as a business as a whole, but we have good margins to begin with. Do we have good cash to debt ratios? Way have all those things in place? That's what we all could have done ahead of time. But now they were in this situation. The thing that you just said. They're of going, Hey, let me proactively make a phone call and say, Hey, here's a situation because of the current situation with the economy and the virus and it's messed up, it's going on. We may not be able to pay this. And so what? What would that conversation look like? We're the kind of things that you is that this that transparent, or is there a better way to approach that cold?

spk_1:   12:46
It's really having that connection and personal contact to say, Here's my cash flow. I'll show you the numbers and be as transparent as possible and they'll understand that if you have us. If if you had that conversation four months ago, it might have been a little bit tougher because the greater economy is going very well. So as a lender, as a creditor, I can say, Well, maybe the problem is you and it's that business now. This isn't like a hurricane or a storm. This affects everybody across the board. So especially, and if you don't have those con those outlets right now where you have, maybe you've been running on cash and you don't have credit established right now, right? I can tell you it's gonna be really tough to establish. Ah, heart credit right now. But for those of you who would want to have those conversations, check out a community credit union. We're co operatives that air here for our members. If you don't have that access, check out that Small Business Administration is disaster relief loans. Because right now, for businesses that are impacted, they can get very quick turnaround times through the S B a dot gov website four states that have declared disasters by their governor and the interest rate on those right now for small businesses is 3.75% If they come to me or something, my credit unions, it's probably gonna be more so you can get a real fast answer and a really low interest rate to help people through the time.

spk_0:   14:28
Yeah, we had a really bad a couple of really bad hurricanes in a row here in Florida several years back in. The 1st 1 really has pretty hard, and I realized how geographic they focused our business was that made me want a diversified. It was too late in the moment. And so we the business is always done really well, but in that season everything was shut them. I mean, all all we were doing was going out to help people clean up the yards and empty out their businesses and people's businesses and lives were destroyed and in some situations there through those hurricanes. And I actually was able to get one of those SP a disaster recovery loans during that season and took a little bit of paperwork and stuff like what you'd expect. But it was great because the terms were incredible. The rate was incredible and I was able to get a good amount of money to help manage that cash flow and pushes through that season where we otherwise had really bad loss for two months in a row, which is very rare for us from the hole for that 12 months. We send it up with a great year and that kind of help bridge that gap until we could get the cash going again because a lot of times it's not a matter of, I think, one of the false realities that is just yeah, I don't know, kind of been made aware to me. Is it kind of doesn't matter how good my receivables are. It doesn't matter. How good are recurring revenue base is that someone I really talk a lot about. With business owners like you gotta build up recurring revenue, you gotta have good multiple revenue streams. All this good stuff, and that is true. But just because I've had this big, recurring revenue stream, they could all just not paying their payments just like any of the rest of us. So when that happens, we have a real problem. And it seems like that what the government's trying to do. This the analogy of Justin earlier. It's like when an object comes to a complete stop. It's a lot harder to get it rolling again. And it seems like the idea behind government intervention, which is, I know it some people's feelings. So if things start getting really crazy just to keep the ball rolling, like if we just keep the economy just rolling, even if it's not rolling very well, Once the virus kind of pushes its way through the system and weaken, then we could just get it, get it rolling again. Is that kind of the idea? The

spk_1:   16:26
good news is This is not a supply side recession like the last time around, where the financial system is actually very well capitalized and the financial system had very low delinquency. Going into this, we had a lot of capital and credit unions have money toe lent. That's the good thing is is we have that supply of money to go into the market. Now when you have a hurricane hit Florida and it wipes out on area that that's drops demand where you have to rebuild, you have to get moving. You people have to get back. And much like 9 11 where you couldn't physically do business in Manhattan and the demand dropped in this case When this passes, the infrastructure is there to get right back on. Now it's gonna take a little bit of time, those business conferences and the events. It takes time to reschedule and get things moving again. But the infrastructure is there, the demand is there. And the good piece of this is interest rates are rock bottom right now, so which will really if you have a rate above 5% on alone, you're gonna be, uh you should really be looking at refinancing this, and so rates are low. So that's going to spur. Business is buying a new vehicle. It's going to spur them moving to a new road application. It's going to be able to get them to hire people to get that cash flow going in. Unfortunately for a lot of people, it's gonna feel like that first year in business all over again. Yeah, but But the good thing is that infrastructures

