Square Beats Revenue Estimates with $439 Million; Lending Business Grows 70%
November 2, 2016Square Inc’s stock jumped 7 percent on Wednesday, thanks to upbeat earnings reported Tuesday.
The Jack Dorsey-led company recorded a loss of $32 million for the third quarter, compared to $52 million in the comparable period last year, and beat analysts’ revenue estimates of $430 million, with a 32 percent jump in revenue totaling $439 million.
Square processed $13.2 billion worth of transactions through its point of sale devices, up 39 percent since last year and the company’s lending business, Square Capital grew 70 percent annually, extending $208 million through 35,000 loans. With this, it has originated over $1 billion in two years.
Square Capital loans are made by Celtic Bank and loan offers are presented using the Total Cost of Capital method, where cost is disclosed as a precise dollar amount so that potential borrowers will know exactly how much they will have to pay. By enforcing a fixed 18 month term, Square differentiates its loan product from a merchant cash advance or a purchase of future sales.
Square CFO Sarah Friar told CNBC that there is still a lot of room for growth in the Square ecosystem with existing merchants, even as the company extends credit to businesses that do not use Square for payments. Friar also said that the company is “executing on all cylinders” to beat estimates for revenue and growth.
Brief: PE Giant Warburg Pincus to Acquire Texas Funder Ascentium Capital
October 6, 2016New York-based private equity firm Warburg Pincus agreed to acquire Texas-based equipment financing company Ascentium Capital. The details of the deal remain undisclosed.
Ascentium Capital, with $1.1 billion in assets provides vendor financing, partnering with distributors, resellers to fund their small business customers. And in March this year, it started lending to ISOs and retail merchants directly. The company will be continued to run by CEO Tom Depping who will roll over his stake in the business.
“We see a compelling market opportunity to continue to build Ascentium to become a multi-product capital provider to small businesses through both organic growth and complementary acquisitions,” said Arjun Thimmaya, Managing Director, Warburg Pincus in a statement.
The five year old firm has financed over $2 billion since inception, and funded $225.4 million during Q2 this year. Ascentium’s financial advisor was Goldman Sachs and Vinson & Elkins LLP served as legal counsel.
Funding The Great White North
September 13, 2016
As of last year, 98 percent of Canada’s employers were small businesses compared to 0.3 percent (2,933) large companies. Given this and what we know about Canada’s banking oligarchy, dominated by five large banks, it was inevitable that American alternative lenders would go looking for greener pastures in Canada.
When OnDeck set foot in the country two years ago, it accelerated the alternative lending movement by offering loans up to $150,000 CAD. But OnDeck wasn’t the first to discover the Canadian market. Merchant cash advance companies such as Principis Capital and AmeriMerchant (today Capify) have been there since 2010. Principis actually draws close to 15 percent of its business volume from Canada. But the credit that’s due to OnDeck is for expanding the horizons of small businesses who have been conditioned to think that lending begins and ends with banks. The crop of Canadian alternative lenders who do not otherwise have the resources for similar blitzkreig marketing are pleased with the industry’s promotion in general.
“We are happy that some of the bigger US players are coming up here and they are spending millions of dollars on advertising,” said Bruce Marshall, vice president of British Columbia-based Company Capital. “These companies raise awareness of the industry to a higher level and with us being a smaller company, we can ride on their coattails,” he said.
Company Capital has been operating as a balance sheet lender for five years and has provided term loans, working capital loans, merchant cash advances and ‘cash lines’ which are similar to lines of credit. For lenders such as Company Capital which makes loans in the range of $30K – $50K, the presence of bigger players like OnDeck saves them from consumer education-oriented marketing campaigns. “We cannot compete with the advertising of big companies but it works in our favor of creating awareness and becoming more mainstream,” Marshall noted.
And this not only helps the Canadian companies but also smaller US companies that feel comfortable entering a market with a leader. OnDeck’s presence nudged Chad Otar, founder and managing partner of New York-based commercial finance brokerage Excel Capital Management into considering Canada as a viable market. “We saw OnDeck go there and thought that there is some kind of money we can make,” he said.
But for OnDeck, Canada might just as well be another large US state. Most American companies including OnDeck, Principis Capital and Excel Capital run their Canadian operations remotely, treating it much like an extension to their US business with similar products.
“Our range of business is virtually the same in Canada as in the US. We don’t need to have an operation center there,” said Jane Prokop, CEO of Principis Capital. The company approaches Canada just like the US with accounts and customer service being handled in a similar fashion. “It’s a very manageable extension of the US market,” Prokop said. “It’s a smaller market so someone who enters Canada cannot expect the same kinds of volume as in the US.”
