Federal Government Wants Your Thoughts About Online Lending
July 19, 2015
Whether you’re a funder, lender, broker, or platform, the U.S. Treasury Department deserves to hear your input.
Only July 16th, the Treasury announced that it was seeking public comment on various business models and products offered by online marketplace lenders to small businesses and consumers. One stated purpose of this is to study “how the financial regulatory framework should evolve to support the safe growth of the industry.”
The comment period is only open for six weeks.
Over the last year, many funders and brokers have voiced their opinions on best practices, ethics, and standards. Some want regulation to curb what they believe to be immoral behavior and others just want clarity where the laws are obscure, illogical, or even in conflict with themselves.
In at least one recent case, a merchant cash advance company CEO wrote about the complexity of dealing with an endless amount of state laws. In Lift the Fog, Give us Regulation, Merchant Cash and Capital CEO Stephen Sheinbaum wrote, “It is also better, at least for the financial services industry, if the central government is the one to craft the regulation instead of getting one rule from each of the 50 state governments.”
Meanwhile the Consumer Financial Protection Bureau (CFPB) will eventually start to enforce the amendments to the Equal Credit Opportunity Act, which technically already became the law under Section 1071 of the Dodd Frank Act. As part of that, underwriters of business loans and merchant cash advance alike may no longer be allowed to meet applicants, speak with them on the phone, examine their driver’s licenses, review their social media profiles, or even ask what their business model is or how they market themselves.
One has to look at any opportunity afforded by a government agency to share input before future regulations are implemented then as a duty. It might not matter, but you should do it anyway, just like voting.
Below are the questions, the Treasury wants you to answer (or Click to view on Treasury.gov):
1. There are many different models for online marketplace lending including platform lenders (also referred to as “peer-to-peer”), balance sheet lenders, and bank-affiliated lenders. In what ways should policymakers be thinking about market segmentation; and in what ways do different models raise different policy or regulatory concerns?
2. What role are electronic data sources playing in enabling marketplace lending? For instance, how do they affect traditionally manual processes or evaluation of identity, fraud, and credit risk for lenders? Are there new opportunities or risks arising from these data-based processes relative to those used in traditional lending?
3. How are online marketplace lenders designing their business models and products for different borrower segments, such as:
• Small business and consumer borrowers;
• Subprime borrowers;
• Borrowers who are “unscoreable” or have no or thin files;
Depending on borrower needs (e.g., new small businesses, mature small businesses, consumers seeking to consolidate existing debt, consumers seeking to take out new credit) and other segmentations?
4. Is marketplace lending expanding access to credit to historically underserved market segments?
5. Describe the customer acquisition process for online marketplace lenders. What kinds of marketing channels are used to reach new customers? What kinds of partnerships do online marketplace lenders have with traditional financial institutions, community development financial institutions (CDFIs), or other types of businesses to reach new customers?
6. How are borrowers assessed for their creditworthiness and repayment ability? How accurate are these models in predicting credit risk? How does the assessment of small 10 business borrowers differ from consumer borrowers? Does the borrower’s stated use of proceeds affect underwriting for the loan?
7. Describe whether and how marketplace lending relies on services or relationships provided by traditional lending institutions or insured depository institutions. What steps have been taken toward regulatory compliance with the new lending model by the various industry participants throughout the lending process? What issues are raised with online marketplace lending across state lines?
8. Describe how marketplace lenders manage operational practices such as loan servicing, fraud detection, credit reporting, and collections. How are these practices handled differently than by traditional lending institutions? What, if anything, do marketplace lenders outsource to third party service providers? Are there provisions for back-up services?
9. What roles, if any, can the federal government play to facilitate positive innovation in lending, such as making it easier for borrowers to share their own government-held data with lenders? What are the competitive advantages and, if any, disadvantages for nonbanks and banks to participate in and grow in this market segment? How can policymakers address any disadvantages for each? How might changes in the credit environment affect online marketplace lenders?
