Text The Merchant, Close The Deal
April 15, 2017
About a year ago, Cheryl Tibbs, general manager of Douglasville, Ga.-based One Stop Funding, was having trouble getting in touch with one of her clients. The merchant in question runs a lawn care service and is usually out on the job, so he isn’t quick to return phone calls or respond to email messages.
“I just got the idea to send a text,” Tibbs recalls. She typed a message expressing her regret for intruding but letting her client know that he needed to take certain steps to advance the funding process for his loan application. He texted right back.
After that initial success, the texting continued between Tibbs and the lawn care provider. He’s been a customer for us for a while, and that’s just how we communicate,” she says. “It’s easy for him to stop and shoot me a text as opposed to having a full conversation with me.”
Tibbs isn’t alone in her appreciation for text messaging as a part of the sales process. Quick responses to texts are making the medium increasingly important in the alternative small-business funding business, maintains Gil Zapata, CEO of Miami-based Lendinero. “Text messaging is more powerful than emailing nowadays,” he declares.
One reason for that shift is that texts are easy to use, according to Tibbs. “It’s a matter of convenience for the merchant,” she contends. “In this business, any way you can make it easier for the merchant to facilitate the transaction with you is the method you have to use.”
Besides the convenience, there’s the sense of urgency people feel when they receive a text, asserts Jeb Blount, a sales trainer who’s written eight sales-oriented books, including the bestselling Fanatical Prospecting. “When you send a text message you move to the top of a person’s priority list,” he says. In fact, people who are talking face-to-face often disengage from the conversation to respond to a text message, he notes. “It’s treated as something that’s urgent.”
As texting becomes more commonplace in the alternative-finance business, some industry salespeople are beginning to view the medium in the same way they regard email, telephones and fax machines. “I use them as another tool for follow-up communications,” John Tucker, managing member of 1st Capital Loans in Troy, Mich., says of text messages. “In addition to sending them an email, I’ll shoot them a text.”
Texting has become almost standard procedure at Florida-based Financial Advantage Group LLC, according to Scott Williams, the firm’s managing member. He prefers that sales associates make the initial contact by phone to get a sense of what the merchant is looking for in a funding deal. After gathering information and getting approval, it’s best to send the offer by email so the merchant has “all the numbers in black and white” and more details than a text message can hold, he notes. After that, text messages can deliver requests for additional documentation and provide updates on the progress of the funding process. “We can tell them, ‘Hey, everything got cleared this morning – we should be able to do the funding this afternoon,’” he says.
Texting expedites communication regarding renewals, too, Williams observes. “If a merchant is 50 percent paid back, you can check in and see if they need some additional capital right now,” he says. “It’s really good for that.”
Clients can use messaging to convey images of documents needed in the funding process, Tibbs says. “I had a merchant yesterday who sent me over her IRS tax agreement through picture message,” Tibbs says by way of example. Often, funders request color images of both sides of an applicant’s driver’s license, she notes. To fulfill such requirements, it’s generally easier to snap a photo with a phone and send it as a picture message than to scan pages of paper into a computer to create an electronic document and then send the resulting file by email. “We do a lot with picture messaging,” she observes.
But as useful as text messaging can become for contacting phone-shy clients or helping clients share an image to document a key cancelled check, companies should exercise care when using the medium for prospecting, warns Zapata. He and just about everyone else AltFinanceDaily consulted emphasizes that sending unsolicited text messages can violate Federal Trade Commission regulations. “Just because our industry isn’t regulated doesn’t mean there aren’t regulations out there on the side,” he says.
Most say they learned of the regulations from third-party vendors who specialize in sending batches of text messages simultaneously. The key to sending those groups of messages legally is to get permission from the recipients in advance, notes Ted Guggenheim, CEO of TextUs, a Boulder, Colo., company specializing in multiple-texting services. “If you’re (randomly) contacting people you got off a list somewhere, that’s a pretty bad idea,” he maintains.
The feds heavily regulate five-digit short-code texts but tread lightly with long-code texts – the ones sent from 10-digit phone numbers, Guggenheim says. The latter would apply in alternative finance, and if a text recipient calls back on the phone number associated with a long-code text, someone will answer, he notes.
Citing guidelines from the Cellular Telecommunications Industry Association (CTIA), Guggenheim stipulates that consumers should have the ability to opt out of additional messages after receiving the first one. Members of the industry who want to send groups of text messages can post conditions on their websites that compel users to grant permission to contact them by text if they submit their contact information, he suggests.