It also certainly helps to be spread across the same time zones and in such close proximity where a majority of the country also speaks the same language. If it was that easy though, shouldn’t we have seen more companies doing this?
“The fundamentals of the Canadian market are different. Our banks are established and trusted and in general do quite a good job, so the opportunity for market expansion is different than in the US,” said Jeff Mitelman, CEO of Thinking Capital, one of the country’s first alternative lenders.
Prior to Thinking Capital, Mitelman founded and ran Cardex, Canada’s first ISO which offered lending products with payment services. And that competitive edge helped him recently to partner with payment solution company Everlink to expand its customer base and offer loans online. The company previously secured credit facilities worth $125 million from two of the biggest banks in the country, The Canadian Imperial Bank of Commerce and Nova Scotia.
Picking up the same strategy, some American companies decided to bank on these big banks (pun intended) for their success. For instance with Kabbage, it made sense to license its automated platform to Nova Scotia Bank and to rely on them to deploy capital while Kabbage provides the technology and customer experience. “We saw that Canada is ripe for technology but the differences in regulation among other things made us go the partner route,” said Peter Steger, head of business development at Kabbage.
The advantages of having an incumbent customer base, the brand equity and the supply of capital usually outweighs the costs and inconveniences of maneuvering in an unfamiliar business environment that only a few firms have the bandwidth for, some companies contended.
Secondly, there is a lack of reliable and robust data necessary for making lending decisions. Since only a handful of large financial institutions dominate the landscape, the data reported is limited to a small number of players and the outputs from credit bureaus may not be sufficient for making a credit decision. “The availability and access to government and financial data is scarce in Canada compared to other markets,” said Jeff Mitelman. “Most of the data relationships that fintech companies rely on, need to be developed on a one-to-one basis and is often proprietary information.”
Having the data presented in the right format can save a lot of underwriting time. Companies in Canada find the government and financial data available to be scanty and in less than ideal form. David Gens, CEO of Vancouver-based Merchant Advance Capital noted that Canadian merchants are slower to adopt technology which adds to the woes of online lenders. “Believe it or not, some Canadian merchants still use fax,” he said.
Even as the country plays catch up, Canadian lenders consider the market to be large enough for many players. “At this time, education is more important than competition,” said Mitelman.
Canada’s geographical dispersion and regional differences however are peculiar. The four provinces of Quebec, Alberta, Ontario and British Columbia make up 86 percent of the population and the greater part of the economic activity. And Quebec is often avoided, in part because of the bilingual mandate that requires businesses to advertise and produce materials in French. OnDeck and Company Capital both do not operate there, for example.
The cultural differences can also determine how customer relationships are handled, and being a part of that culture has given Canadian companies an upper hand. “It does definitely help to have a home advantage in terms of understanding the local peculiarities,” said David Gens. “Marketing to Canadian merchants is also different — being aggressive might not work very well here and they like to know they are dealing with someone nearby.”
For financial brokers such as Otar, Canadian usury laws can appear restrictive. As per Canadian interest rate rules, Under Section 347 of the Criminal Code (Canada), interest rates exceeding 60 percent per annum are termed “criminal rates of interest” and “interest” in the Criminal Code is broadly defined as a broad range of fees, fines and expenses which includes legal expenses.
“US lenders have had to change their way of doing business. Since, APR is less here, if your product is a loan contract, you will be restricted and you will have to service low risk for low rates,” said David Gens.
Even so, the business emerging out of Canada may now be supplemental for American lenders and the potential for growth beneficial to diversification.
Sunshine and Deal Flow: Who’s Funding in Puerto Rico?
September 1, 2016
Lots of small businesses need capital in Puerto Rico and not many companies are trying to provide it. Combine that with the island’s tax incentives, tourist attractions and gaggle of ambitious entrepreneurs, and America’s largest unincorporated territory can seem like an archipelago of opportunity for the alternative small-business finance community – a virtual paradise.
But for alt funders, the sunshine, sandy beaches, swaying palms, picturesque rocky outcroppings, rich history and renowned cuisine can’t change two nagging facts about this tropical commonwealth that 3.4 million people call home. Alternative finance remains largely unknown on the island, and it’s difficult if not impossible to split credit card receipts there.