10. Under the different models of marketplace lending, to what extent, if any, should platform or “peer-to-peer” lenders be required to have “skin in the game” for the loans they originate or underwrite in order to align interests with investors who have acquired debt of the marketplace lenders through the platforms? Under the different models, is there pooling of loans that raise issues of alignment with investors in the lenders’ debt obligations? How would the concept of risk retention apply in a non securitization context for the different entities in the distribution chain, including those in which there is no pooling of loans? Should this concept of “risk retention” be the same for other types of syndicated or participated loans?
11. Marketplace lending potentially offers significant benefits and value to borrowers, but what harms might online marketplace lending also present to consumers and small businesses? What privacy considerations, cybersecurity threats, consumer protection concerns, and other related risks might arise out of online marketplace lending? Do existing statutory and regulatory regimes adequately address these issues in the context of online marketplace lending?
12. What factors do investors consider when: (i) investing in notes funding loans being made through online marketplace lenders, (ii) doing business with particular entities, or (iii) determining the characteristics of the notes investors are willing to purchase? What are the operational arrangements? What are the various methods through which investors may finance online platform assets, including purchase of securities, and what are the advantages and disadvantages of using them? Who are the end investors? How prevalent is the use of financial leverage for investors? How is leverage typically obtained and deployed?
13. What is the current availability of secondary liquidity for loan assets originated in this manner? What are the advantages and disadvantages of an active secondary market? Describe the efforts to develop such a market, including any hurdles (regulatory or otherwise). Is this market likely to grow and what advantages and disadvantages might a larger securitization market, including derivatives and benchmarks, present?
14. What are other key trends and issues that policymakers should be monitoring as this market continues to develop?
The Treasury asks that you include your name, company name, address, job title, email address, and phone #. You can submit your responses on http://www.regulations.gov/. Just click on the tab that says “Are you new to the site?”
You can also submit by mail:
To: Laura Temel,
Attention: Marketplace Lending RFI,
U.S. Department of the Treasury, 1500
Pennsylvania Avenue NW., Room 1325
Washington, DC 20220
If you have questions, email marketplace_lending@treasury.gov or call 202-622-1083.
Letter From the Editor – July/August 2015
July 1, 2015
G’day mates,
Merchant cash advance and similar financial solutions have expanded beyond the United States. Canada was always the next logical option but it’s made its way far beyond that, all the way to Australia. And in the land down under, Australian natives are competing with American-based companies for market share. There’s not a lot of information available about the landscape there so we went out and got the inside scoop, fair dinkum!
Speaking of international, the race is on here at home to obtain a national or state bank charter. Loans allow for much more customization than is possible with merchant cash advances, noted Glenn Goldman, CEO of Credibly. But is the industry setting itself up for a stable future or are some companies betraying their roots as a bank alternative by in essence becoming banks themselves?
And even while the crowd cheers for charters, a baffling appellate court ruling in New York State threatens to undermine that strategy completely. If you haven’t heard of Madden v. Midland Funding, we’ve got some information about it inside.
I must note that AltFinanceDaily celebrated its 5-year anniversary this past July. The world was much simpler when I started it. In 2010, I was able to quantify the industry’s size with ease, but today it’s a challenge to define what the industry even is, let alone calculate how big it is.
Everything is evolving and quickly, but some things still say the same, like when a broker’s commission is pulled back because a deal defaulted. Shouldn’t lenders take full responsibility for their own underwriting decisions? Not all brokers thought so apparently when we asked them. It appears that today’s broker is thinking more like a lender and if long-term growth is one of their goals, they’re probably thinking about becoming a lender themselves. That of course brings us right back to bank charters and court rulings to make that possible.
And if those topics are exhausting to think about, then sit back, relax and let us guide you through the beautiful Australian Outback. From Uluru to a kangaroo, alternative lending is never out of reach.
–Sean Murray
There’s No Room for More Competition
June 2, 2015
In the next 6 months, (MANY) Broker Companies will start dying out. To the surprise of many, just when the Year of the Broker was in full bloom, chaos was forming on the horizon and the realization that there is no more room for “new” messes. Simply because we aren’t finished cleaning up and organizing the messes we have now!
There are basic facts that we can take from the “Broker Boom”
– Not enough beginning knowledge about this industry and how the Merchant Cash Advance process works.
– No time to make strong relationships: The concept of having “more” is usually more harmful than having a handful of trusting relationships.
