Sarena Ally (00:00)

All right, welcome back. We’re super excited to dig into our topic today. It is my absolute pleasure to introduce our esteemed guest, Nikhil Nampalli, who’s head of partnerships at Loop Financial. Welcome, Nik. Nice to see you. Of course. So to get us started, let’s get our feet wet. Tell us a little bit about your journey with Loop and how Loop helps small businesses.

Nikhil Nampalli (00:32)

Loop itself has been a company that’s been around for almost a decade now here in Canada. Started off providing lending services for small medium businesses and about four years ago, pivoted to this new avatar of ours, where now we offer medium businesses a variety of banking solutions. And really the goal here is, if you’re a small medium sized business today, you’re probably doing banking, that can mean payments, collecting revenues, et cetera, across multiple markets. And banking, unfortunately, is very domestic. So what Loop’s trying to do is use technology to give you, small businesses, access to local payment rails, simplified accounts receivable, accounts payable solutions, et cetera. And that’s really what Loop’s all about.

Sarena Ally (01:22)

That’s awesome. I’m sure you’re helping a ton of small medium businesses. What does a typical Loop client look like? How do they come to you and when do you find them?

Nikhil Nampalli (01:32)

A typical Loop client is someone who’s starting to pay what I call the success tax. They’re starting to be successful in their domestic market, be that a provincial level or an online store. And they’re now starting to sell abroad or buy things from abroad and are starting to see that there’s a lot of wire fees that they’re paying for. There’s a lot more activity happening and the number of transactions that allowed as part of your free banking package has been exceeded and you’re getting charged for every transaction you do, whether it’s a domestic or international wire. You start to see that your FX conversion rates, so let’s say you’re selling in the US, repaid trading that money back to CAD, you’re losing money on FX compared to what the market rate is showing you. So it’s in those moments that clients start to look around and say, how can I save some money? The success tax that I’m talking about on cross-border banking can be anywhere from three to five percent. And so that’s significant for a small business owner where they go, oh, whoa, hang on, I could put three percent more back in my pocket, reinvest in the business or just take home pay for myself. They’re going to look for alternatives. So that’s typically when clients will find us.

Sarena Ally (02:43)

Yeah, that’s really interesting. It’s like the champagne problem, right? The success tax where you realize, wait a minute, how do I make my money work a little bit harder for me and really help scale, right? Like that’s the name of the game for all the SMBs that we work with as well—they’re trying to figure out, how can I make this more efficient and get my business to the next level? And so when they’re coming to you, are they typically realizing that they’re working with a traditional bank and maybe they’re falling a bit short or do they have more market expansion opportunities that they’re chasing?

Nikhil Nampalli (03:19)

Yeah, I mean it can be a couple examples I’ll give you to kind of highlight what I’m talking about. So it could be a case where, let’s say you’re a Canadian business, you’ve just expanded to the US, right, or you’re selling online and now accepting US dollars. The client will find is, the US buyer has to send them money and they’ve agreed to send them in USD. But the bank account details that they have with the traditional Canadian bank doesn’t allow for that transaction to come through because it’s considered a wire or international wire transaction even though they have a US dollar account with a Canadian bank. That’s problematic because sometimes the buyer will say, hey listen, I’m trying to send money to this account number you gave me but it’s not going through. Or, oh, that account number I need to send a wire to, that’s going to cost me 25, 30 bucks and so I’m going to take 20, 30 bucks off of whatever I owe you as revenue. And that’s when the business owner goes, well hang on a sec, every time I’m going to collect money from you, I’m going to pay up 20 bucks and then on the incoming side, my bank’s going to charge me another 20 bucks. This money leakage also happens when you’re using online platforms, be that Stripe or Shopify or Amazon or whatever that looks like and you’re selling abroad, let’s say in Europe and your European Stripe payments are coming through and Stripe is converting that back to CAD. And then you pay attention to that statement and you’re like, well hang on a second, there’s like a three to five percent less money than I thought I would get when I converted Euro to CAD using Stripe versus what the market rate shows me. So how can I get that? And that’s where the unlock comes in because when you come to Loop, we’re going to give you a local US bank account, a local European account, a local British pound account, a local Canadian account. And so these accounts look like local accounts. Your customer sending you money or a payment processor sending you money can send it to your local payment rails. It doesn’t cost them anything, doesn’t cost you anything to receive money, and you can collect in local dollars, collect them in Canadian dollars. So that is the typical client coming to us and finding these immediate unlocks.