Let’s start with the good part. “If you call a restaurant in Los Angeles at 2 o’clock in the afternoon, you’re the 15th person to call them that day, but if you’re calling a business in Puerto Rico, you might be the only one,” says Andrew Roberts, director of partnership development for Merchant Cash Group, which funds some deals on the island. “So it’s not the same cutthroat competitiveness that we have here.”
But consumers in Puerto Rico’s tourist areas rely on PIN debit cards, which don’t qualify for split funding between merchants and finance providers because the cards don’t have Visa or MasterCard logos and thus merchants can’t run them as credit transactions, Roberts says. Besides, processors on the island don’t want to split the revenue from credit card transactions between funders and merchants, either, Roberts notes. “If there’s a processor in Puerto Rico that will split fund, I haven’t been unable to find them,” he says. “Believe me, I have looked.”
The two main processing platforms on the island, Global and First Data, require ISOs to carry 100 percent of the risk on a split, according to Elevate Funding CEO Heather Francis, who was involved in the island market at another company before taking her current job. That’s why split remittance “remains almost nil” in Puerto Rico, she says.
Splitting funds by using a “lockbox” – which works like an escrow account and distributes a certain percentage of receipts to the merchant and the rest to the funder – doesn’t provide a solution because banks in Puerto Rico decline to use the option, Roberts maintains. That’s why he advises that it’s easier to offer ACH-based products on the island.
Merchants on the island have to meet the same requirements for ACH that apply on the mainland, Roberts notes. That includes a reasonable number of checks returned for non-sufficient funds and a reasonable number of negative days. “The underwriting procedure on the island is pretty much the same as it is here,” he says.
Perhaps the difficulties of setting up the split in Puerto Rico shouldn’t cause any uneasiness about entering the market because the bulk of alternative funding on the island relies on daily debits—just as it does on the mainland, Roberts says. Still, he notes that some merchants in both places may qualify for split funding but fail to measure up for daily debit.
Though merchants and funders have those commonalities, the banking systems differ on the mainland and on the island. Banco Popular, which has held sway in Puerto Rico for nearly 120 years, controls much of the island’s banking and inhibits the growth of alternative funding for small businesses there, Francis says. Still, Puerto Rican merchants should have some familiarity with alternative finance or high-fee products because of the island’s high concentration of title loan companies, she notes.
Similarities and and differences aside, the Puerto Rican market provides a little business to some mainland alternative finance companies. United Capital Source LLC, for example, has completed five deals for small businesses on the island, says CEO Jared Weitz. Companies can provide accounts receivable factoring there, he says.
Alternative funding has yet to post runaway growth in Puerto Rico, Weitz says, because it’s not marketed strongly there, only a few mainland funders are willing to do business in Puerto Rico, the range of products offered there is limited, and small business remains less prevalent there than on the mainland.
But a handful of mainland-based companies have been willing to take on the uncertainties of the Puerto Rican market, and Connecticut-based Latin Financial LLC serves as an example of an ISO that has enthusiastically embraced the challenge. The company got its start in 2013 by offering funding to Hispanic business people on the mainland and began concentrating on Puerto Rico early in 2015, says Sonia Alvelo, company president.
Alvelo built a strong enough portfolio of business on the mainland that funders were willing to take a chance on her and her customers in Puerto Rico. Latin Financial now maintains a satellite office on the island, and the company generates 90 percent of its business there and 10 percent on the mainland.
Latin Financial has a sister company called Sharpe Capital LLC that operates on the mainland, says Brendan P. Lynch, Sharpe’s president. Alvelo describes Lynch as her business partner, and he says he’s started several successful ISOs. He credits her with helping Puerto Rican customers learn to qualify for credit by keeping daily balances high and avoiding negative days.
“It’s a small company with a big heart,” Alvelo says of Latin Financial. She was born in Puerto Rico and came to Connecticut at the age of 17. “For me it’s home,” she says of the island. She’s realizing a dream of bringing financial opportunity to business owners there.
To accomplish that goal, Alvelo spends much of her time teaching the details of alternative finance to Puerto Rico’s small-business owners, their families, their accountants and their attorneys. “You want to make sure they understand,” she says, adding that the hard work pays off. “My clientele is fantastic,” she says. “I get a lot of referrals.”
Latin Financial started small in Puerto Rico when a pharmacy there contacted them to seek financing, Alvelo says. It wasn’t easy to get underway, she recalls, noting that it required a lot of phone calls to find funding. Soon, however, one pharmacy became three pharmacies and the business kept growing, branching out to restaurants and gas stations. Already, some merchants there are renewing their deals.
