Why OnDeck and CAN Capital Nailed Their Treasury RFI Responses
October 1, 2015
A congressional staffer once told me that if you want your input to have any meaningful impact, you better bring hard statistics and numbers.
Both CAN Capital and OnDeck accomplished that in their comprehensive responses to the Treasury RFI.
OnDeck went a step further and even attached case studies that included photographs of actual small business owners they’ve helped. They also put to bed the notion that their business model is unregulated:
At the federal level, we are regulated by the SEC and subject to US securities laws. We further satisfy applicable lending requirements under, among others, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Equal Credit Opportunity Act, and sanctions programs administered by the Office of Foreign Assets Control (OFAC).
They also clue us in to the size of the potential market they’re in. “It is estimated that there is $80-$120 billion in unmet demand for small business lines of credit,” they wrote.
Notably, they support the logic that a short term high APR loan can make more financial sense than a long term low APR loan. “With respect to loan cost, by matching a loan’s term with the estimated investment payback (or ROI) period, a small business can minimize total overall interest expense. For example, a loan used to purchase inventory can have a payback term that corresponds to the expected sale of the inventory — in this way, a borrower may pay less in total interest expense on a higher-rate, short-term loan than on a lower-rate, long-term loan (which may take weeks or months to procure).”
Meanwhile, CAN Capital explained just how time consuming the process can be for small business owners. “On average, a small business owner might spend over 30 hours applying for credit from a traditional lender and wait weeks or longer for the underwriting process to run its course and the funds to be disbursed, assuming the loan request is approve,” they wrote.
CAN’s response at time reads like an S-1 registration form (could there be a reason for that?). “Our approach to assessing the risk of small businesses and their ability to pay has been very effective, as manifested by our lifetime weighted average net write off rate of 7.2% over 17 years and more than $5.3 billion in funding transactions,” they say. “For returning customers that access capital through our platform more than once, we see an increase in their gross sales of approximately 7% on average between their first and last funding transaction.”
And if you don’t want your data sources to be questioned, the easy thing to do is cite governmental studies which both companies did often. “Traditional lenders are not serving the capital needs of small businesses. This is especially true when small businesses need $100,000 or less, which accounts for 90% of small business loans,” CAN wrote while citing a report published by the SBA’s Office of Advocacy.
PSC Board of Directors Appoints New CEO
September 29, 2015
PSC, a technology leader in providing front, middle and back office software platforms for the Merchant Cash Advance Industry, announced today that their Board of Directors has appointed H. Russell Heiser Jr. to the position of CEO. Mr. Heiser has extensive experience advising family offices in venture and private equity investments in companies across a variety of sectors. In many cases, he ended up in operational roles within these companies. In addition, Mr. Heiser was an investment banker at both UBS Investment Bank and Bear Stearns after receiving his MBA from Columbia Business School.
In the second quarter of 2015, Mr. Heiser led an investment group that obtained a stake in PSC. In tandem with
the equity investment, PSC received a significant debt commitment to provide funding to the MCA companies
utilizing the PSC platform.
“The PSC platform, with its seamless deal management software and in-depth reporting, was already an effective vehicle for our members to launch and grow a Merchant Cash Advance business,” Heiser said. “By layering in additional functionality and access to growth capital for its members, the PSC platform provides even more value to its members.”
“PSC conducted an exhaustive search to find the right individual to deliver our new products and manage our growth,” PSC’s Vice President of Operations Andrew Ragavanis stated. “Russ has the full support of the executive management team, as well as, the Board of Directors and I am excited to see PSC continue to grow under his leadership.”
PSC is a full-service solutions provider specializing in the Merchant Cash Advance Industry. The Company provides the support staff and MCA software to facilitate direct funding from start to finish via a secure platform, a syndication platform across its membership, impartial deal provisioning of opportunities directed to the PSC platform and growth financing. Our staff of seasoned professionals has significant experience throughout the alternative financing sector. The Company’s information is available on its website: http://www.pscny.us or through salessupport@pscny.us.
Fundera Raises $11.5 Million
September 17, 2015
NEW YORK–(BUSINESS WIRE)–Fundera, the online credit marketplace for small businesses, today announced an $11.5 million Series B funding round led by Susquehanna Growth Equity with participation from previous investors including QED Investors, Khosla Ventures and First Round Capital, bringing the company’s total funding to date to $15 million.