After ensuring everything’s legal, Tucker reports 1st Capital Loans nets a good response when he uses a vendor to blast multiple identical text messages to lists of prospective clients who have already granted permission for his company to contact them by text message. The strategy has helped bring in a reasonable number of deals because the prospects were “already in the pipeline,” he notes.
Remember, though, that cell phone numbers change more often than land line numbers, Tucker cautions. That means a call to a number that’s been reassigned could inadvertently fall into the unsolicited text message category that violates federal rules, he says. “You could be texting a 14-year-old,” instead of a small business, he warns.
When mounting a mass text campaign, marketers are wise to avoid lengthy missives, according to Tibbs. “Keep it simple,” she says. A typical message from her might read: “Looking for funding? Looking for capital? Give us a call,” she notes.
In business texts, avoid acronyms like “LOL” and write in complete sentences with proper punctuation and capitalization, Blount suggests. “Begin by typing out the message somewhere other than in the text box, read it, make sure it makes sense and then send it,” he says. Put your name with the word “from” at the top of the message so the recipient knows who sent it, he emphasizes.
Keep messages conceptual rather than marketing-oriented, Guggenheim advises. Messages should directly address the customer’s situation to avoid seeming they were sent by a robot, he says. As with any response a salesperson receives, getting back to customers quickly pays off in better results, he adds. When sending a batch of texts, vendors of the bulk service can ensure every text bears the same phone number that the sales rep uses to call the client, thus avoiding the possible confusion of using more than one number, says Guggenheim. The system he offers can trigger a pop-up on the computer screen of a specified salesperson when a text recipient responds, he says. It also keeps management informed of the volume of texts and the response rate, he says. That helps managers determine which types of text messages are working, he maintains.
Users can also rely on Guggenheim’s TextUs system to schedule messages for delivery in the future to remind clients of meetings. The system detects land-line numbers and informs the user that the phone will not receive text messages, and it integrates with customer-relationship management systems to exchange information, he says.
So used properly, texting can offer benefits for everyone involved. But some unscrupulous players still insist upon using the medium to mislead prospective clients, says Zapata. His customers have shown him texts from competitors who make initial contact or early contact by sending text messages that might look like offers but are really just marketing letters, says Zapata. That approach, which might tout the availability of $50,000, can cause problems when it turns out that the merchant qualifies for only $25,000, he explains. “Trust me, you’re not going to look like the good guy,” he says of the firms that send what he considers objectionable text messages.
Sensitivity comes into play with text messaging, according to Blount. He and other sources say a great number of people regard email as business-oriented and texts as personal. That leads them to nonchalantly delete unwanted email messages but to become angry when they receive a text they didn’t want, he says. “You can’t send text messages to customers if they don’t know you,” he counsels.
Once a relationship is established, however, text messages can nurture it, Blount maintains. Suppose two businesspeople meet at a networking event and exchange business cards, he says. He advises noting the cell number on the card and sending a LinkedIn invitation immediately after meeting the potential client. Twelve hours later he would send a text message mentioning the encounter. If the salesperson can get the potential client to respond to a text message, that prospect is granting permission to receive texts, he says.
Blount’s example seems to suggest the line between business and personal may be blurring when it comes to texting. People often check their email messages on phones these days – instead of on a laptop or desktop computer – which also minimizes the difference between texting and emailing, says Tibbs. “Everybody does everything with their phone these days,” she notes.
Communicating through a more personal channel such as texting has advantages, too, Williams contends. That’s because some merchants consider their financing to be personal and don’t want to broadcast the details to employees, he says. To protect their privacy, merchants often provide financial institutions with their cell phone number instead of their office number or toll-free line, he notes.
Meanwhile, the world continues to become more comfortable with texting. When Williams and his sales associates began messaging clients about four years ago, they found younger customers receptive and older ones reluctant, he remembers. In the intervening years, however, the 50 plus crowd has warmed to the medium, he observes.
An advantage that accrues with text messaging – compared with email – arises from the fact that spam filters and spam folders don’t seem to have a place in the world of texting. Several sources cite that as a big advantage with using texts. “If you send someone a text message, they’re going to see it,” notes Zapata.
