Q&A With Noah Breslow On Replacing ACH For Realtime Funding and More
October 25, 2017
An announcement by OnDeck, Ingo Money and Visa this week at Money2020 may be more consequential than it appeared. That’s because the partnership enables OnDeck to actually fund a merchant’s bank account (not their debit card) on days, nights, weekends, and holidays. Such a feature is not possible in the realm of ACH where funding typically takes place on the next business day and only if the transaction is submitted before a predetermined cutoff time. AltFinanceDaily got to learn more about how this works in an interview with OnDeck CEO Noah Breslow on Tuesday as well as the opportunity to pick his brain about a few other things. Below is a curated excerpt of the interview that has been edited for brevity.
AltFinanceDaily: For this real time funding you announced, do you have to have a Visa debit card?
Breslow: You do not, but you have to have a debit card. 70% of small business owners have debit cards. And this will work with Visa or Mastercard.
AltFinanceDaily: So you’re not actually funding a merchant’s debit card, you’re funding their bank account but using the Visa network as the mechanism?
Breslow: It’s the rails, it’s the way to get the money into a small business owner’s checking account. My prediction is that every funder in the industry is going to be doing this in a couple of years. It’s going to be faster and small businesses will start to expect it. Now instead of waiting 2 days to get the money into someone’s account, it can be done on nights, weekends, holidays, 365 days a year.
AltFinanceDaily: So you can fund a merchant’s bank account on the weekend?
Breslow: Yes, it’s real time. And to be clear we partnered with Ingo Money, Visa has the rails. Ingo is our interface point, they do the PCI compliance and the rest. We looked at a bunch of different players in the market and Ingo was unique in that they had covered small business checking accounts. Some of this stuff is happening in consumer already. We’re the first lender to use these rails for either consumer or small business in the US.
AltFinanceDaily: Has this already gone into effect?
Breslow: No, it’s coming out in a couple months. Early 2018.
AltFinanceDaily: Does this system work with every bank already?
Breslow: It doesn’t work with every bank yet. It works with most of them, all of the major ones.
AltFinanceDaily: Speaking of payments… Square. PayPal. They’re both payments companies first that went into lending. Is there a potential reverse play for OnDeck to go into payments?
Breslow: Right now our product expansion stuff is very focused on additional lending products. I still feel like we haven’t lived up to our full potential there. There’s a couple other product categories that we’ve looked at and thought about. Equipment finance is one, invoice factoring, small business credit cards. And so we look to be the best small business lender in the world with the best set of products. And then we can partner with a lot of the payments companies. But right now, no we’re not going to sell merchant processing. Never say never, but not in the near future.
AltFinanceDaily: Any news on the Chase front?
Breslow: We re-upped our agreement with them in early August. The customer experience is amazing, our platform is scaling, and we’re making progress. I can’t tell you a lot of other details about it.
AltFinanceDaily: I’ve heard from folks in the industry about merchants who are being debited by Chase either daily or weekly. Is that you?
Breslow: That would be our platform. Chase’s product is more or less like the OnDeck product but cheaper obviously. It’s a daily or weekly collected loan. It goes up to 24 months for $200,000.
AltFinanceDaily: I want to ask you about brokers, or as you call them “funding advisors.” Do you anticipate reliance on them increasing or decreasing?
Breslow: Stable. I don’t anticipate it moving up or down. We really like the funding advisors that we have and we’re continuing to grow with them. We’re also adding some new ones.
AltFinanceDaily: What makes a good broker? What can they do to do things right?
Breslow: The value equation between the merchant, the lender and yourself has to be in balance. They should also be efficient and know the credit box of the lender they’re working with. They should invest in their employees, train them, and they should become more sophisticated about their online marketing and CRMs, which we’ve been seeing.
AltFinanceDaily: Everyone’s talking about blockchain at this conference. Is there a way that blockchain fits into online lending and possibly OnDeck?
