PayNet CEO On The Biggest Challenge Small Businesses Face

PayNet CEO Bill Phelan
PayNet CEO Bill Phelan

Political candidates love to harp on restoring glory to the metaphorical “Main Street” American business. It’s one of those talking points you are guaranteed to hear every time a politician—from either side of the aisle—who is running for office talks about economic development.

But while political candidates may not be able to point to a specific solution, PayNet CEO and co-founder William Phelan has uncovered one of the biggest problems that small businesses face in getting off the ground.

“What I found was that they’ve struggled with access to capital. There’s no New York Stock Exchange for Main Street America. [They have to] throw caution to the wind when they are trying to get access to capital, and it becomes a real impediment.”

Phelan co-founded PayNet with the belief that when commercial lenders were assessed of a business’ credit risks through an assessment, they were more likely to make those loans available and close the credit gap between small and large businesses. Over its 20-year history, the company grew to become the largest collector of payment histories for commercial loans and leases by small and mid-sized companies. The sheer amount of data it collected made it attractive to Equifax, the Fortune 500 credit bureau company, which bought PayNet for an undisclosed price in April.

Chief Executive got a chance to talk with Phelan about Equifax’s acquisition of PayNet, the insights he has gained from being on the Small Business Council for the U.S. Chamber of Commerce and more. Below are excerpts from this interview.

Congratulations on the Equifax deal. How did it come together?

Thank you, Gabe. What we found is that one plus one equals three. We had partnered with many companies over the years and what we found is that it really comes down to the data and the understanding of credit. What’s interesting about the U.S. economy is that there’s these 30 million privately-held businesses and you compare that against about three million public companies. We’ve got a lot of information on public companies. The private businesses are the unknown. That’s what’s really contributed to the credit gap. And what we found in partnering with Equifax was that one plus one equals three. Our databases were complimentary. We found that data presents us the opportunity to basically cover, in some sense, every private company in the United States. It gives us a hundred percent coverage.

That would have taken us years to get on our own or it would have taken Equifax years to get on their own. But this combination ultimately really does help “Main Street” America grow. That’s a great fit for the business and for our customers. And as a side note, obviously Equifax is a Fortune 500 company. You’ve got great scale, great resources, great people. The complimentary data and the resources and scale all really made sense. And that’s why we’ve decided that this made sense for us to go forward.

You’ve been running the show at PayNet for 20 years—now you’re embedded into a large corporate structure. Do you foresee this as being a challenge?

When you put two organizations together you must make sure the cultural fit is there. I can tell you there’s this new team at Equifax that’s really interested in putting the organization together and creating a “get things done in a safe environment” culture…That’s the mandate to move the business forward.

I have worked with some very large corporations in my career and partially, I founded PayNet to be my own boss essentially and run the show. But what’s really interesting about this combination is the power of the commercial business to be the strategic arm of Equifax. We know that if the credit gap exists in the United States with the most advanced economy on the planet, there’s a credit gap in other economies around the world. And that includes Asia, Latin America, Europe, and so there’s this global mandate, which I think is also makes a lot of sense for our business to solve the credit gap around the world.  Equifax certainly gives us the capability of doing that.

You sit on the Small Business Council for the U.S. Chamber of Commerce. What insights have you gained from this experience?  

There are a lot of surveys and a lot of anecdotal information that we get. And what we find when we dive into the data…is there was a big pause during the last Presidential election. Small businesses were uncertain and they kind of hunkered down. They went into hunker down mode. After the election when some of the policies started to become clear, they started to play offense. We saw in October of 2017, small businesses started to expand quite a bit and by 2018, there was double digit expansion. And so that was great. It gave a huge lift to the economy. You’ve got 30 million businesses that represent $10 trillion in capital, so when they’re expanding, American business is doing well.

What we found recently is they’ve taken a little bit of a breather and they’ve taken that breather I think because they expanded pretty aggressively in 2018. So now we’re no longer seeing double digit investment in hiring by small businesses. We’re seeing kind of single digit type numbers, low single digits. So what was a huge boom for Main Street has turned into a “Let’s digest and take a breather.” It’s kind of like they just ran a big race and they’ve got their hands on their knees and they’re bent over a little bit and catching their breath because there was just so much investment capital flowing out [in 2018).

Financially, they are very fit right now. Their financial condition is very strong, and we find that that’s positioning them for further expansion. But we’ve got to make this access to capital easier for them. There are always questions for small business about access to capital. It’s one of the policy planks of the U.S. Chamber of Commerce’s Small Business Council, which I’m a member as you mentioned. It’s a really big issue for both sides of the aisle as well. I have testified in front of Congress on this issue. And what I found is that it’s something we can all agree on. Main Street America is one of the backbones of the U.S. economy and they need easier access to capital. And that access to capital is a challenge.

Read more: Thinking Small: Lessons Big Businesses Can Learn from Startups