America heard a lot about the value of small businesses during the 2012 election season.
Both Republicans and Democrats repeated the same line – that small business is the engine that drives economic growth and provides jobs.
However, small businesses were hit hard during the credit crisis and its aftermath. Lending from banks became much more difficult since banks had more faith in loan repayments from larger companies, and credit card limits and cash advances from credit cards were severely rolled back.
For small businesses needing cash to expand, the waiting time and the limited options often left them in between tough choices: close their doors, down size, or take out high interest loans from aggressive lenders. On top of all of this, for conscientious Muslim small businesses owners, interest loans are not even an option.
Enter Palm National Partners.
New York based Palm National Partners is providing interest free capital to small businesses in 25 states including Maryland and Virginia. The sharia-compliant program is overseen by Dr. Yousef Al-Shubaily.
The New York based firm has been quietly helping both Muslim and non-Muslim small businesses with interest free cash for a little over one year, during which time they grew into a 72 employee company and entered 25 states including Maryland and Virginia.
But they aren't lenders.
Speaking to the Muslim Link, founding member and Managing Director Alex Gemici explained that Palm provides capital to small businesses through a “asset sale-leaseback” program. Palm purchases assets from the business and then leases those assets back to the small business.
For example, if a restaurant needs $25,000 to buy a new walk-in cooler, Palm will purchase some of their assets valued at around $25,000 like ovens, stoves, and other hard assets. The restaurant gets the lump sum payment of $25,000 from Palm, and Palm assumes ownership of the ovens and stoves. Then, Palm leases the ovens and stoves to the restaurant – the equipment never leaves the restaurant – so the restaurant owner can continue normal operations. The lease agreement is structured so that after a set time period like 6 months, the restaurant owner pays off the lease and takes back ownership of the ovens and stoves. Each lease payment – Palm's program requires daily automatic payments directly from the businesses' bank account – has Palm's profit built in.
The model is considered an “Ijara” type transaction and is sharia compliant according to Dr. Yousef Abdullah Al-Shubaily, the Shariah Scholar of Palm National Partners.
Dr. Al-Shubaily, who holds a Bachelor’s Degree from the Faculty of Shariah and Fundamentals of Islam, a Master’s Degree from the Department of Comparative Jurisprudence at Muhammad bin Saud Islamic University, and a Ph.D in Islamic Jurisprudence from the same university, is one of the world's most respected experts on Islamic finance. He is a member of numerous Shariah boards of a number of banks and financial institutions in Saudi Arabia, Arab Gulf countries, Malaysia, the United Kingdom, and the United States of America.
Alex Gemici said Dr. Al-Shubaily plays an active role in Palm's program, appointing an in-house sharia compliance officer who works full-time in Palm's New York office.
“[Our program is governed] by a very strict process,” explained Gemici. “We are not allowed to change even a comma in the [lease] agreement without Dr. Shubaily's approval.”
Although Palm is focused on Muslim small businesses clients, about one-third of their clients have been non-Muslims. Currently, Palm offers capital infusion in amounts from $10,000 to $300,000 for lease periods ranging from 3-months to 12-months. The typical transaction is around $50,000 with a lease term of 6-months.
Gemici declined to give specific customer numbers, but said the response from the US market has been far greater than expected. “Our month over month growth is around 12%, so every four months we are doubling our volume,” he said.
Palm's small business clients also exceeded expectations, Gemici said.
“We assumed 25% of clients would want more financing after the end of a 6-month term. In reality, 75% want [more financing] and [they want it] well before the 6-months is up,” he explained. In addition, he said Palm's delinquency rate is 1/3 less than that of conventional small businesses lenders. “For some reason our clients pays their bills,” he said. Palm's security lies in the value of the assets they purchase from their client.
What might surprise many small businesses is the non-traditional application process. Palm doesn't look at profit and loss statements, business plans, or even credit scores; the key factor in getting approved for capital is cash flow. Palm requires 12-months of bank statements to determine the prospective client's “short term projected cash flow”which in turn determines the lease amount. Of all the applications, about 40% get funded. In contrast to the 6-12 weeks it takes to get approval and funding for a standard bank loan, Palm's approval and funding time is 5-10 days. “Our clients are looking for quick funding, and small businesses usually wait till the last minute, so time is very important for them,” said Gemici.
It appears time is on Palm's side as well. By the end of this year, they plan on being in all 50 states, the Arabian Gulf countries, the United Kingdom, and Colombia. Next year, they plan on being in another 12 countries. Later this year they will open their second US office, most likely in Northern Virginia, according to Gemici.
Palm was founded by Doug Naidus, the founder of World Business Lenders, a national small business lender, Fahad Abdullah Al-Rajhi from the prominent Al-Rajhi family of Saudi Arabia, the founders of Al-Rajhi Bank, the largest Islamic Bank in the world, and Alex Gemici, former Head of Deutsche Bank’s real estate finance, mortgage origination, trading and warehouse capital businesses in the Middle East and Africa.
To learn more visit www.palmnational.com.