Asked about a downside to the proper use of text messaging in business, most sources could not name one. However, Williams has discovered one area where the mode of communication comes up short. “I would not deliver bad news over text-messaging,” he advises. “If the merchant is upset or frustrated by the news, it would be better-handled in a phone call so you could explain the reason for the negative news. A text message leaves too many things unsaid.”
81% of Online Business Lending Borrowers Report Being Satisfied or Neutral
April 12, 2017The latest Small Business Credit Survey published by the Federal Reserve shows that 81% of small business borrowers were either satisfied or neutral about their online loan experience. Online lenders were defined as nonbank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital, and PayPal Working Capital.
Of the 19% that were dissatisfied, nearly half cited transparency as a root cause. But that’s to be expected given that businesses dissatisfied with their loan from a large or small bank also cited transparency just as often.
While these charts indicate that there is still room for online lenders to improve, the 2016 report paints a more honest narrative than last year. Last year’s report used net satisfaction scores, which measured the difference between satisfied and dissatisfied borrowers. That methodology resulted in 15% net satisfaction for online lenders in 2015, which unless you read the fine print, easily misled even the most sophisticated of readers to conclude that only 15% of borrowers were satisfied. (Those readers included experts testifying in congressional hearings, the media, and government agencies, all of whom relied on that report to argue that online borrowers were terribly dissatisfied).
The 2016 report shows that businesses borrowing from an online lender were only slightly more likely to be dissatisfied than those that borrowed from a large bank (19% vs. 15%). And it’s the high interest rates that stand out to those dissatisfied online borrowers. 33% said that a high interest rate was the reason for their dissatisfaction. This is to be expected since non-banks inherently suffer from a higher cost of capital than banks.
Cash Advances?
Unfortunately, all of their data on “cash advances” is tainted. If they meant “merchant cash advances” or sales of future receivables, they should’ve specified such in the survey that went out to small businesses. Instead, the survey repeatedly asked about cash advances, a term most commonly associated with borrowing money through an ATM with a credit card. Those surveyed were also asked if they used personal loans, auto loans or mortgages so the multiple choice context suggests a credit card cash advance. Similarly, a cash advance could also mean a payday loan. With so many interpretations, the consequence is that it’s impossible to tell what the Federal Reserve meant or what those being surveyed thought they were being asked.
Notably, one question asked businesses if “portions of future sales” were used as collateral for a debt, but since merchant cash advances do not collateralize future sales (the future sales are actually sold, they don’t serve as collateral for a loan), it’s difficult to understand what they meant or how a respondent might interpret that.
Statistically representative?
The 2016 report also spends more time defending the Fed’s sampling methodology. Perhaps they are aware that their data is being put under the microscope.
Read the full Fed report here
In This Online Lender’s Earnings Report, Profits, MCAs and Term Loans
March 22, 2017Limited details were offered when Enova, a publicly traded company, acquired The Business Backer (TBB) in June 2015. For one, the Cincinnati Business Courier had the exclusive, which one might not describe as the typical go-to source for online finance news. But TBB was not typical. Based in Blue Ash, Ohio as opposed to New York City or San Francisco, the company had originally focused on offering merchant cash advances before eventually expanding their suite of solutions to include other products.
According to Enova’s earnings report, TBB had been purchased for $26.4 million with an estimated contingent $5.7 million of that being based on future earn-out opportunities. There was a caveat though. If future operating results exceeded expectations, that contingent amount could increase over time, but not beyond where the total consideration paid for the company exceeded $71 million. As of 2016’s year-end, that contingent amount had increased by $3.3 million.
Enova’s report makes several mentions of their merchant cash advance business or as they call them, receivable purchase agreements (RPAs). For the most part, they obscure the financial metrics of this aspect by lumping it in with installment loans. These installment loans are described as “multi-payment unsecured consumer installment loan products in 17 states in the United States and in the United Kingdom and Brazil” with repayment periods of two to sixty months, so yeah, they’re pretty different.
Their RPA customers, however, “average approximately $1.5 million in annual sales and 10 years of operating history while those who obtain an open line of credit account average approximately $450 thousand in annual sales and 7 years of operating history,” the report says. These lines of credit are primarily offered through a business lending subsidiary called Headway Capital.
While companies like Lending Club and OnDeck grab all the headlines, Enova describes itself as a “leading technology and analytics company focused on providing online financial services.” And in 2016, they extended nearly $2.1 billion in credit to borrowers and had a net income of $34.6 million.