Growth is occurring because of the need for funding there. Puerto Rican merchants have had the same difficulties obtaining credit from banks as their peers on the mainland since the beginning of the Great Recession, Alvelo says. “It’s the same story in a different language,” she notes.
Speaking of language, Alvelo considers her fluency in Spanish essential to her company’s success in Puerto Rico. “You have to speak the language,” she insists. “They have to feel secure and know that you will be there for them,” she says of her clients. Roberts agrees that it’s sound business practice to conduct discussions in the language the customer prefers, and his company uses applications and contracts printed in Spanish. At the same time, he maintains that it’s perfectly acceptable to conduct business in English on the island because both languages are officially recognized.
People in Puerto Rico have been speaking Spanish since colonists arrived in the 15th Century, and English has had a place there since the American occupation that resulted from the Spanish-American War in 1898. Still, more than 70 percent of the residents of Puerto Rico speak English “less than well,” according to the 2000 Census, but that’s changing, Alvelo says.
Whatever the linguistic restraints, the products Latin Financial offers in Puerto Rico have been short-term, most with a minimum of six-month payback and a maximum of 12 months, but Alvelo hopes to begin offering longer duration funding. She also believes that split funding will come to Puerto Rico. “It’s in the works,” she asserts, noting that she is campaigning for it with the banks and processors.
At the same time, mainland alternative finance companies are learning that the threat of Puerto Rican government default does not mean merchants there don’t deserve credit, notes Lynch. “Just because the government is having trouble paying its bills,” he says, “doesn’t mean these merchants aren’t successful. The island is full of entrepreneurs.” In fact, many of Puerto Rico’s merchants use accountants and keep their business affairs in better order than their mainland counterparts do with their homemade bookkeeping.
Alvelo also knows many merchants there are worthy of time and investment. She strives to listen to her customers when they express their needs and then help them fill those needs. “I’m very, very proud to be doing this in Puerto Rico now,” she says.
IT’S A BROKER’S WORLD
August 31, 2016
From east to west, small businesses are getting funded. But how they’re found and who they work with depends on where they are. In the US, where brokers tend to have a love/hate relationship with the funding companies they work with, they are no doubt a driving force in the market. In other countries, they might not even exist, are just starting to bloom or they add balance to a mature market. Is the world built for brokers? AltFinanceDaily traveled far and wide to find the answers.
Down under in Australia where American-based merchant cash advance and lending companies have expanded, the ISO (which stands for Independent Sales Office and is synonymous with broker) model has not really followed. David Goldin, CEO of Capify, an international company headquartered in New York, told AltFinanceDaily that there’s very few ISOs in Australia.
He believes that’s because there’s next to no payment processing ISO market there, a foundation that was a major precursor in the US towards the development of ISOs reselling merchant cash advances and business loans.
Luke Schmille, President of CapRock Services, echoed same. The Dallas-based company founded Sprout Funding in Australia earlier this summer as part of a joint venture with Sydney-based family office Huntwick Holdings. “Direct marketing is the primary method [of acquiring deal flow],” he said. “The credit card processing space is controlled by several large banks, so you don’t see ISO efforts in the acquiring space either.”
Big bank dominance was only one reason why another country’s emerging alternative small business funding market developed slowly. In Hong Kong, non-bank alternatives like merchant cash advances faced legal uncertainty for a long time. For example, Global Merchant Funding (GMF), once the only merchant cash advance company in the Chinese special administrative region, had been relentlessly pursued for years by the Secretary for Justice for conducting business as a money lender without a license. GMF fought it. And won.
In May of this year, the legality of merchant cash advances ultimately prevailed after the highest court ruled the agreements were not loans. Emboldened, several companies have stepped up their marketing of the product. But whether they’re doing daily debit loans or split-processing merchant cash advances (both of which exist there), marketing tends to be directed at merchants, not a middle market of brokers.
Gabriel Chung of Hong Kong-based Advanced Express Capital said that there are a handful of large brokers typically comprised of former bankers, but the rest of the broker market is highly fragmented, mostly made up of individual freelancers.
Adrian Cook, the Founder and CEO of Hong Kong-based Asia Capital Advance, agreed that marketing is usually aimed at merchants directly but that it’s changing. “Since the market is still very new and MCA is only beginning to gain popularity, brokers on the market are only starting to recognize MCA,” he said. “There is a lot of room for the brokerage market to grow.”