Since the most recent financial crisis, small business owners have been underserved by traditional banks with small business loans down from their pre-recession high. As a result, they have been forced to turn to online lenders to find the capital they need to grow. The majority of small business loans originated by online lenders are sourced through predatory offline loan brokers who engage in deceptive practices and take exorbitant fees to market certain lenders over others, driving up the cost of loans to borrowers. This unethical behavior takes advantage of small business owners, often putting them into loans that they do not fully understand or cannot reasonably repay.
America’s small business owners deserve better. Fundera was created to disrupt the loan broker ecosystem and make the process of getting a small business loan as transparent, fair and accountable as possible. Fundera utilizes software to create a seamless common application which enables borrowers to apply to multiple pre-screened lenders in a matter of minutes, clearly presenting funding options while encouraging competition among lenders. Fundera’s customer success team acts as an impartial advocate on behalf of borrowers and the company produces content to educate and allow borrowers to make informed financing decisions. Additionally, this past August, Fundera helped lead the creation of a Small Business Borrowers’ Bill of Rights that brought together a coalition of major industry players with the goal of eliminating predatory lending, and which is quickly becoming the gold standard for fairness in online lending.
Fundera will use this latest round of funding to accelerate its mission of making small business lending more transparent and helping small business owners grow through the responsible use of credit. The company plans to expand its team of dedicated loan specialists and engineers, develop and refine its borrower experience, and continue to build new products that help empower borrowers to choose the best loan for their business.
“Everyday throughout America small businesses which represent the lifeblood of our economy are being taken advantage of by online lenders and brokers,” said Fundera founder and CEO, Jared Hecht. “By creating a transparent marketplace that lays out a small business owners’ loan options and empowers them with tools to choose the best option for their business, Fundera is revolutionizing how small business owners access credit while creating a software solution that is disrupting the loan broker industry.”
Susquehanna Growth Equity shares the company’s passion for empowering consumers and affecting structural changes in the financial space. Scott Feldman, Managing Director at Susquehanna Growth Equity and newly appointed member of Fundera’s Board of Directors, echoes this sentiment: “At Susquehanna, we look for holistic teams that demonstrate true passion for their mission. As early investors in Credit Karma, we understand the Fundera model and have experience in helping companies transform areas of credit and financial services that empower consumers to win.”
Small business credit is one of the few industries where the Internet has had minimal impact when it comes to empowering borrowers and providing them the buying power they need to come out on top, and Fundera is bringing that change to small businesses nation-wide.
Fundera launched in February 2014 and has established itself as the most-trusted online marketplace for small business owners. To date, Fundera has helped secure over $60 million in credit to more than 1,200 small business owners across the country in industries including retail, restaurants, and creative contractors. The company is based in New York City.
About Fundera
Fundera is the most-trusted online marketplace that connects small business owners with the best funding providers for their businesses by working with prescreened lenders to assemble the highest quality funding sources. Fundera was co-founded in 2013 by GroupMe co-founder Jared Hecht and successful software entrepreneur Rohan Deshpande to bring transparency, accountability, and fairness to the online lending industry at large. The company has raised $15 million from Susquehanna Growth Equity, QED Investors, Khosla Ventures, First Round Capital, Lerer Ventures, SV Angel, and angel investors Aaron Levie, Scott Belsky, Strauss Zelnick, Rob Wiesenthal, David Rosenblatt and David Tisch, and is based in New York City. To learn more or get started on a loan application, please visit www.fundera.com.
About Susquehanna Growth Equity
Susquehanna Growth Equity, LLC (SGE) invests in growth stage technology companies in the software, information services, internet and financial technology sectors. The firm is backed by a unique and patient capital base that allows management teams the freedom and flexibility to maximize growth. Notable prior investments in marketplace companies include CreditKarma (financial management platform with 40 million members), BStock Solutions (overstock inventory liquidation marketplace) and Globaltranz (marketplace for transportation services). To learn more, please visit us at www.sgep.com.
Contacts
Brew Media Relations
Ashley Hopkins, 646-517-7544
fundera@brewpr.com
Alternative Fintech Pioneer Merchant Cash and Capital Transforms into Bizfi
September 15, 2015NEW YORK–(BUSINESS WIRE)–Merchant Cash and Capital, one of the pioneers in the alternative finance space, announced today that MCC has transformed into Bizfi, an online lending and aggregation platform. Due to the success of Bizfi.com, launched earlier this year, Merchant Cash and Capital is completing its operational and brand metamorphosis in a way that better reflects the Company’s commitment to financial technology. The name change is a consideration of the Company’s rapid growth – in the second quarter of 2015 alone, the Company provided $115 million to more than 3,000 small business owners – as well as its online expansion.