On the company’s Q4 earnings call in February, Company CEO David Fisher said, “There currently seems to be a bit of a shakeout occurring in the non-bank small business lending and financing industry. A number of our competitors have either ceased funding or completely shut down over the past several months. From the intelligence we were able to gather, this is largely due to credit issues and their portfolios. As we mentioned last quarter, we have taken a more methodical approach than some to growth for our small business products. And we’re now seeing the benefits of that approach. Recent advantages of our small business book are performing well and the unit economics continue to improve especially as acquisition costs have dropped following the shakeout I just mentioned.”
Enova’s small business financing portfolio only constituted 12% of their loan portfolio at the end of last year. And at $13.70 a share, the company’s current market cap is larger than OnDeck’s.
Managing Risk in Small Business Lending
March 16, 2017
Two years ago, I left a promising career at PayPal, a major technology giant, for what some considered a risky move: I joined BlueVine, a young fintech startup. My title: vice president of risk.
This year, I took on an even bigger role when I was named chief risk officer of the Silicon Valley company, which offers working capital financing to small and medium-sized businesses.
My promotion comes at a time when risk is becoming a bigger concern in fintech, which is ushering in big changes in banking and financial services.
Fintech revolutionizes financial services
Data science technology has dramatically improved access to financing and the way we manage our money. The fintech wave that began with my former company, PayPal, and the world of payments, has spread to other aspects of personal finance, from mortgages to student and auto loans to investing.
This expansion was accompanied by growing concern that the fintech boom is fraught with risks that, if left unchecked, could lead to a major bust in the financial services industry that could in turn cause harm to the broader economy.
In a speech in January, Mark Carney, the governor of the Bank of England, cited the need to “ensure that fintech develops in a way that maximises the opportunities and minimises the risks for society.” “After all, the history of financial innovation is littered with examples that led to early booms, growing unintended consequences, and eventual busts,” he said.
Risk management as key to success
Risk management certainly has been a focus area for BlueVine from the beginning.
BlueVine joined the revolution in small business financing in 2014 when it rolled out an innovative online invoice factoring platform.
Factoring is a 4,000-year old financing system that allows small businesses to get advances on their unpaid invoices by providing easy, convenient access to working capital. BlueVine transformed what had been a slow, clunky, paper-based solution into a flexible and convenient online financing system that enables entrepreneurs to plug cash flow gaps that often hamper business growth.
Because the BlueVine platform is based on cutting-edge data science technology that can process and analyze information to make quick funding decisions, managing risk inevitably became a major challenge in building our business. As Eyal Lifshiftz, our founder and CEO, recalled in a recent column, in BlueVine’s first month of operation, almost every other borrower defaulted.
In fact, that was partly the reason Eyal invited me to join his team. BlueVine serves small and medium-sized businesses seeking substantial working capital financing of up to $2 million. To succeed, we needed to build a robust data and risk infrastructure.
Small startup with big data needs
Joining BlueVine also posed a personal challenge.
At PayPal, where I started as a fraud analyst and then moved into the company’s data science division where I helped develop behavior-based risk models, I had enormous amounts of data to work with to do my job. Now, I was joining a young startup with very limited data history, but with big data needs.
This meant putting together exceptional and experienced teams of data scientists and underwriters and developing a technology that becomes progressively more precise and accurate as it draw lessons from our steadily expanding data and underwriting decisions. It was important for us to have a group of super smart, highly-motivated and technologically-strong people working closely with a team of experienced and sharp underwriters.
Here’s how the process works: Our underwriters develop a robust methodology which is then translated into detailed logic decision trees.
Each decision tree includes dozens, even hundreds of branches, made up of question sets on different underwriting situations.
For example, a decision tree could focus on approving new clients coming from a specific industry, such as transportation or construction, or on increasing the credit line for a client with a specific financial profile.
A typical decision tree would drill down on further financial questions: What’s the expected cash-flow of the business in three to six months? What’s the pace at which it has accumulated debt over the past year? Are the business sales seasonal in a material way?
The questions could also focus on non-financial areas: Does the company’s website look professional? How does it compare with major companies in its industry? Does the business actively maintain its Facebook and Twitter accounts?
The goal is to build a risk infrastructure that steadily becomes more efficient in answering questions in an automated, large-scale and highly accurate manner. Our data scientists leverage multiple external data sources and use dynamic advanced machine learning models to answer these questions pretty much in real-time and with a high degree of accuracy.