spk_0:   18:14
there Yeah, I kind of feel some of that I've got, but I think it's easy to get stuck in like the negativity of it all. But you know, I read something the other day. Last night feels like one day is not multiple days in some of these situations, but and it's often entrepreneurs, and it kind of said, Look, this is what you're made like. This is what you're made for like this. This is your season to shun like don't don't don't sit in a corner and cry about it. Get up, look around and see where the opportunity is because, like, I think for me, for example, I've been running the same business for 21 years. We've grown every single year top bottom line for 21 years. I know how to run this business like it runs really well. This virus is going to shake things up a lot, but it also kind of creates that opportunity to look around and go. Hey, what about what I've been missing here? Well, people don't even know how to do. Tell a community left something on the remote meetings like, Gosh, where the opportunity is there. What's up to use an education? What's the opportunities in online Vince and then eventually tying that back in the live events once they're one terrible to do them again? I think that's that's That's what I hope people are able to hold on to in all of this is that mentality and been ableto push forward one day. I'd love to touch on this gun. I'm curious what your take is, and I don't wanna be controversial, but I'm a big Dave Ramsey thing. I love

spk_1:   19:30
big fan myself, So

spk_0:   19:31
okay, interest Good. I love his organization just really great people. His entre leadership conference, I'm really hoping, does not get canceled. We'll see. It's in May. I just love what they do, So I'm curious because he talks a lot about staying out of debt and avoiding really credit. And to some extent he brags about the fact that built this new $50 million building and cats and all this stuff. How do you balance that? Especially as a day fan with loans? Credit all these kind of things. Like what? You're what you're feeling and vote on all that

spk_1:   19:59
when it comes to personal finances. I am the absolute Dave Ramsey fan because I think that's a great way to live your life. When it comes to growing a business, I think it makes it extremely more difficult because commercial credit should personal credit and personal debt cost you money. Commercial credit should make you money and help grow your business. Now, as a lender, we want to see those in balance we want. It would be really easy to go buy 100 rental properties, but that's not healthy, so it should grow up. Commercial credit should grow your business. It should make you more money as after doing it, and also should be done in a nice, orderly fashion where you still have equity and cash in the business so That's actually where I would and I would have some philosophical, different disagreements with Dave Ramsey about commercial credit. Because if you think about the world today, of all the things that wouldn't happen or couldn't be done without commercial credit and if you had to await for businesses stockpiling cash to make the investment, it would really bring the that economy exists. It's the Amish in Pennsylvania.

spk_0:   21:24
Yeah, exists. I'm taking you as well. My wife and I are have a foundation report of down Gideon's Interesting, because, I mean, obviously it's an impoverished nation. But even regardless of that, you're not gonna go to the bank to take out a loan to build a house. So most houses they like build the first floor have like half a second floor down, like having half a wall done because they just build it as they have money for, which is kind of the Dave Ramsey way, actually. But it's interesting because I had this conflict internally about it in general because you know something. I would love to talk to Dave about it because I feel like in general, something like a mortgage on my office. For example, in this particular area that I'm in. My mortgage payment is so much lower than what I would pay for rent anywhere else. And I own the property and it's in a great spot. That seems like a no brainer to me. Like what I'm paying on. Abortion is probably half, but I would pay for Rip in the same place I could easily rent the sprint. This plays out with somebody else at the end of the day if I wasn't in here anymore, and that seems to make sense to me. That's good, Dan. But I will say that one of the things that I did do last year was I let myself get in a little bit too much short term debt with the company credit cards, not over extreme, a lot of credit, but maybe just having too much out that uncomfortable place where I couldn't have replaced it with cash if I needed to know we spent all last year getting rid of that and now I'm in a much better place going into this year because the only debt that I have his long term debt, I got a wide open line of credit so we're in a crisis. I have opportunity to use that to kind of protect my cash flow and bridge the gap. You know, from here there it is interesting, though, because that he's very much that hard line. That is dumb. Cash is king. But look, I'd rather have my own cash debt, for sure. But I tend to agree with you on the commercial side, there has to be a place where it can create opportunity to scale and grow. And we've got

spk_1:   23:05
We've seen what happens in the past when there is no commercial credit, it tailspins the world into a recession and you end up with no cash to be debt free.

spk_0:   23:16
Yeah, it's interesting. And I was a no dead guy for a long time, and it worked really well for me, and I just grew very slowly on, and it worked for my small business, but now isn't start to scale a little bit. There have been times when I've needed to kind of leverage, you know, some credit here are there to help grow with infrastructure by equipment or things like that, and has definitely helped us scale more quickly. And now we're in a pretty good sponsor. You happen to get through this?

spk_1:   23:41
One of the things that people need to be careful about is not financing using short term debt for short term needs and using long term debt for long term needs. For example, when you're pulling off of these lines of credit now you want to make sure that there's cash coming in in a short term basis to repay that line of credit. And that's how your line of credit should be utilized. Now when you get a mortgage and your financing your commercial property for 20 years, 2025 years, that's a long term investment on a long term asset that keeps its value. If you don't replenish that well, that's how you have businesses end up underwater with allowed a lot of debt that where they don't have cash coming in

spk_0:   24:28
and to repay that Yeah, that makes a lot of sense, and I think that's easy to get backwards. Easy toe. Think you got a lot of credit and take the money out for that user for some big thing that you're not gonna get immediate cash for in our cash flow in from and um, it's easy to make that mistake's thanks for clarifying that. So you work with credit unions to help them figure out how to improve their businesses. That kind of the root of what you do.