Bizfi’s aggregation platform provides small businesses access to products from more than 35 funding partners including OnDeck, Funding Circle, CAN Capital, IMCA, Bluevine, Kabbage, and SBA lender SmartBiz. Bizfi, which is also a direct lender on the platform, can finance a small business owner in as little as 24 hours. It is the only funding platform that allows a business owner to go directly to contract online.
“Since the launch of Bizfi.com, we have received an overwhelming response from both business owners and funding partners,” said Stephen Sheinbaum, Founder of Bizfi. Bizfi and its family of companies over the past two years has doubled originations to fund more than 25,000 small businesses totaling $1.3 billion. Sheinbaum continued, “Bizfi stands at the nexus of alternative finance and financial technology. With Merchant Cash and Capital becoming Bizfi, we will provide fast and unparalleled funding options to businesses across all types of sectors in the United States and internationally.”
With 80 percent of small business owners today turning online to search for financing, and 66 percent making loan applications after traditional banking hours, Bizfi is positioned to be the leader in the future of small business financing. Bizfi offers a range of funding options including short-term funding, medium term-loans, SBA loans, equipment financing, invoice financing, medical financing, lines of credit, and franchise financing.
Mr. Sheinbaum concluded, “The marketplace for business funding has changed dramatically throughout the ten years that we have been in the industry. We are continuing to grow, adapt and combine our deep expertise with cutting-edge technology to meet the needs of small business owners around the country.”
About Bizfi
Bizfi.com is the premier alternative finance company combining both aggregation and funding on one platform with proprietary technology and unmatched customer service. Bizfi’s connected marketplace instantly provides multiple funding options to businesses with a wide variety of funding partners and real-time approvals. Bizfi.com’s funding options include short-term financing, franchise funding, equipment financing and invoice financing, medium-term loans and long-term loans guaranteed by the U.S. Small Business Administration. A process that once took hours, now takes minutes.
Formerly Merchant Cash and Capital, Bizfi and its proprietary marketplace and funding technologies have provided more than $1.3 billion in financing to over 25,000 small businesses across the United States since 2005. Businesses across all industries and sectors have received funding through Bizfi, including restaurants, retailers, health service providers, franchises, automotive service shops and many others.
Yellowstone Capital to Drive Job Growth in New Jersey
September 11, 2015
According to Business Facilities Magazine (BF), NYC-based Yellowstone Capital is considering a move to Jersey City and was approved for up to $3.3 million in Grow NJ tax credits over 10 years.
Grow NJ is a New Jersey job creation program that is designed to give the state a competitive economic edge against surrounding states.
BF says that Yellowstone Capital would create 45 jobs.
The move would loosen the grip that Manhattan’s financial district has on the fast growing alternative business financing industry. Currently located at 160 Pearl Street, just steps away from Wall Street, Yellowstone surprised many industry insiders several months ago when their lifetime funding figures of $1.1 billion were published on the industry’s leaderboard.
A move to the Garden State would not be surprising in the midst of all the infrastructural improvements the company has made in 2015.
Stock Slump Makes Marketplace Lending Look Like Safe Haven
September 2, 2015
The premium might be gone in peer-to-peer lending, but a step forward is definitely still better than three steps back. Probably the most frustrating thing for long term investors in the stock market is the day-to-day volatility. Some of it’s rational, and some of it’s just, well, who knows…. it’s the stock market.
It’s a hopeless feeling to see your stock portfolio balance drop substantially all because something is happening in China. But if you’ve diversified your overall investment portfolio beyond just stocks, it’s not all bad right now. It’s actually a bit of a golden era.
On Lending Club, my portfolio’s Adjusted Net Annualized Return is 8%. On Prosper, my Annualized Return is 11%, though that portfolio is younger and smaller. And then there’s my merchant cash advance portfolio which is beating both of those by a long shot.
These investments are a wonderful balance to the stock market because they don’t care what’s happening in China either. It’s times like these though when you need to be patient and not overreact. The easy mistake to make right now is to substantially reallocate your portfolio so that the majority of your capital is in marketplace loans.
LendingMemo’s Simon Cunningham believes that having 20% of your portfolio in peer-to-peer lending investments is reasonable.
And Lend Academy founder Peter Renton told Equities.com last year that, “The official word from the platforms is that you should not invest more than 10 percent of your net worth.” He also went on to say that some people are putting half their life savings into this and that it’s probably not a good idea.
And he’s right. As volatile as stocks can be, your steep loss today can be erased by a rally tomorrow. With notes backed by the performance of loans, a loss today can’t just rally back tomorrow. When the loans go bad, the money is gone and thus the risk of loss is a little bit more permanent since you can’t just ride it out.