So it’s a combination of technology and human input. There will always be gray areas, questions and situations that cannot immediately be addressed by our computer models.
But as the models get better and more robust, the gray areas will shrink. Our models are constantly and automatically enhanced, re-trained and expanded by the most recent data and input from our underwriters.
Think of it as the fintech version of Deep Blue and AlphaGo, the powerful computer programs that famously outplayed topnotch chess grandmasters. Both programs were based on similar principles: the more they played, the more knowledge they absorbed and the more formidable they became at chess.
Technology and teamwork
An even better example is the self-driving car powered by Google’s artificial intelligence technology. Human input is still required, but the more driving the car does, the smarter and more autonomous it becomes.
Building our risk infrastructure is an ongoing process for BlueVine. But it already has helped us steadily expand our reach, making us stronger, smarter and even faster in financing small and medium-sized businesses.
In just a couple of years, the strides we’ve made in managing risk more effectively enabled us to increase our credit lines to $2 million for invoice factoring and $100,000 for business lines of credit, which means we’ve been able to serve bigger businesses with bigger financing needs.
While we initially focused mainly on small businesses with annual revenue of under $250,000, today we have an increasing number of clients with annual sales of more than $1 million and increasingly, we’ve been able to serve clients with revenue of more than $10 million a year.
By the end of 2016, BlueVine had funded roughly $200 million. We’re on track to fund half a billion dollars by the end of this year.
We’ve accomplished this in a time of heightened skepticism about fintech in general and alternative business lending in particular. But rather than scoff at this skepticism, I’d point out two things.
First, fear often accompanies the rise of a new technology. Second, in the wake of the 2009 financial crisis, it’s prudent to raise hard questions about the rapid emergence of new financial technologies.
While building technologies and companies that can provide financial services faster and easier is a laudable goal, It’s wise to move cautiously and with humility.
The BlueVine experience underscores this.
Risk is still a challenge we take on every day. But we have found ways to take it on confidently and effectively with a vigorous combination of technology and teamwork.
Ido Lustig is Chief Risk Officer of BlueVine.
Stolen Deals? How One Funder Used Technology to Say ‘No More’
March 14, 2017
It’s another chapter in the saga of stolen deals, a problem that shops all over the country seem to be grappling with. For Miami-based Greenbox Capital, company CEO Jordan Fein hoped it was something that they didn’t have to worry about. But believing it was better to be safe than sorry, Greenbox launched a 90-day probe to review all controls and personnel to see if theft existed in their organization and how it was being done. They weren’t too happy with the results, which determined that there was indeed employee theft taking place.
Sources across the industry have told AltFinanceDaily that some employees will do things that make it easy to catch them, while others say that their tactics are constantly evolving. Disabling the USB ports isn’t enough, they say, since personal smart phones can be used to covertly steal data by simply taking pictures of a computer screen. Some say that apps like Snapchat are even making it increasingly easy for them to erase the evidence trail.
For Greenbox Capital, the probe convinced them that being a funding company meant they also needed to become a top-notch security company, especially since they are being entrusted with sensitive information. It’s their ISOs’ deals they have to protect, they say. Understanding how important that is, the company designed proprietary software to monitor the actions of all users on their system, which allows them to know who clicked on what when, and for how long. But that wasn’t enough, they insist. They also developed algorithms to detect suspicious behavior and their security team receives an alert whenever it gets triggered.
And it’s not just what someone clicked on or downloaded, they say, since their system also analyzes phone call activity, texting activity, wifi activity and the number of absences from one’s desk. The implication from that, of course, is that they must be incorporating video surveillance, which they confirmed they are.
They’re not alone. Chad Otar, CEO of Excel Capital Management, an ISO based in New York City, says that when it comes to their office, they have “eyes and ears everywhere.” Otar explains that because commission payouts can be so high, even experienced salespeople can feel tempted to risk their jobs to get their hands on good leads. Some will try to use different emails accounts on the office computer, using their private ones to transact information they’re not supposed to. To prevent that, they’re using Google Vault. “It allows us to monitor all emails going out and coming in from everyone’s account that is linked to the server,” he explains. “And if they try to access another email account, it blocks them.”
But even while threats like Snapchat exist, Otar says some employees will take a low-tech approach and hide valuable information in the trash bin and then offer or attempt to “take out the trash.”
For Greenbox, thanks to their new platform, they were actually able to catch two employees who were stealing data and actually selling deals on the black market.