Sarena Ally (05:31)

It sounds like businesses should be auditing some of their financials, taking a look at where some of those fees are coming off, whether it’s from incoming payments or maybe from operations, and figure out what does that total cost look like and is there a better way?

Nikhil Nampalli (05:48)

You got it.

Sarena Ally (05:49)

And so, that’s talking about clients who kind of realize after the fact, hey, there’s another way to do this. But what about clients who are thinking of expanding? Maybe they haven’t gotten to that point yet. Is there a straight line path or, how should they be thinking about setting themselves up with operations and finances and even tax strategies?

Nikhil Nampalli (06:13)

Yeah, absolutely. It’s a great question. And think about expanding beyond the Canadian borders. It’s an exciting time, in a way, because it’s no longer, hey, I’m going to take a suitcase, travel to country X, and then expand there. That’s not how it works anymore. So you could be sitting right in your office, or your home office as a small business owner, and start to think about, how do I expand to the US? How do I expand to Europe, et cetera? With that thinking, I think the key thing is to start with your product, right? What are you selling? Is it a product? Is it a service? If it’s a service and you can deliver it online, you’re starting to think about collecting revenues using an online payment processor. I used Stripe as an example before, but there’s tons of those types of providers out there. So once you start to think about that, you say, what dollars do I want to collect this money in? Do I want to collect all the Canadian dollars? Because if you’re a solopreneur, all you care about is money coming back to Canada that way. That’s great. But if you think you’re going to have expenses in that local market because you want to do marketing in the US, that’s going to cost you in USD. And so you may want to take some of the US revenue and hold it in US dollar funds. So those are the sort of questions I think a solopreneur should start to think about. Now, if you’re a little bit bigger, let’s say you’re selling physical goods, you want to start thinking about, okay, how am I shipping this, right? Where is it getting produced? Is it getting produced here in Canada? Do you have an international facility? And then how is it getting shipped to the customer? Are you going to use a third party logistics provider or is it going direct from factory to location? Right, so I’m sure as a business owner, you’re starting to think about those things—you’ve obviously thought about what you’re going to do for Canada, but you have to replicate that same playbook for the US. I think that’s when you got to think about what your sourcing is and what your delivery and distribution looks like, start thinking about, okay, how am I collecting these monies, right? Is it going to be invoiced and I’m going to wait 30, 60, 90 days to get paid or I’m going to try to collect online payments, in which case I might have to pay up a fee to the processor, and am I collecting in Canadian dollars or local currency, in which case the FX angle comes into play. So that’s really what the business owner needs to start thinking about. And then the other side of this is if you’re a little bit larger, you may be even thinking of setting up a corporation or an LLC in the US or abroad to help from a legal structure standpoint. And that’s where you definitely want to talk to tax advisors and consultants around that, because there’s a ton of pitfalls in there. We’ve heard from our clients who’ve gotten some of these things wrong. But really, you want to start thinking about trusted partners you can talk to, banking partners, logistics, supply partners, then trade and tax partners.

Sarena Ally (09:04)

So those are all kind of the people that you want around the table when you’re setting up your international operations, right?

Nikhil Nampalli (09:10)

That’s right.

Sarena Ally (09:12)

Yeah. And so I’m sure you’ve seen a lot of success stories. Is there a few mistakes along the way that you can kind of help our listeners avoid?