– Overhead costs: the make-up costs from the spending on dead leads and the “start-up” costs of having an office, staff, draws – gave the wrong perception of what a “MCA” is when the rate mark ups pay for those expenses.
– Quick turnover when the top dog can’t fool the sales rep out of commissions any longer: Rep goes out into the world and starts their own company. This can lead to recycled bad practices or the few who want to do right.
– Co-Brokering: Everyone’s done it. I’ve done it. Edited agreements taken from other brokers/funders don’t always cover everything leading to many debacles that turn into “Jerry Springer” Forum threads. P.S. Don’t think merchants can’t see the forum either.
It’s absolutely exhausting to explain to someone from the mortgage industry or any industry that comes into the MCA space the “Rights” and “Wrongs” and the teachings. Most new Broker Company Owners and their sales come from those who don’t believe in “Best Practices” anyway.
Marketing and Leads in the Broker Space is affecting Brokers and Funders Alike – Are brokers ruining leads as well?
So, your questions about Marketing and Leads have the same answer- It does not matter what type of leads you get, it’s all about your presence, knowledge, and your “Handle”. These are the answers from actual merchants who get calls from UCCs. (This information came from old merchants that I had, I shortened the answers and stuck to the points).
- They don’t trust you because of your approach
- They tried before and was promised “X” and got a bunch of “Y” with excuses on how so many “Y’s” = “X”
- Backdoor calls- Sometimes the money isn’t the biggest savior- it’s the relationship that goes with it
- They don’t need it that bad to pay 30%. If they do need it- they want something structured to build their credit and keep their business afloat
When people think of getting money for their business- they used to think “Go to the Bank”. Professionalism, a structure that is always the same for each type of program, and knowledgeable staff they can rely on. They made the choice to come to your bank because of what is offered. Now, all but the “Capital” part is missing from this equation, but merchants still want to have that one consistent place to go to for their business needs.
I think we all lost sight of this Industry.
Brokers = Resellers and Marketers of Direct Funding programs. The Broker takes the programs from these Direct Funders and builds a portfolio of which each tier and industry and credit rating is satisfied by which funders he can qualify them to. The options are given to the merchant to satisfy their need for working capital.
You work for the Funder – Your Sales Target is the Merchant.
The Merchant has put everything into starting and maintaining their business. Most of them wanted the “American Dream” of owning a business since childhood. They have it now, and you come in and try to tell them what they need. Some believe you- some are money hungry and know the game. It’s all a numbers game no matter what kind or type of leads you buy.
All that am I saying is, the way this industry is looked at from a “Brokers” and “New-Age Funders” point of view vs. a “Veteran Broker” or “Veteran Funder” is two totally different aspects.
Unfortunately, there is no immediate solution for new “Brokers” and many solutions for the “New-Age Funders” to be on the path of “Best Practices” and less shenanigans.
There is no room for competition as we don’t know what we are competing for and rather than creating a solution so those leads can understand the growth and structure of what we are offering, we are too busy trying to find out how to get leads that won’t stick.
OnDeck Gets Taste of its Own Medicine
May 24, 2015
You know those subtle and not so subtle knocks OnDeck has made about merchant cash advances over the years regarding costs and transparency? Well, the tables have turned.
A supposed unnamed merchant shared their capital raising adventure stories with Fundastic and apparently confused the OnDeck cost factor of 1.24 with an APR of 24%. “The interest rate was 24%, which we thought was excessive, as well as the daily $984 payments we got as part of the deal, but in the end we moved forward with the line,” the business owner reported. A Fundastic editor’s note explained the merchant’s APR was actually around 52% because of the closing fees.
The business owner continued to gripe about not receiving an amortization schedule, as well as the fact that they couldn’t pay off the loan early without incurring a penalty.
Apparently the simplified dollar for dollar cost that OnDeck outlined wasn’t forthcoming enough for them, and they were much more satisfied when they switched to Lending Club.
The merchant then went on to explain that their Lending Club business loan rate was only 9.9%, down from OnDeck’s 24%.
Transparency and full understanding at last?
Ironically, Fundastic had to add yet another note to show that the APR was actually 12.96%. 9.9% was not an APR. “LendingClub had a transparent loan — reasonable interest rate (we have 9.9% + 3% origination for a 2-year loan),” the business owner wrote, yet it seems he was unaware of the APR here either.