Breslow: I love the technology, I’m very intrigued by it. But we’re not actively using it and it’s not like I have a secret blockchain project in the works.
AltFinanceDaily: Is there a universe in which OnDeck considers making an acquisition of a company?
Breslow: So we’re not totally opposed to that. They’re might be an opportunity for a complementary product or a complementary team. I think you’re going to see a lot of consolidation in the industry in the next 3-5 years.
The Top Small Business Funders By Revenue
October 23, 2017The below chart ranks several companies in the non-bank small business financing space by revenue over the last 5 years. The data is primarily drawn from reports submitted to the Inc. 5000 list, public earnings statements, or published media reports. It is not comprehensive. Companies for which no data is publicly available are excluded.
| Company | 2016 | 2015 | 2014 | 2013 | 2012 |
| Square1 | $1,708,721,000 | $1,267,118,000 | $850,192,000 | $552,433,000 | $203,449,000 |
| OnDeck2 | $291,300,000 | $254,700,000 | $158,100,000 | $65,200,000 | $25,600,000 |
| Kabbage3 | $171,784,000 | $97,461,712 | $40,193,000 | ||
| Swift Capital4 | $88,600,000 | $51,400,000 | $27,540,900 | $11,703,500 | |
| National Funding | $75,693,096 | $59,075,878 | $39,048,959 | $26,707,000 | $18,643,813 |
| Reliant Funding5 | $51,946,472 | $11,294,044 | $9,723,924 | $5,968,009 | $2,096,324 |
| Fora Financial6 | $41,590,720 | $33,974,000 | $26,932,581 | $18,418,300 | |
| Forward Financing | $28,305,078 | ||||
| Gibraltar Business Capital | $15,984,688 | ||||
| Tax Guard | $9,886,365 | $8,197,755 | $5,142,739 | $4,354,787 | |
| United Capital Source | $8,465,260 | $3,917,193 | |||
| Blue Bridge Financial | $6,569,714 | $5,470,564 | |||
| Lighter Capital | $6,364,417 | $4,364,907 | |||
| Fast Capital 360 | $6,264,924 | ||||
| US Business Funding | $5,794,936 | ||||
| Cashbloom | $5,404,123 | $4,804,112 | $3,941,819 | $3,823,893 | $2,555,140 |
| Fund&Grow | $4,082,130 | ||||
| Nav | $2,663,344 | ||||
| Priority Funding Solutions | $2,599,931 | ||||
| StreetShares | $647,119 | $239,593 | |||
| CAN Capital7 | $213,402,616 | $269,852,762 | $215,503,978 | $151,606,959 | |
| Bizfi8 | $79,886,000 | $51,475,000 | $38,715,312 | ||
| Quick Bridge Funding | $48,856,909 | $44,603,626 | |||
| Funding Circle Holdings9 | $39,411,279 | $20,100,000 | $8,100,000 | ||
| Capify10 | $37,860,596 | $41,119,291 | |||
| Credibly11 | $26,265,198 | $14,603,213 | $7,013,359 | ||
| Envision Capital Group | $21,034,113 | $19,432,205 | $12,071,976 | $11,173,853 | |
| Capital Advance Solutions | $4,856,377 | ||||
| Channel Partners Capital | $2,207,927 | $4,013,608 | $3,673,990 | $2,208,488 | |
| Bankers Healthcare Group | $93,825,129 | $61,332,289 | |||
| Strada Capital | $8,765,600 | ||||
| Direct Capital | $432,780,164 | $329,350,716 | |||
| Snap Advances | $21,946,000 | ||||
| American Finance Solutions12 | $5,871,832 | $6,359,078 | |||
| The Business Backer13 | $19,593,171 | $11,205,755 | $9,615,062 |
1Square (SQ) went public in 2015
2OnDeck (ONDK) went public in 2014
3Kabbage received a $1.25B+ private market valuation in August 2017
4Swift Capital was acquired by PayPal (PYPL) in August 2017
5Reliant Funding was acquired by a PE firm in 2014
6Fora Financial was acquired by a PE firm in 2015
7CAN Capital ceased funding operations in December 2016 but resumed in July 2017
8Bizfi wound down in 2017. Credibly secured the servicing rights of their portfolio
9Funding Circle’s primary market is the UK