In that same interview, Renton said, “If there were another 2008 or 2009 now, I feel very confident that my returns would remain positive. I’m earning close to 12 percent right now. If there were another 2008-9 right now, I might go down to 6 percent.”
I think that’s probably a best case scenario in a worst case scenario. Everyone should plan for events or contingencies that will lead to losses. If there were no possible outcomes that could lead to losses, then the market has obviously mispriced the loans and I don’t believe that has happened.
One nightmare scenario to consider for example, is if the loans are invalidated by a court. Oddly enough, this very possibility is being discussed after the outcome of the Madden v. Midland ruling which hurt the reliance on chartered banks to originate loans. Lending Club’s CEO answered concerns over that by saying they were protected by their choice of law provision, a safeguard that just recently proved to be imperfect.
As Patrick Siegfried, Esq, wrote, “Last Thursday, the Attorney General of North Carolina was granted an injunction against Western Sky Financial and CashCall prohibiting them from offering any loans to North Carolina consumers or collecting on any outstanding accounts in that state.” The companies pointed to their choice of law provisions that supposedly made the rates permissible. This practice is actually commonplace for alternative lenders. But Siegfried said, “Because the Attorney General was not a party to the agreements, the court found that the Attorney General was not bound by the agreements’ choice of law. Therefore it could enforce North Carolina’s usury laws against the defendants.”
Now however remote the possibility of judicial or regulatory invalidation of loans, it is sobering possibilities like these that should prevent anyone from putting half their life savings into marketplace lending. It is a nice complement to a portfolio of stocks, but not a replacement for one.
Over the last week, my marketplace lending portfolios have been a bright spot and a source of optimism in a news cycle and market that has suddenly turned bearish. I’m tempted to reallocate my investments accordingly, but I’m not going to.
Hopefully you won’t make any impulsive maneuvers either…
Should Alternative Lenders Reconsider IPOs?
August 31, 2015
OnDeck has gotten very quiet over the past month as the stock hovers near its all time low, and down more than 50% from its IPO price. The only updates related to them on the news wire lately are reminders from law firms to join in on the existing class action lawsuit. One has to wonder if they regret going public.
To make the things murkier, the Madden v. Midland decision effectively makes it illegal in a handful of states for alternative lenders to rely on chartered banks to originate loans for them at interest rates that violate state usury laws. In states such as New York, that’s a big problem for OnDeck, but fortunately for them and other lenders like them, they can still fall back on a choice of law provision to still be able to make the loans.
Combine that landmark ruling with the Treasury RFI, The Dodd Frank Section 1071 Reg B rule that everyone wants enforced all of the sudden, and a chorus of lenders calling for regulatory action, and we don’t exactly have an ideal environment for other alternative lenders considering an IPO.
But does an IPO really matter?
I am reminded of a long email that Elon Musk sent to employees of SpaceX two years ago regarding their aspirations to go public so that they could monetize their stock options and get rich.
“Some at SpaceX who have not been through a public company experience may think that being public is desirable. This is not so.”
“Another thing that happens to public companies is that you become a target of the trial lawyers who create a class action lawsuit by getting someone to buy a few hundred shares and then pretending to sue the company on behalf of all investors for any drop in the stock price.”
“Public companies are judged on quarterly performance. Just because some companies are doing well, doesn’t mean that all would. Both of those companies (Tesla in particular) had great first quarter results. SpaceX did not. In fact, financially speaking, we had an awful first quarter. If we were public, the short sellers would be hitting us over the head with a large stick.”
“Public company stocks, particularly if big step changes in technology are involved, go through extreme volatility, both for reasons of internal execution and for reasons that have nothing to do with anything except the economy. This causes people to be distracted by the manic-depressive nature of the stock instead of creating great products.”
“It is important to emphasize that Tesla and SolarCity are public because they didn’t have any choice. Their private capital structure was becoming unwieldy and they needed to raise a lot of equity capital.”
“Those rules, referred to as Sarbanes-Oxley, essentially result in a tax being levied on company execution by requiring detailed reporting right down to how your meal is expensed during travel and you can be penalized even for minor mistakes.”
Any other alternative lenders possibly considering an IPO should strongly evaluate whether or not it’s necessary to go public to carry out their objectives. Surely the folks at OnDeck must be at least a little bit distracted by the manic-depressive nature of their stock price, the class action lawsuit, reactions to their quarterly reports, and the unyielding scrutiny by analysts and pundits. Surely it could be argued that they’ve lost some of their PR mojo in the mix.