Fundastic ultimately concluded, “If you qualify for both LendingClub and OnDeck business loans, I can’t see any reason why you would go with OnDeck. LendingClub’s loans are cheaper in cost [and] more transparent.”
Lending Club might’ve been cheaper in this scenario but the merchant appears to have gotten similar information from both lenders. I’m not sure how much more transparent a lender can be when they spell out exactly how much you have to pay back, though an APR would be useful for certain comparative purposes.
Them’s fightin’ words
The jab at OnDeck though is reminiscent of the way OnDeck historically attacked merchant cash advances. In a 2008 press release, they wrote, “On Deck Capital fills the void between bank loans and alternative business financing products such as merchant cash advances which, similar to payday loans, charge excessive percentage rates for short term capital.”
They even used to display this little chart to explain just how much merchant cash advance sucked compared to them.
Affordable repayment? NOPE!
Meanwhile, OnDeck is still not profitable after 8 years. That either just goes to show how hard it will be for them to compete with Lending Club’s pricing or it indicates that Lending Club is severely underpricing its business loans. It might be the latter.
Lending Club’s business loan program is still highly experimental and dozens of business lenders have entered the space with the belief that undercutting higher priced products right out of the gate will magically yield positive results.
Does this look familiar? OnDeck is being attacked by Lending Club with its own playbook:
And in case you weren’t sure if they were comparing themselves to OnDeck specifically, the 2.5% origination fee is the number that appears right on OnDeck’s website. “We charge an origination fee of 2.5% of the loan amount for your first loan,” it states.
And here’s a snippet of a chart that used to appear on OnDeck’s website:
OnDeck has repeatedly stated that competitive pressure has not been the reason that their interest rates are dropping. It may actually be in anticipation of a brewing public relations war. Lending Club’s supporters are beginning to attack OnDeck in the same way that OnDeck attacked merchant cash advance companies.
Most merchant cash advance companies held firm on their terms over the years and it has paid off. Costs have come down where warranted, but few have been interested to actually underprice their product and risk bankruptcy just to appease criticism.
The circumstances are slightly different for OnDeck who has more to lose as a public company. If their model is dependent entirely on growth and Lending Club begins to snatch some of the lucrative partnerships away from them, their shareholders might suffer in a big way. They can’t have that, so they’re dropping their rates.
Perhaps they should take a page from the merchant cash advance playbook and hold firm, or given their current financials, even raise their rates. Let Lending Club do their thing. Whether the rate is 9.9% or 12.96% is great for a small business, but it’s unlikely to be sustainable or profitable for the lender.
How safe is small business lending really?
Did you know that 29.4% of all Cold Stone Creamerys that received an SBA 7(a) loan defaulted? 29.4% of all Quiznos have defaulted. 26.4% of all Aamco Transmissions have defaulted.
Scarier yet, the SBA’s special ARC loans that were put together in the wake of the recession had an anticipated 60% default rate across the board.
These figures should serve as a warning to any startup business lender, especially if they’re taking jabs at their higher priced competitors.
It’s a great time to get a loan as a merchant, but a politically tough environment for a lender to price that loan profitably. One day you’re the hot new low cost alternative serving up a public relations beating to the standard bearers of alternative finance, the next day someone’s using the exact same strategy on you.
Can OnDeck take the heat?
Write for AltFinanceDaily
May 20, 2015
Missed your calling? AltFinanceDaily is looking to hire a journalist to keep up with the industry’s explosive growth.
This is a paid work-from-home opportunity. Freelancers are welcome, but we’re open to an exclusive arrangement as well. You cannot be employed or contracted with a funder/lender or similar business however. You must have excellent writing skills, communication skills, and at least a fundamental understanding of the industry.
The role involves phone and email interviews with industry executives and writing for our blog, magazine, and newsletters. There may occasionally be face-to-face interviews.
Contact sean@debanked.com if interested.
—-
Established in 2010, AltFinanceDaily covers the alternative finance ecosystem, with topics ranging from peer-to-peer lending to bitcoin to merchant cash advance financing.