10Capify’s US operations were wound down in early 2017 and their operations were integrated with Strategic Funding Source. Capify’s international companies are still operating
11Credibly received a significant equity investment from a PE firm in 2015
12American Finance Solutions was acquired by Rapid Capital Funding in 2014, who was then immediately acquired by North American Bancard
13The Business Backer was acquired by Enova (ENVA) in 2015
Catching Up With Online Lending – A Timeline
October 21, 20177/17
- Online lender Upgrade, launched by former Lending Club CEO Renaud Laplanche, revealed it had already hired about 100 people
- Credit risk startup James closed $2.7M funding found led by Gaël de Boissard
7/18 – Former Bizfi COO Tomo Matsuo joined iPayment as an SVP to oversee its new merchant cash advance division
7/21 – SoFi Chief Revenue Officer Michael Tannenbaum departed the company
7/27
- Lending surpassed $500M in lifetime originations
- RealtyShares acquired marketplace platform Acquire Real Estate
7/28
- Former MB Financial Bank SVP Stan Scott became VP at Gibraltar Business Capital
- Prosper Marketplace shut down its Prosper Daily (formerly BillGuard) app
7/31 – First Associates Loan Servicing announced the opening of their new 1000-seat capacity operations center in Baja California, Mexico
8/1
- Ron Suber joined Credible.com as executive vice-chairman and a member of the board of directors
- PeerStreet integrated with Personal Capital
8/2
- Lending Loop raised $2M, launched automated investment platform
- PeerIQ secured $12M in Series A round
- OnDeck partnered with Payment Source in Canada
- Bread raised $126M in equity and debt
8/3 – Kabbage secured $250M in Series F round from SoftBank Group, was valued at more than $1.25B
8/9
- Former Capital One VP Heather Tuason became Chief Product Officer at StreetShares
- PayPal acquired Swift Capital
8/10 – Coinbase raised $100M at $1.6B valuation
8/11 – Former SoFi employee raised Brandon Charles filed a lawsuit against the company alleging among other things that he witnessed sexual harassment in the workplace
8/14
- Prosper closed $500M securitization, announced $775M in Q2 loan originations, $41.4M net loss
- Bitcoin surged past $4,000
8/15 – iPayment announced the formation of its new merchant cash advance division, iPayment Capital
8/16 – Fifth Third Bank made another equity investment in ApplePie Capital, agreed to purchase loans through the company’s marketplace
8/19 – Former CFO of Credibly became president of Western Funding
8/22 – Former SoFi employees filed a lawsuit against the company over wage issues
8/23 – Ellevest raised $32.5M
8/24 – AutoFi raised $10M in Series A
8/25 – Rep. Maxine Waters called for a congressional hearing on SoFi’s bank charter application and ILC charters in general
8/29 – Snap Finance secured $100M credit facility
8/30
- IOU Financial announced Q2 originations of $26.2M (US) and a net loss of $2.08M (CAD)
- ShopKeep launched ShopKeep Capital, a merchant cash advance service
8/31 – Bizfi wound down operations, sold servicing rights to its $250M portfolio to Credibly
9/2 – Bitcoin surpassed $5,000
9/5 – Former Chief Sales Officer of OnDEck, Paul Rosen, joined CoverWallet as COO
9/6 – Square revealed that they would apply for an ILC charter, following in the footsteps of SoFi
9/7
- Former Director of External Sales at OnDeck, Jared Kogan, joined Pearl Capital as Chief Revenue Officer
- First Internet Bank announces strategic partnership with Lendeavor, Inc.