In the UK, where Capify also operates, CEO David Goldin explained that the UK doesn’t have a lot of credit card processing ISOs so there wasn’t a major migration from that business to MCA like there was in the US. But that doesn’t mean there is no middleman market at all.
Paul Mildenstein, executive director of London-based Liberis, said that brokers are an important channel, but not as dominant as they are in the US. “Our brokers are usually members of the NACFB, an organisation in the UK that actively supports and provides operating principles to the furtherance of the commercial finance broker community,” he wrote. The National Association of Commercial Finance Brokers claims to have 1600 members, one among them is Liberis.
“Many clients want the support of an experienced professional who can discuss the financial options available to them in their specific circumstances,” said Liberis’ CEO, Rob Straathof. “Given relatively low awareness of the Business Cash Advance product in the UK, this means that brokers have a key role to play in educating potential customers on when this is the right option for them,” he added.
Straathof stressed a robust criteria for the brokers they work with and explained that brokers are their eyes and ears in the market. “The relationships we have with them are not transactional, but transformational for our business,” he said.
The NACFB was also praised by Alexander Littner, Managing Director of Chelmsford, Essex-based Boost Capital. The company, which is actually a subsidiary of Coral Springs, FL-based BFS Capital in the US, sees a balance between their use of brokers and their efforts to acquire customers directly.
“As the alternative finance market is still relatively new here in the UK these brokers are important for this independent advice, and to help educate the market and establish trust,” Littner said. “At Boost Capital we work very closely with brokers across the UK, they are a critical part of our growth and fundamental to our ongoing success.”
In the US, brokers play such a dominant role in customer acquisition that some MCA funding companies rely on them to source the entirety of their business. Back in February, Jordan Feinstein of NY-based Nulook Capital told AltFinanceDaily, “We decided that the best way to grow is to build relationships to avoid the overhead, compliance, training and manpower that a sales team would require.” Nulook markets its broker-only approach as a strength.
Others take a more blended approach, like Justin Bakes, CEO of Forward Financing, for example. “While our priority is to self originate, it is essential to create and maintain partnerships in this business,” he said earlier this year.
Notably, no such guiding authority like the UK’s NACFB exists for brokers in the US so it’s not easy to track exactly how many there are or how they operate, but their role in the industry cannot be understated. AltFinanceDaily actually labeled 2015 The Year Of The Broker, when it published an article in its March/April 2015 issue that tried to capture the essence of the industry at the time. Tom McGovern, who was then a VP at Cypress Associates LLC, said of brokers, “They’re like the missionaries of the industry going out to untapped areas of the market.”
But preaching the gospel of alternative funding exists at different stages across the world. And Goldin, whose company Capify operates in four countries including the US, thinks that many middlemen here at home may not ultimately survive. In an interview, he predicted that the stronger ones over time will be acquired by funding companies and that direct marketing will only increase. “I think more and more companies are going to start building their own internal sales forces,” he said.
Other brokers are not convinced that acquisition costs will lead to the death of their businesses, especially if they’ve already found ways to reduce overhead costs. Several brokers have discreetly mentioned running operations from Costa Rica, Nicaragua or elsewhere as a way to keep things profitable. Still more, like Excel Capital Management based in Manhattan, have found that offering a suite of products allows them to monetize more customers. Chad Otar, a managing partner for Excel, said that they recently brokered a $4.9 million SBA loan. MCA is just one of their options these days. “As long as there’s small businesses, there’s always going to be opportunity,” he said.
In the US, the brokers have certainly seized it, but that’s because most funding companies offer big bucks and quick payment to those that are capable of sourcing customers. In other countries, compensation for services rendered might be the responsibility of the broker to arrange with the merchant since it may not be customary for funding providers to pay commissions. That would mean more work and more risk for the broker.
Ironically, some brokers in the US will tap into both sides, earning a commission from the funder and charging a fee to the merchant for services rendered. And if the broker has payment processing roots, they can go a step further and earn merchant account residuals as well.
Brokers can’t exist without funding companies willing to support their endeavors, of course. While their prevalence around the world varies, most of the funding companies AltFinanceDaily spoke to, appear eager to nurture the middleman’s role, so long as they act responsibly.
“Brokers in the UK are incredibly important as independent advisors to small businesses on the various sources of finance to suit their needs,” said Littner.
And as long as those customers, wherever they may be, are getting the value they want from a broker, that role, so long as it can continue to be done profitably, will likely have a place in the world for the foreseeable future.