The Dumbest Guy in the Room
May 11, 2015
“This is the absolute dumbest thing I’ve ever seen,” she said while raising her voice. She was visibly agitated as if someone had just attempted to pass off a child’s crayon drawing as their doctoral dissertation. I began to laugh, not at her, but at the irony of the truth she was going on about.
“So what would need to be different in order for this to be a more viable idea? Like what would I need to change and come back with?” I asked.
“Come back?! COME BACK?! Don’t come back,” she shouted while taking my business plan and literally crumpling it into a ball and throwing it on the ground. She then got up and left. She was shaking from the rage. I was the dumbest person she ever encountered and it took effort for her not to kill me.
This experience happened to me three years ago when a NYC-based Venture Capital group sent out invitations to a free seminar and workshop. I liked the refreshing thought of hearing what VCs had to say, especially those not familiar with the merchant cash advance industry. Besides, I had a few concepts I wanted to get feedback on, and thought this would be a great opportunity to do it.
The seminar was more of a fireside chat, held by a zen-like VC I’ll refer to as Rain. He was in his mid-30s, wore a long flowy purple velvet shirt and sat indian style and barefoot in the front of the room. It was a stark contrast to the attendees in the audience, all of whom were wearing suits. Rain walked the crowd through his experience as a VC, most of which seemed to be an annoyance to him. Startups were full of personal drama of which he often got roped into. There was always a partner who was an idiot, a delusion the founder(s) couldn’t see past, or an insatiable need for additional funds.
And during the Q&A at the end, an attendee asked him if he would ever consider using a VC to raise money if he were not a VC himself. “Put the phones down guys, this stays here,” he said. “I wouldn’t.”
However confusing that might come across as, it didn’t change the energy in the room. Just about everyone who attended had an idea for a startup and desperately wanted VC funding.
Afterwards, you were allowed to schedule a one-on-one with one of their startup experts to develop your ideas further. It sounded cool and it was free, so I signed up.
I drafted up a concise business plan based upon a model that was just starting to take root in the merchant cash advance industry. It had its own little twist and I’m sure flaws too, but I believed this one-on-one would be a helpful conversation where I could get honest feedback without giving anything away to potential competitors.
Three minutes into the meeting, I was being scolded. “What do you mean it would break even for the first 2 years?!”
“Oh, well what I’m try –,” I attempted to respond. She talked over me. “You mean to tell me you would make no money in the first 2 years? Are you starting a charity?!”
“Well I was under the impress–,” I started, but she kept going. “This is the absolute dumbest thing I’ve ever seen.”
It was the hardest no I had ever gone through. I looked around the room to see if the other one-on-ones being conducted were going the same way. They weren’t. Everyone else looked to be cozying up to each other, crunching numbers, sharing laughs, and possibly on their way to even getting funded.
Not me though. I was the dumbest guy in the room, too dumb to even come back with something better. It was a humiliating moment considering I thought this was supposed to be an instructional meeting where the experts would essentially help you master a business plan.
As I walked out of the office towards the elevator, I noticed that even the cheery receptionist who had excitedly welcomed me in, ignored me with her head down as I walked out.
There goes the dumbest guy that ever existed, I imagined she was thinking.
My world spinning as the elevator descended, I tried to recount how it went wrong so quickly. I had showed her a pro-forma P&L that broke even for the first two years as I would reinvest 100% of the profits back into marketing to scale. I personally didn’t like it that way. I wanted to make money, but everyone around me was bleeding red and raising tens of millions along the way. I had started to believe that sacrificing any shred of profitability in exchange for growth is what got investors excited.
My expert didn’t share that view. A business that wasn’t profitable wasn’t a business. It was dumb, and not just regular dumb, but the dumbest thing that anyone ever thought of. EVER.
A couple of days later when I had shaken off the blow to my self esteem, I was thankful for the experience. She was a New Yorker to the core and so was I. I had no inner desire to start a business that didn’t make money (for the sake of disrupting or whatever), but I was being swept up in the craze of companies that were doing just that. She brought me back to reality, though she left a lasting imprint of a boot on my ass.