A black market?
To put such behavior in perspective, 3 years ago, the name and phone number for someone qualified and interested in working capital could fetch $200 through normal lead channels. These days, sources say it can cost several thousand dollars in marketing just to fund a single deal and that a good lead is worth more than gold.
Greenbox believes that all companies should stop and take a close look at the controls they have in place to catch internal theft. Determined to prevent what they found from ever happening again, they say they now have the tightest internal controls in the industry and advise all businesses to rethink their approach to data security. “As it stands today there is no safer place to send your deals,” company CEO Jordan Fein says.
Of note, readers should stand to realize that getting caught might not just mean embarrassment or termination. Last year, a former MCA sales rep pled guilty to attempted criminal possession of computer related material for being on the receiving end of stolen deal information and using it. Since then, other companies have privately suggested that this was not the only deal-stealing situation that has involved law enforcement and that data theft is a serious offense.
Excel Capital Management‘s Otar says that if you create a sense of pride and loyalty in your workplace, your own employees will report any bad behavior they witness to you.
For Greenbox Capital, they believe their cloud-based system and advanced algorithm is not just about funding more deals, it’s about protecting the integrity of the entire process and maintaining trust.
Stealing deals? it’s not worth the risk.
In Canada, Alternative Business Finance Industry Similar, Yet Different
March 8, 2017
David Gens believes the top 3 alternative small business finance players in Canada are funding between $15 million and $20 million to small businesses a month combined. That’s a small market compared to the US, where the top 3 companies are funding close to a half billion dollars per month. Gens, who has a background in private equity, is the founder, president and CEO of Merchant Advance Capital, a company with around 40 employees in offices in Toronto and Vancouver.
“We don’t view ourselves as directly competing with banks,” Gens says, suggesting that his target market is less than prime. It’s a point that his counterparts in the US have made often. But there’s a slight difference with that approach in their market, he adds. “Most Canadian consumers are prime.” And unlike the US, the banks are not necessarily portrayed as the enemy in Canada where five major ones dominate the market.
“It’s exceptionally difficult for an alternative small business lender to build a brand,” said Jeff Mitelman, CEO of Montreal-based Thinking Capital, on a panel at the LendIt Conference. Despite that, his company has funded half a billion dollars to 15,000 unique businesses over the last 10 years. A panelist besides him half-joked however, that there is such an inherent conservatism with Canadian small business owners that some don’t even want to grow and are content with running lifestyle businesses.
But of the deals that are getting done, they’re often acquired through direct marketing. “The ISO market is not like it is in the US,” Gens says. “There’s just a handful of them.” Where there are ISOs though, competitive pressures usually follow. He says that they’re competing on at least 50% of the deals they work on, in part because of these ISOs. Stacking is happening in Canada too, he admits. “It’s not as crazy as it is in the states,” he contends. “Philosophically, it doesn’t align with our business.”
Some deals in Canada are actually being facilitated by US ISOs, he acknowledges, before clarifying that they should be aware that they will get paid in Canadian dollars, which at present are worth about a three quarters of an American dollar. They are in a different country after all.
Gens and others like Bruce Marshall, vice president of British Columbia-based Company Capital, agree that OnDeck’s push into Canada has been good for the entire industry. Six months ago, Marshall said, “We are happy that some of the bigger US players are coming up here and they are spending millions of dollars on advertising. These companies raise awareness of the industry to a higher level and with us being a smaller company, we can ride on their coattails.”
Over time, they believe alternatives will become more mainstream. For Gens, part of that is about doing right by the customer. “We pride ourselves on being very transparent,” he says. There are no hidden fees with their products and they can make things easy like use APIs to access a merchant’s bank statement history, provided an applicant wants to do it that way. “More than 50% of merchants are still submitting bank statements,” he says. That trend is still pretty much true in the US as well. “There’s a much lower incidence of fraud in Canada,” he asserts. It’s a nation of small businesses he’s content to serve.
Innovative Lending Platform Association and Coalition for Responsible Business Finance Join Forces
March 5, 2017NEW YORK, Early Release — The Innovative Lending Platform Association (ILPA) and the Coalition for Responsible Business Finance (CRBF) today announced they are joining forces and will now operate as the ILPA – the leading trade organization representing a diverse group of online lending and service companies serving small businesses. Joining ILPA’s existing members, OnDeck® (NYSE: ONDK), Kabbage® and CAN Capital, are CRBF member companies Breakout Capital, Enova International’s (NYSE: ENVA) The Business Backer™, PayNet and Orion First Financial. United by a shared commitment to the health and success of small businesses in America, the newly expanded ILPA is dedicated to advancing best practices and standards that support responsible innovation and access to capital for small businesses.