Alt Finance Companies Secure Place on Inc. 5000
August 29, 2016If the story of alternative finance has been major growth, Inc. has quantified the latest statistics through its Inc. 5000 2016 list. Here’s a handful that you might recognize:
| Rank | Company | Growth Rate (3 years) |
| 155 | Capital Advance Solutions | 2328% |
| 176 | Channel Partners Capital | 2074% |
| 183 | Kabbage | 2027% |
| 335 | Lighter Capital | 1144% |
| 346 | Quick Bridge Funding | 1114% |
| 368 | Swift Capital | 1047% |
| 705 | Credibly | 558% |
| 763 | Square | 523% |
| 912 | Reliant Funding | 439% |
| 1259 | Blue Bridge Financial | 307% |
| 1260 | loandepot | 307% |
| 1392 | InterMerchant Services | 276% |
| 1576 | Fora Financial | 240% |
| 1726 | National Funding | 215% |
| 1928 | Tax Guard | 193% |
| 2096 | Bankers Healthcare Group | 177% |
| 2227 | Bizfi | 164% |
| 3113 | Envision Capital Group | 109% |
| 3569 | Cashbloom | 88% |
| 4217 | CAN Capital | 65% |
| 4691 | Capify | 50% |
Square Capital Revs Up, Funds $189M to Small Biz in Q2
August 4, 2016
Square is proving that the business loan sector is still hot, especially since their payment processing ecosystem requires nearly no marketing budget to advertise Square Capital. With $189 million funded in Q2, a growth of 123% year-over-year, their shift from merchant cash advances to loans seems to have had the desired effect since they have attracted even more investors willing to buy them.
“We sell a majority of our loans to third-party investors for an upfront fee and a small ongoing servicing fee. In addition, we continue to have a strong continued pipeline of interested investors,” the company said in its earnings report.
The average loan size remains small, only $6,000, but ranges from $1,000 to $100,000. Square CFO Sarah Friar, said during the earnings call that their data shows an overall increase in the gross payment volume of merchants who use their loans, which indicates that borrowers are indeed using the funds to grow their businesses.
A typical Square Capital loan is close to 10% of a seller’s annual processing sales and the average repayment term is 9 months. Loss rates remained steady at 4%.
Friar also said that PayPal Working Capital and American Express Working Capital were not really competition since they are working directly with their own existing user base.
The company made about 34,000 loans in Q2.
Confidence Down, But Not Out On Continued Success of Small Business Finance, Survey Reveals
July 19, 2016
A joint Bryant Park Capital/AltFinanceDaily survey of chief executives in the small business lending and merchant cash advance space showed a decline in confidence in the industry’s continued success, down from 91.7% in Q1 to 78.5% in Q2.
Respondents were not asked to explain the reasons behind their confidence levels, but increased competition is likely one contributing factor. No doubt some of the creeping pessimism is also spillover from the adjustments occurring in consumer lending, namely declining loan volumes, layoffs and the events that took place at Lending Club.
Decreased confidence may have been the reason that attendance at AltLend last week was down compared to last year. AltLend is an alternative small business lending conference hosted each year at the Princeton Club in NYC. AltFinanceDaily has been a media partner of the event for the last two years.
On Forbes, Lendio CEO Brock Blake wrote that “2014 and 2015 brought an unhealthy amount of euphoria characterized by huge growth rates, hundreds of millions of dollars in venture capital, enormous valuations, high-flying IPOs, new lenders sprouting (almost) daily, and yield-hungry hedge funds chasing the newest, sexiest cash-producing asset.” But he added that “the industry is maturing and the future for online lending remains bright.”
Notably, 78.5% isn’t even bearish territory, but rather just a step down from the highs Blake described that have catapulted the industry for some time. Even as executives come to grips with the increasing regulatory scrutiny, non-bank small business financing companies have come to view themselves as in it for the long haul. That’s because growth in this sector has been less about refinancing credit cards to a lower interest rate for evermore narrow yields like on the consumer side, and more about fulfilling a role with small businesses that banks have been reluctant to take on for some time.
“Small business lending provides the fuel for small businesses across the country, and the fundamentals are still in place for this to be a formidable industry,” Blake wrote. “I am confident the supply of capital will continue to come from online lenders using technology to minimize risk and streamline processes.”
To his point, June and early July were a bright spot for companies raising capital. Fundry, Bizfi, Pearl Capital and Legend Funding all announced deals. The BPC/AltFinanceDaily survey showed that industry optimism in this endeavor hasn’t shrunk by much, decreasing only from 91.7% in Q1 to 84.2% in Q2.