Three years later, companies with models similar to the one I had cooked up have raised hundreds of millions of dollars. They don’t break even. They lose money, lots of it. But they are looked upon and celebrated as some of the brightest guys in the room. Many of those guys are smarter than me and are probably executing their concepts way better than I ever could. But the lose-a-lot-of-money and grow model isn’t meant for everyone. It all depends on who you’re talking to.
In HBO’s Silicon Valley, a hit that many view as more of a reality show than a sitcom, they poke fun at a truth purveying the California startup scene. Forget profits, the show explains, just having revenues hurts your chances of raising money.
“If you have no revenue, you can say you are pre-revenue,” says the show’s billionaire Russ Hanneman. “You’re a potential pure play. It’s not about how much you earn; it’s about what you’re worth. And who’s worth the most? Companies that lose money! Pinterest, Snapchat, no revenue. Amazon has lost money for the last 20 years, and that Bezos motherfucker is the king!”
Two years ago, Bezos was worth $25 billion and was the 20th richest person in the world. Some experts might say a business model that loses money for 20 years would qualify as the new winner for dumbest thing that ever existed ever. It’s apparently just the opposite.
But once you find an investor that believes in the loss model, do you take the money and then go out and disrupt, hoping that somehow you’ll end up a billionaire?
Loan broker Ami Kassar is faced with that very dilemma. In his recent blog post, he wrote about the offer he has on the table from a VC, “While I could substantially grow my top line – the chances of making any profit are small and the chances of losing money are high.”
Fictional billionaire Russ Hanneman would surely approve, but over in realityville, Kassar is balking. “I can only speculate that they’re more interested in market share – than profits. Their investors want growth. They’re on the venture capital treadmill.”
Admittedly, I poked fun at Kassar, an entrepreneur I’ve often sparred with online. “Should I be worried that in their quest for growth they will build a train and run me over?” He asked in his blog.
Of course I linked to it in the following manner:
Kassar concludes that sustainable long term value is the only logical way forward. Is he wrong?
The current investment atmosphere where anybody with a model and a programmer is raising hundreds of millions of dollars to basically see how fast they can spend it all, is affecting those that have always believed in profits and longevity.
In another post by Kassar just a week earlier, he wrote, “Am I missing the boat and doing something wrong? That’s how I have felt lately as I’ve watched the emergence of the online small-business financing space. It seems every other week I wake up to another announcement about a company in the small-business financing space who has raised a lot of money from venture capitalists at a really high valuation.”
Just last week, consumer lending startup Affirm raised $275 million in a Series B round. Many people in the alternative lending community had never heard of Affirm but they are apparently so good that they can raise a quarter billion dollars.
Investors are scrambling. They don’t want to be left out. On multiple occasions, I have heard of investors skipping basic due diligence in a rush to capture a deal. Some of those deals blew up in a matter of weeks, others in months when they realized they didn’t even know who the owners were or what financial standing they were in.
Lending Club and OnDeck have received billion dollar valuations. That’s what everybody wants, though the market has temporarily cooled on OnDeck, a company that has lost money for almost eight straight years.
Even Shark Tank investor Kevin Harrington has gotten in on it, through his new business loan marketplace, Ventury Capital.
One thing looks certain three years after I met with that expert. The supposed dumbest thing that could ever be conceived of ever has made tons of people millionaires.
A year ago, Kevin Roose of New York Magazine wrote this of profitless startups, “They’re simply taking millions of dollars in venture capital with the hope of keeping prices low, pushing rivals out of the market, and eventually finding a way to turn a profit.” It can be predatory pricing, Roose argues. Basically large venture backed companies can sell below their cost using unlimited funds until the competition is out of business. Then with the entire market all to themselves, they can figure out a model towards profitability.
There seems to be a lot of this happening in the alternative lending space where the lenders backed by hundreds of millions of dollars are not only undercutting the competition at a loss, but they’re running lobbying campaigns that accuse their profitable brethren of being greedy and predatory. The media and general public eat this message up. There is no defense for a lender who has been accused of charging too much by one charging less even if the one charging less will need to declare bankruptcy if it does not raise a fresh round of new capital to sustain operations.
Only the rare observer can read between the lines as Forbes contributor Marc Prosser did. In his own research, he discovered that, “a company which loans money to small businesses at an interest rate of more than 50% was losing money.”