Nikhil Nampalli (09:20)

Of course, I can. To use an example of a tax and a corporation set up. I’m not a tax lawyer by any means, so obviously consult your tax advisor on this. But one common mistake that we’ve seen is, you’re a Canadian business, you’re doing really well, you find US opportunities, and you might be tempted to just set up a limited liability corporation or LLC in the US. The challenge with an LLC is the Canadian tax authorities look at that very differently. In the US it’s considered pass-through. US taxes apply as soon as you’re earning revenues. Whereas in Canada, that is not considered a distribution, it’s considered a corporation. So until you actually pay up or pay to the owners, you don’t get taxed in Canada. So in some ways you’re getting double taxed once in the US at the time of collection revenues and then another time when you actually allocate the money from the US entity to the Canadian entity or to the shareholder as dividends whatever your strategy may look like—that’ll get you in double taxation. And that sucks, right? No one likes paying taxes twice, let alone paying taxes once.

Sarena Ally (10:22)

Totally.

Nikhil Nampalli (10:24)

You know, that’s a common mistake that we’ve seen companies make. It’s easy to set up an LLC, it’s harder to set up a C Corp or something else, but really take time to get that right because that’s sort of the foundation. And really you’re not looking to do this until you’re a little bit bigger, which also means you probably have a decent amount of revenues on which you’re paying taxes for. So this is a big one. So talk to your tax accountant, make sure the setup is right. We’ve had quite a few clients who’ve gone that wrong in the early days and have had to kind of go back and fix it.

Sarena Ally (10:55)

Yeah, I bet that sounds like a painful one to get wrong. As a neobank or even as a traditional bank, I’m sure there’s lots of red flags that kind of make some of these SMBs get on your radar. What are other activities that maybe raise some of those risk flags and how might people avoid them?

Nikhil Nampalli (11:15)

The big one I’d say a small or medium business will find itself in is when they’re making large payments or are receiving large payments from their customer, right? You just got a big break, massive $100, $200, half a million incoming invoice payment. Those are the sort of things you actively want to communicate with your bank or your fintech because it’s large payments that look unlike any previous patterns that get flagged by the bank compliance teams and funds get held till things are clarified. You can go through that process. It’s not like that money is going to be withheld from you forever. The bank will just have more questions for you to make sure it is you that’s the intended recipient or it is you trying to send that money to a producer. And sometimes those timings are critical, right? Because your manufacturer tells you, look, I better get payment by Friday if you want me to start producing goods for the fall season or whatever that looks like. And this payment doesn’t go out on Friday as you thought it might go out. It may not go out until next Wednesday or Thursday once you’re clear with bank compliance. So those are the things you want to proactively communicate with the bank or your fintech partner. Let them know, hey, I’m making a large payment. So that’s going to look unusual. Or I’m receiving a large payment that may be unusual. So I’d say that’s the big one that people should pay attention to when you’re starting to think about cross-border or even domestic sometimes.

Sarena Ally (12:41)

Yeah, absolutely. You know, you want to land that great big new buyer and then all of a sudden when they’re paying you, you have a problem. Is there an example of how you’ve worked with a client kind of hand in hand to resolve some of that?

Nikhil Nampalli (12:54)

Yeah, that’s one of the things that we’re constantly trying to improve—getting to know your customer activities. So when we onboard you, we try to understand what regions are you operating in. And part of that dialogue allows us to say, you’re going to need a US dollar account that’s based out of the US, a European account that’s based out of the eurozone, so you can collect locally. Then we try to understand what kind of revenue source do you have? Is it payment processors paying into your accounts? Is it invoice payments from large buyers? Is it smaller buyers? And then in terms of the outbound side, where’s your manufacturing happening or what are your big payables, right? As we get to know you, those are the things that we’re monitoring for, because then that makes it easier for our teams and honestly, our systems, to identify fraudulent activity or suspicious activity. So that’s the sort of stuff that—the more data we can get, the better we know you as a customer, what kind of payments you’re making, what you might be receiving and it just makes that experience much cleaner. So we have plenty of examples where clients either share with us upfront and we’ve kind of made note of that, or when they’re making these large payments or they have expansion plans, sometimes they’ll come to us and say, hey, I’m expanding to this market, here’s the buyer that I’m going to be working with. And often they’ll ask us, do you have credit services, growth capital capabilities that can help us? And that’s sort of where, depending on what kind of mode they need that in—if it’s a credit card, we can offer it. If we can’t, we partner with, like yourself at FundThrough, to provide invoice factoring capabilities to just get them that growth capital that they’re looking for.