In addition, leading national small business organizations that formerly served as the CRBF Advisory Board will now represent small business customers as formal advisors to the ILPA. The Advisory Board includes individuals from the National Federation of Independent Business (NFIB), the National Small Business Association (NSBA), the Small Business & Entrepreneurship Council (SBE Council), the U.S. Chamber of Commerce, and new representatives from the Association for Enterprise Opportunity (AEO). These small business organizations have provided key input into the collective group’s best practices and standards initiatives over the past year, ensuring that the needs of their small business constituents are addressed.
The expanded ILPA remains committed to advancing online small business lending education, advocacy and best practices. In October, the ILPA introduced the SMART Box™ (Straightforward Metrics Around Rate and Total cost), a first-of-its-kind model pricing disclosure and comparison tool launched in partnership with the AEO. The SMART Box is focused on empowering small businesses to better assess and compare finance options and is now available for broader adoption by lending platforms. More details can be found at: http://innovativelending.org/smart-box/
As a leading voice for responsible business funding, CRBF launched in January 2016 with the mission to create a concrete code of ethics for the industry and to educate policymakers on the value of non-bank small business financing. The organization outlined responsible and transparent business practices for both providers as well as customers, and the expanded ILPA has leveraged that work to formulate an updated industry Code of Ethics that will guide the ILPA moving forward.
The expansion of the ILPA follows a period of broad stakeholder engagement and a demonstrated shared commitment to serving small businesses. With this unification, the cross-industry effort to bring innovative and responsible solutions to improve access to capital for Main Street small businesses continues to gain momentum.
“Fostering responsible innovation and empowering small businesses to better assess and compare finance options are priorities for the ILPA. We are delighted to join forces with the CRBF as we work together to advance small business online lending education, advocacy and best practices,” said Noah Breslow, Chief Executive Officer, OnDeck. “We are proud to be part of this growing cross-sector effort to help improve capital access on behalf of small businesses across the United States.”
“The combination of these leading organizations represents a landmark moment in the industry, signifying how major players in the small business lending space are increasingly aligned on values and best practices that benefit small businesses,” said Carl Fairbank, founder and chief executive officer, Breakout Capital. “Founded on the fundamental principles of responsible lending, education and transparency, Breakout Capital is thrilled to partner with other premier players in the industry who share our vision and believe that a unified industry voice can promote small business success more effectively. “As a founding member company of CRBF, The Business Backer is thrilled with the merger between the CRBF and the ILPA,” said Jim Salters, president of The Business Backer and CRBF Advisory Board member. “The move creates an even larger platform of industry leaders with a common voice to help ensure small businesses have access to honest and transparent funding sources.”
“The ILPA was launched as a self-regulatory exercise and is focused on empowering small businesses with clear and transparent ways to compare financing options,” said Rob Frohwein, co-founder and chief executive officer of Kabbage. “Kabbage and the ILPA are excited to join with the CRBF in order to advance ubiquitous industry standards. Together, we are eager to continue working with regulators and policymakers to expand small businesses’ ability to easily access technology-driven financing products.”
“Access to capital is a high priority for America’s small businesses. As our economy grows, small business owners need diverse sources of capital to hire new employees and expand their businesses. The U.S. Chamber of Commerce applauds the innovative capital providers in the ILPA for their dedication to fueling growth on Main Street,” said Tom Sullivan, vice president, small business, U.S. Chamber of Commerce.
“CAN Capital has been a supporter of transparency throughout our 19 year history, and we are excited to see the ILPA expand as it continues to support small business owners,” said Parris Sanz, chief executive officer of CAN Capital.
“Small business lending continues to be stubbornly elusive for many small firms and what we need is not just more lending, but better lending options,” said Todd McCracken, National Small Business Association president and chief executive officer. “This merger will expand on efforts to connect small business with a variety of fair and responsible lending resources.”
“We are excited to be part of an organization whose purpose is to create a vibrant, healthy, small business lending marketplace that serves the engine of the U.S. economy – small businesses,” said David Schaefer, chief executive officer of Orion First Financial. “As a loan servicer to small business lenders, we are particularly enthusiastic that the ILPA is embracing a diverse membership and participation from small business associations through its Advisory Board.”