Though I won’t name names, there are a few players out there that believe the answer to their cycle of losses is to push regulatory agencies to attack profitable companies, or at least constrain them through penalties and new laws. Essentially, if it looks like they can’t win the war of attrition, then they might as well stick the government on them.
Speaking of the war of attrition, the race to bring costs to merchants down to zero doesn’t seem to be having the desired effect on the competition. In OnDeck’s Q4 earnings call for example, CEO Noah Breslow said the following:
Overall this market is still characterized by extreme fragmentation. The behavior that we see with our customers is that they might research other competitive options online but then when they actually apply to OnDeck and receive that offer, they kind of have this bird in hand dynamic, and there’s so much search cost associated with going out and looking at other places and so much uncertainty around that, they typically just take that offer that OnDeck has provided to them.
Translation: Once merchants have an offer from somewhere, they go with it. There is no price-competitive marketplace on the macro level.
OnDeck has been undercutting the entire merchant cash advance industry for years. None of their competitors have gone out of business, at least not because of a profit squeeze. Instead, everyone is growing, OnDeck included.
So why lose money?
In the case of OnDeck, they can argue that growth has allowed them to expand into Canada and Australia. They’ve forged partnerships with Prosper and Angie’s List. They’ve acquired more data because they’ve done more deals than most. And who is another billion dollar company likely to partner with in the lending space? Probably the one doing 10x the volume of everyone else, the one whose name is all over the place. They have the advantage to win the partnerships.
Five years from now, when the competition is trying to catch up in volume, all the lucrative partnerships might be snatched up already. Maybe it really is about who can spend the most the fastest. It’s a depressing thought.
Some startup vets will you tell that the most important aspect is actually the team. The CEO of 140 Proof for example has written, “You succeed or fail not on the strength of your idea or your product, but on the strength of your team. Venture capitalists fund teams, not business plans.”
With that in mind, I tried to imagine how that meeting three years ago would’ve turned out had I showed up with OnDeck’s CEO Noah Breslow and Lending Club’s CEO Renaud Laplanche in tow. “We’re going to disrupt lending,” I imagine the three of us tell the fierce startup expert.
The expert knew nothing about me. As far as she knew, I was just some random guy off the street holding a stack of papers with an incredulous plot to dominate the lending industry. I had never worked for a bank. I was young. I had no partner. I didn’t graduate from Harvard or MIT. It probably looked pretty ridiculous. “Duhhh so whaddya think?” I imagined I appeared to her.
With her guard down, she had no reason to hold back from saying what she really felt, that the plan was the absolute dumbest thing she’s ever seen.
Might the dumbest guy in the room only be that because he believed what she said? Or did she have it right all along?
CAN Capital Hits $5 Billion Milestone
May 7, 2015NEW YORK, NY, May 7, 2015 – CAN Capital, Inc., market share leader in the alternative small business finance space today announced that it has provided small businesses with access to more than $5.0 billion of working capital, more than any other company in the space. During its 17 years in business, CAN Capital has leveraged its proprietary data-driven models, technology and customer-focused delivery to cement its position as the largest and most experienced alternative finance company serving small businesses.
To date, CAN Capital has facilitated over 156,000 small business fundings in more than 540 unique industries. CAN Capital’s customer base continues to expand and its digital business grew 600 percent in 2014.
“Reaching this milestone underscores how CAN Capital’s innovative technologies have helped small business owners access much needed capital to grow their businesses,” says Daniel DeMeo, Chief Executive Officer, CAN Capital. “Small business owners have an appetite for investing in inventory, marketing and technology. We facilitate fast approvals and fundings so business owners can spend time focusing on these goals and running their businesses – instead of searching for capital.”
In April 2015, CAN Capital broke records by securing a $650MM credit facility from a dozen leading lenders including two of the three largest US banks – Wells Fargo and JP Morgan Chase – as well as two large international banks – UBS and Barclays. This transaction marks the largest of its kind to ever occur in the alternative finance industry. “Our performance and reputation as the vanguards in the alternative finance space position us for more success, more growth and a greater ability to serve even more small business owners,” says DeMeo.