9/11
- SoFi CEO Mike Cagney announced he had resigned as board chairman and would be resigning as CEO later in the year
- Lenda raised $5.25M Series A
9/12
- Groundfloor announced $100M loan purchase agreement with Direct Access Capital
- Orchard unveiled its Deals platform
- JPMorgan CEO Jamie Dimon called Bitcoin a fraud for stupid people
9/13 – dv01 closed $5.5M Series A
9/14 – SmartBiz surpassed $500M in lifetime SBA loan originations
9/15
- Amid more negative press, SoFi CEO Mike Cagney announced he was resigning as CEO immediately
- Enova announced $25M share repurchase program
9/20 – World Business Lenders acquired strategic assets of Bizfi including the company’s brand and marketplace
9/22 – Prosper Marketplace raised $50M in a Series G round at a 70% lower valuation of $550M
See previous timelines:
5/17/17 – 7/11/17
4/6/17 – 5/16/17
2/17/17 – 4/5/17
12/16/16 – 2/16/17
9/27/16 – 12/16/16
Bizfi Alum Jared Weitz Reflects on Demise of Former Employer and Rise of UCS
October 9, 2017
Jared Weitz has come a long way since his earlier days as one of the original Bizfi employees. Today he’s at the helm of online funding marketplace United Capital Source (UCS), which has been on a tear since AltFinanceDaily last spoke with Weitz a couple of years ago. The UCS founder and chief executive took some time to revisit with us about having to painfully watch the demise of his former employer, which is where he cut his teeth in this business, and the rise of his own company UCS as a funding marketplace.
In some ways, the more things change the more they stay the same. Since the last time Weitz spoke with us, the company’s location remains in the heart of Times Square in New York, and UCS has grown its staff by only four people including two sales reps. What has changed, however, is the amount of funding that the company has done and the size of the average transaction, all of which have blossomed.
“When we first spoke a few years ago we were doing $8 million to $10 million a month in funding volume. Now we are doing between $14 million and $16 million per month,” said Weitz.
He added that where the company differentiates itself is that while a few years ago the products they were selling were predominately in the sub-prime space now they sell other products, which allows merchants to “swim upstream” when they qualify for that.
The result has been bolstered partnerships and product offerings and an average loan size that has jumped from $30,000 to $40,000 per deal to a range of $500,000 to $2 million.
“We opened up the funnel to the kind of relationships we’re able to broker and the kinds of financings we’re able to offer. We’re playing in the field of SBAs, account receivables financing, lines of credit and asset backed loans. By offering these products our volume has jumped significantly and allowed us to talk to different referral partners.”
UCS does all of its own marketing and generates leads for their in-house sales reps. Those sales reps take a file from open to close and they analyze the small business owner’s needs on a consultative call.
“We understand their business and their pain points. The first question we ask isn’t how much do you need but what’s paining you in your business today that we can help you with?”
One such business owner recounted his experience with UCS to AltFinanceDaily, saying that traditional banks were “an absolute pain” to secure funding. He spoke of the “very stressful” and time-consuming process of applying for a loan, saying he doesn’t have time to “jump through a million hoops to get a loan.”
“When I was initially looking to curb my temporary cash flow problem, I searched online for the best alternatives to traditional bank loans. I read all the reviews on companies and decided to call UCS,” the business owner told AltFinanceDaily, adding that he’s been a UCS repeat customer for a number of years and is especially fond of the ease at which the process is completed.
“I could literally call Jared today and have six figures in my account tomorrow. The best part is the pay back process. They only take funds when I run credit card transactions. So, in my slow months, I don’t have to stress and worry about repaying the loan. UCS is a perfect fit for me,” the business owner said.
Eye Opener
As the seventh or eighth employee of Bizfi, Weitz really has been part of the evolution of online funding. He says the rise and fall of Bizfi has been an “eye opener” for him.