It’s not easy running a public company, especially a lender in a post-financial crisis world where Wall Street hatred still runs hot. Hopefully if you are in this industry, you are in it for the long haul and not just for an IPO to cash out and give up…
Are Your Sales Methods Wimpy?
August 24, 2015
Do you remember Wimpy? Some of you probably don’t but those who do remember Wimpy, remember him as being a silent scam artist who promised the famous phrase, “I will gladly pay you Tuesday for a Hamburger today.” He never adhered to that promise. I never ascribed cartoons to real life but we can learn a few things from Wimpy and how we understand business relationships.
Back in the day, there was something called Trust. It was a little thing that was swapped like currency with the people that you interacted with on a daily basis. Today, trust has been traded for the Internet and now we have nothing to stand on. We must work harder to build relationships in any capacity and at the end of the day, you might still question if a developing level of trust is reciprocal.
Take trust and mix it with a sales position in 2015 and you have disaster. The countless nos you must endure to get to the few yeses and the pressure to close those yeses is exacerbated by the fear that a Wimpy or the Internet will come and take them away.
While reading Personal Touch Makes Big Difference in Small-Business Loans on the WSJ this morning, I immediately got a little upset. This is such a “Duh Article.” A “Duh Article” is one of those articles that are true, but so true in the fact that you end up saying, “Duh, I know that!” and wonder why such basic teachings become important when they are finally backed up by a case study. Did anyone really not think that personal relationships help? Or that Wimpy, the borrower you didn’t know, would not really pay you on Tuesday when you relied on just his word? It goes both ways.
Below are a few ways to avoid the Wimpy traits of sales when building a relationship between you and a business owner:
#1 Rule of Sales Relationships: What are you even selling?
You are selling money so it shouldn’t be that hard right? WRONG. Even though everyone could use an influx of capital, you have two factors that impact your sales in the MCA Industry. PRICE and PROMINENCE.
- Price: We are already slandered for putting a hefty price tag on advances and even if you say, “We offer factor rates as low as a 1.08!”, How many 1.08 deals do you really close?
- Prominence: Names, Logos, and Promises. Characterization plays a big part in what you represent. With so many MCA Entities popping up, how do you set yourself apart?
You have to offset the two factors by building the relationship and creating an understanding.
Example: Imagine you are selling a line of ketchup to every hamburger shop in the U.S.
Do they already have ketchup? They will eventually need to reorder. So where do they get it now? Are they content with this outlet or have they never thought to seek out an alternative? This is the same “question scenario” you have to answer when selling. Note: Replace Ketchup with Capital.
- Do they need capital now?
- Will they need more capital soon?
- How do they get capital when they need it?
- How can I deliver all of the above and be their new preferred choice?
If the answer to the first question is no, that’s okay, move on to the next question. You are more likely to close double the sales when you answer the second and third one. Either way, one of those will have an answer.
#2 Rule of Sales Relationships: Understand the Market you are Targeting
Who is your target market and do you understand them? This is one of those situations where I feel offering a factor to a manufacturing company that is based on invoices is just plain dumb. There are many alternative financing options that are more mainstream than you think and it all boils down to the top 3 things:
- Industry: Do you understand the industry you are selling to? You will connect better with your merchant if you understand the inner workings, schedule, and the ways they obtain their receivables. Their Industry is their passion. If you don’t connect with their passion (unless there is a dire need for emergency capital) you will not be taken seriously or remembered. Ask yourself, “how can I demonstrate an understanding of the way the business makes money or works with different vendors to get paid?”
- Credit: Don’t promise a low rate to a business that you know has a credit score below 600. Research the different tier programs PROVIDED to you by most Direct Funders. Categorize your tier sales structure and request examples of similar past funded industries from the Funders you work with.
- NEED:If they do need capital now, what is it for? This is a great conversation starter. Whether it’s a seasonal need, equipment-related, or plain ol’ working capital, probe the conversation by finding out their goals so you can better represent the merchant and fit them to a better funding program.
#3 Rule of Sales Relationships: The Follow up
This may go far beyond the basic sales guidelines, but categorize your prospects!
Example: Say you have a book of restaurants that you have connected with before and you know they are going to start gearing up for the holidays. Let them know you UNDERSTAND this time of year and how you can assist! Personalize the need of capital with something they base their business on. This is where direct marketing comes into play. If you remind them of who you are and that you are to assist them to manage the most stressful money making times of the year, they will think of you as their go-to when they NEED it.