“Small businesses are an incredibly important part of the American economy. We’re proud we’ve been able to support them over the past 17 years, and look forward to continuing to do so with new products that will help drive future growth for us and our customers.”
Hear the stories behind some of our successful small business customers here: YouTube.com/cancapital1.
About CAN Capital
CAN Capital, Inc., established in 1998, is the pioneer and market share leader in alternative small business finance, having provided access to over $5.0 billion in capital for tens of thousands of small businesses in a wide range of locations and different business types. As a technology-powered financial services provider, CAN Capital uses innovative and proprietary risk models combined with daily performance data to evaluate business performance and facilitate access to capital for entrepreneurs in a fast and efficient way.
CAN Capital makes capital available to businesses through its subsidiaries: Merchant Cash Advances by CAN Capital Merchant Services, Inc., and business loans through CAN Capital Asset Servicing, Inc. (CCAS). All business loans obtained through CCAS are made by WebBank, a Utah-chartered Industrial Bank, member FDIC.
For more information, please visit: www.cancapital.com. Follow CAN Capital on Twitter and Facebook.
Get Paid More in Alternative Business Financing
May 5, 2015Maybe you’re happy with your current job now.
Maybe you’re making a lot of money.
Maybe you’re not.
Or maybe you’re at least curious to see what’s out there?
This is an exciting time to be in the alternative business financing industry. The OnDeck IPO made several senior-level people in the company instant multi-millionaires, many of whom are only in their 30s.
Now is the time
Back in 2007, payment processing professionals thought that the age of merchant cash advance was over. A Green Sheet writer in August of that year actually wrote a story about cash advance and said, “I think that boat has come and gone, and I missed it.”
And yet there were 20-somethings making between $200,000 to $1 Million a year. I knew a few of them and for their sakes, I won’t name names. The industry has treated those who are good at it very well.
Not everybody got rich though.
The industry got corporate really fast in 2008 and 2009 when it became apparent you couldn’t run a funding company like it was Delta Tau Chi in the movie Animal House. Commissions and salaries shrank and then leveled off for a time. But then the ACH payment methodology renewed the industry’s wild growth and made every business owner in the country a potential candidate for funding, rather than just those processing more than $5,000 a month in Visa/Mastercard sales.
Commissions shot up, way up. Opportunities exploded.
Today, having experience in the merchant cash advance or alternative business lending space is extremely valuable. It’s a buyer’s market. Demand for qualified and experienced professionals by funding companies and brokers far outpaces those looking for work. There are 20-somethings making well into the six figures again, particularly if they’re good at sales.
Other positions are in demand too: Operations, Underwriting, Administrative, Collections and more. If you have experience in these areas, there are employers very eager to talk to you.
But maybe you’re 100% happy.
Or maybe you’re not.
It’s a buyer’s market
Because the demand for experienced individuals is so overwhelmingly high, we’ve created the AltFinanceDaily Jobs network and put the ball fully in the court of the job candidates. That means you can fill out a blind profile that details your background, but keeps your identifying information away from employers. Employers can view the background but they won’t be able to see your name, email address, or username. If they like your profile, they can contact you through the site.
You’ll be able to see who the employer is and their message when you log on. Only if you choose to email them or call them to schedule an interview will they ever know who you are. If you don’t do either, they’ll never know who you were. Like I said, the ball is in your court. Why not see who comes knocking once they’ve seen a little bit about you?
Initially, we’re only allowing a handful of vetted employers on the network to prevent abuse and solicit feedback. As of now an employer can only send you one message.
We’re also not sending email notifications so if you’ve registered with your work email address, job notifications will not be sent there. They can only be viewed by logging on.
If you no longer want your profile to be discoverable by employers, just untick this checkbox and click save. It’s unticked by default so if you’ve already set up a profile but forgot to tick the box, you won’t be receiving any messages anytime soon.
Anyone can create a jobs profile so long as they have a AltFinanceDaily forum account. If you don’t have one, register here. Then just log on to create a profile on the network at ../../jobs/.
Have feedback? Notice a bug? Are you an employer looking to hire that wants access to this? Email sean@debanked.com.
The industry’s growth is on fire. Are you happy with your place in it???