“It caused a bunch of funding companies to be a little gun shy when it comes to funding. I told my guys this too shall pass. People are shaken and wondering if it’s a larger global issue. Thankfully it’s not a global issue. There are plenty of funding companies that are well backed that are still funding. My group is well able to pick it back up. We have signed up with more funding companies to increase our offerings and make sure we have no concentration issues,” said Weitz.
And although he left the company to eventually launch UCS, which has proven to be a prudent move, he has nothing but respect for his former employer.
“My history there is very deep and I’ve got a genuine love for the founders of the company. It’s where I cut my teeth. I was really sad the day I heard they’re not funding anymore.”
In fact, Bizfi was one of the funders that UCS counted among its partners.
“We had a good book there. We started to see problems and began to shift where our new business was going. Thankfully it didn’t affect me. But it showed me that you should sign up with more funding companies. If you think the mix should be X go 50% more and be super cautious. This approach has worked out for us,” he said.
Weitz has advice for other funders that might be looking to grow at lightning speed.
“Someone that’s growing so fast while they’re also innovating and looking to close larger transactions that bring them to a bigger place – that’s hard to do all at once. Driving at 200 MPH either works out well and takes you to the finish line or it doesn’t work out really well. It’s really unfortunate that it didn’t work out for them.”
Deal Competition
For its part, UCS competes with the likes of LendingTree and other online marketplaces, but that seems only to add an ounce of perspective to Weitz and the UCS team, driving them to adjust and remain nimble so that they can get the next deal.
“Healthy competition is good for us. We welcome anything like that. Some of my best learning experiences have been when we were beat out on a deal. I call the merchant personally and say hey, who gave you the deal? Honestly, I want to sign up with them and offer those rates to my clients. We form a friendship with both the funder and the small businesses,” he said.
UCS also counts some high-profile funders among its partners.
“We’ve worked with some funders forever and it’s been great. But we really had to also find folks that offer certain products but at a cheaper rate,” said Weitz, pointing to the scenario of a merchant having a few of those loans under their belt and improved credit as a result. “They are being solicited by depository banks and can qualify for that rate. We don’t want to lose the relationship. My thought process is sign up with similar folks with that product and when the time comes we can swim the merchant upstream.”
For instance, not all funders offer SBA loans but UCS has been doing so for the past two years. “It’s really kind of taken off for us over the last year. The same thing with accounts receivable and future order financing.”
UCS acts as both a broker and investor in their own deals, so they have a vested interest in the underwriting standards. “Investing with some of our funding partners on the syndication side allows us to have buying power and to take an actual interest in the merchant we’re dealing with,” said Weitz, adding that UCS takes a hybrid approach offering both a fully automated underwriting process for those merchants who want it but also having the capability to talk to the business owners, which is what the large majority of business owners prefer.
What Will it Take to Grow OnDeck’s Stock Price?
September 20, 2017OnDeck closed at the exact same price on September 14th as it did on July 20th, $4.58. In between, OnDeck reported one of their best quarters ever (they released their 2nd quarter earnings on August 7th) and experienced a temporary boost to $5. Even then, the stock was 75% down from the IPO price and more than 80% down from their all-time high, yet that too couldn’t be sustained.
In Q2, OnDeck only had a GAAP net loss of $1.5 million and announced that they had expanded their collaboration with JPMorgan Chase for up to four years to provide the underlying technology supporting Chase’s online lending solution to its small business customers.
In the rest of the lending world, optimism is in style. Square is up 121% year-to-date, according to the AltFinanceDaily Online Lender Tracker and even Lending Club is up 14%.
More traditional finance companies like American Express and Intuit are meanwhile hovering near their 52-week highs, according to the Specialty Business Lending Tracker.