spk_1:   24:50
So I'll kind of clarify a little bit because that sometimes the most confusing thing I don't understand. My wife even connects plane it sometimes. So I'm at a company called M B. F s. We are owned by 13 credit unions and work with over 70 credit unions throughout the country. So and think about it this way. When all these credit union started getting into commercial financing instead of everybody going out and built, hiring a bunch of underwriters and loan documentation people and buying the systems, you need the credit unions being cooperative institutions. They worked cooperatively to form this company so they could offer commercial financing to their members cheaper, more effectively without the big investments in overhead and infrastructure for the betterment of their members and the betterment of the credit union, so they can offer the commercial financing and a little more cost effective manner.

spk_0:   25:52
That makes a lot of sense. So it's kind of systematize ing and providing operational overhead almost that might otherwise have a taste, giving them strategy and planning and knowing how to do that's never figure out themselves. We

spk_1:   26:03
also have a network of lenders that are paid for by the credit unions, where we'll have lenders in a region for, and we'll set you up with the best lender credit union and maybe participate those loans together. And a lot of times if we don't have somebody in that area, if you connect with us, we'll find a credit union that lends the businesses in your area and make that introduction that no cost.

spk_0:   26:30
Great. That makes a lot of sense. So I want traditional bit someone. I don't want to miss this last topic, which is really important to me, and I talked about it with every single guest that that's the idea of work, life, balance. I don't really like the term that much to be completely honest, and it means something totally different to everybody. But I know you've got a couple of teenagers and you got you got a life that's swirling around outside of just work and in just your own, your own self. How do you take care of your own self over time. What is that? It turned work, life balance, even mean to you? And how has it changed from or through different seasons of life?

spk_1:   27:05
Sure, I've really changed that. Now that I have the teenagers and from the younger kids before the family and kids, I was going all day work, work, work. But now I really wanna be there. I've been there for those life events as an executive. The one thing that I've always insisted on is that if my kids play on a sports team, I'm gonna help coach. I'm gonna help participate, and I will Matt my schedule around that when I planned my travel days, I nap out the daughter's volleyball schedule and working around that, so I've always made to be there for those events. But also, I think it's more about not just the kids events, but your spouse and being there for your spouse and being there to engage and go for a hike in the mountains and do those types of things and not ex being living for work. But using work as a way to enjoy your life and be a better person in your community. So I also see it as you know, for helping your family for being part of your family, but also from a personal spirituals standpoint, making sure that you are the person you want to be.

spk_0:   28:19
Yeah, absolutely. I really believe all those things, like they matter. And I like to bring them up on business conversations because it's so easy to get ingrained in all the day to day stuff of business. And I think especially for those of us who have Children intermarried, there's different dynamics to life than just work. And I think that's important to recognize that in it can be hard to balance it all and figure it all out. But you said your intentional about it. You put it on your schedule. You know the guy one time. You know it's important to somebody. Just look at their checkbook in their calendar, and I'll tell you what's important and that that's kind of it. Maybe is not a check book anymore. Maybe just bank account separately. Check in a while. So if we were kind of wrap things up and we're thinking about talking to another business owner who wants to build a business that lasts something. It's not gonna be just one or two years. It's gonna really build a legacy. We're gonna last decade. What parting advice Would you leave for those people today?

spk_1:   29:11
I really encourage people to look at the reasons that they get into their business. I look to help finance businesses that people have a passion for and they're committed for, and it makes sense to grow there and reach their personal goals on where they want to go. And I hate to say making money in the short term, and it's easy, But if you want to make money in the short term, yeah, you can do things to do that. But really, if you want to build a career and a legacy and a business in the long run, it has to be something that you believe in has to be something you enjoy. And there has to be a reason in the long term for engaging in that business. It has to be to get you where you want to be as a person. You're professional goals and ultimately your financial goals as well. There's nothing wrong with making body right so and we really enjoy helping people go down that journey to get there.

spk_0:   30:11
But I think those things are really important. So people want to find out more about you. The business that you worked for, the credit credit unions you're with. Where should they go online?

spk_1:   30:18
Sure that the easiest place is our website www dot m b f s dot or ge. We're also very active on linked in on lengthen. You can search member business Financial service is and myself Mark Ritter as well.

spk_0:   30:34
Great. I will check it out and share with other folks and we're gonna get the spot guest. I was meticulously can, since it's so time links everybody. Mark, thank you so much for your time in sight. In just experience that you've shared today,

spk_1:   30:45
thank you very much for having me hope this

spk_0:   30:49
episode has given you some ideas or inspiration. It will help you grow your business if you found it helpful and you know somebody else who might benefit from it as well. I would greatly appreciate it if you would take the time to share this with him, maybe on Facebook or

spk_1:   31:02
Twitter or linked in or even shoot an email over to a friend with a link to this podcast in it. And if you haven't already, make sure you sign up for email list at building a business that lasts dot com.