Sarena Ally (14:32)

You’ve got to think of your bank partner as your partner, right? And kind of tune them in and keep them in the loop on what your plans are, your expansion plans. I’m sure there’s a whole variety of ways that clients show up to that partnership meeting if they’re coming to talk to you about an exciting new opportunity for them. What’s some advice that you might give to an SMB on how to help them prepare for and show up in the right way for a bank?

Nikhil Nampalli (14:58)

Your bank is probably one of your most important and trusted partners. And so the advice I’d have is, disclose upfront, disclose often, right? And then produce the appropriate documents when asked, or to the extent that you can proactively produce certain documents, do that, right? So whether that is proof of ownership stuff when you’re setting up the account, whether it’s financial statements to show how you’re growing as a business—and the desire for more credit is obviously a big part of looking at your financial statements. So I’d say that’s really the critical part, which is just like with your tax position, where you’re giving them all of the right information upfront so they can make the right filings for you so you don’t make a mistake with that. Same thing with your bank partners, because once you start making mistakes with your bank partners, your transaction activity could be held because again the activity doesn’t make sense relative to what we knew about your business.

Sarena Ally (15:58)

Yeah. Show up for those meetings prepared with all your documentation in order and treat those bank partners as a true partner, right? Because the more that you can tune them in to what’s happening, the more that you can both be better prepared for what’s coming.

Nikhil Nampalli (16:12)

That’s right. And look, we’re here to help ultimately, right? Yes, we’re asking for a lot of documentation. It’s not because we need to check a box. It’s really because we want to make sure we’re able to process and support you in your growth and expansion strategies.

Sarena Ally (16:25)

Yeah, absolutely. And you know, you’re in this together, right? Like the more successful that a client is, the more your business grows as well. I know that we’re certainly in that case as well. And so we’ve talked a lot about a lot of different things—we talked about expansion and tax strategies and how to set yourself up for success, how to avoid pitfalls. If you had three key takeaways, I know that was a lot of information, but if you had three key takeaways for an entrepreneur who wants to expand internationally, whether it’s to the US or some other market, what advice would you give them?

Nikhil Nampalli (16:58)

Yeah. Look, if I had to sum up everything we’ve discussed, right, it’d be three things. One is stop the leakage. Right? So audit your bank statements, your credit card spend, etc. Look for wherever currency conversion is happening, wherever there are fees, account fees, monthly payment fees, per transaction fees. Look at that stuff, add that up and say, ask yourself, is there a better way? And I can tell you there’s always a better way. So keep an eye out for that. So stop that leakage because that can be, like I said earlier, three to five percent of your revenue that could go right to your bottom line. Just stop the leakage. The second part is you can act local, but really start thinking global. So whether you’ve already expanded or you’re thinking about expanding, the nice thing with technology providers like Loop and others is that you can be based out of one market, but have access to banking, payment, card rails in multiple markets. And so what that means is you’re no longer geographically restricted in terms of where you do business and to expand globally there’s a ton more new technology that makes that easier today and that’s really helpful because the buyers, your customers are going to think that they’re working with a neighbor, right? That they’re working with someone local not someone who’s abroad and that builds trust between you and your customer and as we know in business trust is everything. And then the last bit is liquidity is speed. In today’s day and age, anyone can open up a store, anyone can move to new markets, etc. But what matters most is do you have the right liquidity and the working capital that you need to perform expansion activities. And so again, there are tools—and I’ll use FundThrough as a great partner example, right—who you can work with to get paid up front. So you might have net 60, net 90 terms with the buyer. That’s locked up revenue that you’re not able to access to grow further. Someone else has figured out how to unlock it. So what I’d advise for you is find partners like FundThrough who can pay you that money up front so that liquidity is with you and that speed for additional marketing campaigns, new market expansion, whatever that looks like for you.

Sarena Ally (19:14)

Love that. Thank you for the shout out as well. I appreciate it. Great tips, Nik. This was very informative. Really appreciate your time and sharing with all of us some ways that they can set their business up for success. And I just wanted to thank you for joining me today.

Nikhil Nampalli (19:29)

Thanks for having me.