Some of OnDeck’s former employees at least appear to be doing well. Just recently, the former Chief Sales Officer was named COO of CoverWallet, the former Director of External Sales was named Chief Revenue Officer of Pearl Capital and the former Director of Portfolio Management and Credit Operations was named SVP at Breakout Capital.
The Top Small Business Funders By Revenue
September 14, 2017Thanks to the Inc 5000 list on private companies and earnings statements from public companies, we’ve been able to compile rankings of alternative small business financing companies by revenue. Companies that haven’t published their figures are not ranked.
| SMB Funding Company | 2016 Revenue | 2015 Revenue | Notes |
| Square | $1,700,000,000 | $1,267,000,000 | Went public November 2015 |
| OnDeck | $291,300,000 | $254,700,000 | Went public December 2014 |
| Kabbage | $171,800,000 | $97,500,000 | Received $1.25B+ valuation in Aug 2017 |
| Swift Capital | $88,600,000 | $51,400,000 | Acquired by PayPal in Aug 2017 |
| National Funding | $75,700,000 | $59,100,000 | |
| Reliant Funding | $51,900,000 | $11,300,000 | Acquired by PE firm in 2014 |
| Fora Financial | $41,600,000 | $34,000,000 | Acquired by PE firm in October 2015 |
| Forward Financing | $28,300,000 | ||
| IOU Financial | $17,400,000 | $12,000,000 | Went public through reverse merger in 2011 |
| Gibraltar Business Capital | $16,000,000 | ||
| United Capital Source | $8,500,000 | ||
| SnapCap | $7,700,000 | ||
| Lighter Capital | $6,400,000 | $4,400,000 | |
| Fast Capital 360 | $6,300,000 | ||
| US Business Funding | $5,800,000 | ||
| Cashbloom | $5,400,000 | $4,800,000 | |
| Fund&Grow | $4,100,000 | ||
| Priority Funding Solutions | $2,600,000 | ||
| StreetShares | $647,119 | $239,593 |
Companies who were published in the 2016 Inc 5000 list but not the 2017 list:
| Company | 2015 Revenue | Notes |
| CAN Capital | $213,400,000 | Ceased funding operations in December 2016, resumed July 2017 |
| Bizfi | $79,000,000 | Wound down |
| Quick Bridge Funding | $48,900,000 | |
| Capify | $37,900,000 | Wound down |
Bond Street Has Stopped Lending
September 13, 2017
NYC-based small business lender Bond Street has stopped making new loans, according to sources who worked with them. The Wall Street Journal published a similar report earlier today. In addition, the WSJ reported that Goldman Sachs is hiring 20 of Bond Street’s employees.
Just seven months ago, Bond Street announced that they had closed a $300 million loan purchase agreement with Jefferies. The WSJ reported that an inability to raise additional equity is what threw a wrench in their future. The same situation happened to Bizfi just a few short months ago, who wound down after 10 years and shipped their portfolio off to rival Credibly to service.
Bond Street’s 1-3 year loans with APRs ranging from 8% – 25% were terms that many in the alternative business lending universe say is a fundamentally unprofitable model. The company now appears to be joining the ever growing purgatory of alternative small business finance companies. They join Dealstruck, Herio Capital, Bizfi, and Nulook Capital. CAN Capital was previously on that list but was recently restructured and revived.
Able Lending, another small business lender, denied that they were going out of business but admitted they were looking to be acquired.
Square is also reportedly in talks to hire Bond Street employees, the WSJ claims. When Bizfi closed, their employees were mainly picked up by rivals World Business Lenders, Strategic Funding, iPayment, 6th Avenue Capital, and others.
ShopKeep Joins the MCA Crowd. Are Loans Next?
September 8, 2017
ShopKeep, an iPad-based cloud-connected technology company designed around POS and payments for small businesses, is expanding into MCAs with the launch of ShopKeep Capital in recent days. With its move into funding ShopKeep joins an area that competitor Square already operates in. But while both companies have unlocked the secret of customer acquisition they are not targeting the same small businesses.
Meanwhile this latest move into MCAs is just a step in what ShopKeep CEO Michael DeSimone describes as an evolution, one that could potentially lead to small business lending sooner than later.
“We had a lot of interest from our customers,” said DeSimone, referring to the nearly 25,000 small businesses that are on ShopKeep’s payment and software platform. ShopKeep Capital extends funding offers to eligible small businesses on the ShopKeep platform, and funding is approved within a couple of days.
Playing Field
ShopKeep is entering a space – MCAs — that is only getting more crowded, with the recent addition of iPayment, for instance. And while ShopKeep and Square operate in a similar market segment, they’re targeting different SMBs.
“Our customers tend to be larger than Square and more complex in their business models,” said DeSimone, pointing to the example of a restaurant with numerous employees and multiple locations. On average, customers on the ShopKeep platform generate sales of $350,000 per year.
As a payments company, ShopKeep’s customer acquisition strategy is tied directly to its software and payments businesses.
“This leverages our ability to understand the small business data flowing through our POS platform and manage it the way we do payments based on the premise of greater visibility into their business by the virtue of our payments platform,” said DeSimone.
He is quick to point out that ShopKeep is built on technology, and he said like every other part of the economy tech is disintermediating some parties and bringing others closer to the outcome they desire.
“The closer you are to the actual customer, the more your opportunity is to be able to be top of mind when they need something,” he said. “They have huge amounts of interaction with us. This level of interaction predicated on technology is really what creates the ability to have a relationship with the merchant to then be able to offer them a range of different products and services.”
DeSimone describes ShopKeep more as a technology play than a funder.
“We have a lot of information most other providers of capital aren’t going to have unless they ask merchants to do a lot of work,” said DeSimone, pointing to an underwriting model that is almost 100% automated.
“We’ve built it to be largely pre-underwritten We only offer advances based on running the merchant through our underwriting model to see who comes up as a good candidate for ShopKeep Capital and making it available to them. We continually tweak the algorithm to make sure we are not being too tight or too loose,” he added.
Funding is the third revenue stream for ShopKeep, with software and payments representing the other two legs of the revenue stool. Meanwhile ShopKeep Capital is turning to its balance sheet to fund MCAs, but that is not the long-term plan.
“Currently it’s coming off our balance sheet, but it won’t be for very long. We have had several discussions with funding partners. And we expect over time we will migrate to more of a loan product and away from MCAs. We will explore the features and benefits of both to understand both our perspective and that of our customers,” said DeSimone, adding that there could be more clarity about the direction of this evolution in the next six months.
If ShopKeep does move into loans, the company could open up the platform to investors. “They are debt funds looking for returns and specific underwriting criteria. They will buy an advance or a loan eventually from what we originate. That’s the model we think we’ll go toward,” he said.
Something DeSimone and other lenders might want to keep in mind is a credit gap that exists among small businesses today, as described by Karen Mills, a senior fellow at Harvard Business School and former administrator of the U.S. SBA.
“There is no doubt that online lenders have identified an important segment that is not getting enough access to credit, but data also shows that borrowers are less satisfied with the interest rates and repayment terms from online lenders than from traditional banks. So even if small businesses are getting the loan, if it is not at an appropriate price, we should still consider this a credit gap,” Mills said.
Future Plans
While loans could be the next growth phase for ShopKeep Capital, this could be one of many new directions that the payments company takes. For instance, with key competitor Square, which boasts a market cap of approximately $10 billion, in pursuit of obtaining a bank charter, they could have company someday.
“It’s an interesting idea. It’s still very early for us but we’re not ruling anything out at this point,” DeSimone said.
For the near term, however, he is focused on ShopKeep Capital, for which he expects to make a couple of key hires for soon. “In my mind, this helps us to be more competitive with Square. I think it’s a really good service for our customers and it fits very well into the other pieces of our business,” said DeSimone.