“SBE Council looks forward to partnering with the expanded ILPA to continue advocating for the innovative and responsible sources of funding to which entrepreneurs and small businesses need access,” said Karen Kerrigan, president and chief executive officer of the Small Business & Entrepreneurship Council.
“It is critical that these and other responsible lenders come together to advance initiatives like SMART Box,” said Connie Evans, president/chief executive officer of the Association for Enterprise Opportunity. “The time is ripe for united voices and action to give more people the opportunity and the tools to realize a brighter future for their businesses.”
Together, the members of the expanded ILPA have provided access to more than $14 billion dollars in capital to small businesses to help drive growth and hiring.
I Got Funded, OMG I’m a Merchant!
March 3, 2017
I’ve read the press releases, interviewed the executives, and written the summaries about the latest and greatest innovations in alternative finance. I’m the guy that’s supposed to know how everything in this industry works, but do I REALLY REALLY know? In the last decade, I’ve worn an underwriter hat, an MCA broker hat, a syndicator hat, a lead generator hat and a reporter hat just to name a few. This diverse array of experiences has surely influenced AltFinanceDaily’s success. But even as we publish content about the funders, lenders and other Fintech players in the wider industry, AltFinanceDaily is truly a small business first.
Independently owned, there are no investors in the company to turn to for assistance. And that’s not such a bad thing if you know at all what it can be like to have partners. At the end of last year, we did what hundreds of thousands of small businesses around the country have done, we got funded by a marketplace lender. Through that experience, I found myself wearing a brand new hat, one that says “merchant” on it.
On December 1st, my company received a deposit for $35,000. It was a loan from Square Capital and I didn’t pursue it for a story, but rather to facilitate cash flow at the busiest time of the year. I was moving into a larger office on the same floor of our building and the hustle and bustle of the pre-holiday craze was upon us. The circumstances may come off a bit cliché, simulated even, but there it was at the right time and the right place, an email telling me that my business had been “selected.” If you’ve ever wondered if that kind of marketing works, it must, because a half hour after reading through the materials, I made an educated decision and applied for a loan.
The higher-ups at Square Capital, those above the underwriting department, might have no idea that they even funded us (our legal name is different from our trademark publication name). And I haven’t reached out to them for comment because I didn’t want to turn this into a PR stunt or get them riled up about my account. But if you work at Square and you’re reading this now, you don’t need to hold your breath. Everything seemed to work just as the press releases, ads, and executives claim it does. Phew! That’s good for you, but it was also very good for me.
The most pleasant surprise was that our business got approved for the maximum amount advertised in their email. Here’s how it went down:
11/29/16
1:34 PM
Received email offering a business loan up to $35,000 to repay over 12 months
2:01 PM
Applied for $35,000, which consisted of logging into my Square account and tapping a button
8:02 PM
Got approved for $35,000
11/30/16
Square sent out the funds via ACH
12/1/16
Received full loan deposit in my business bank account
All in all, it couldn’t have been any simpler. The deposit was for the full $35,000. And try as you might to hate me for saying this, I never calculated what the APR is. Square explained the cost as a fixed fee, which for me was $3,160. That’s approximately 9% of the principal of which the whole loan and fee would be repaid in equal installments over the next 12 months. To those that work in the industry, I got a 12-month 1.09 deal.
As a small business owner, I calculated whether or not it made sense to pay a set fee for $35,000 over that time period and determined it did. An APR would not have impacted my decision, nor would I really have found it helpful in determining the supposed true cost. The true cost is already there in black and white, the total dollars I agreed to pay.
Two things guided me, speed and economics. I wasn’t motivated to shop around to try and get the absolute best deal, just one that made economic sense with the least amount of work in the shortest amount of time. It sounds ironic to write that, especially as someone who has a bachelor’s in both Accounting and Finance but if you’re someone who works 7 days a week like I do, well maybe you’d understand my thought process. If I was applying for a million bucks, then yes, I’d shop and think on it pretty hard, but in my circumstances, a few thousand dollars in fees is relatively small stakes for the company. Besides, I was using the money proactively, as a positive tool.
I knew my patience for waiting was thin. For example, an experience with one of my banks earlier in the year had already left me rattled. I had asked to extend the limit of a business credit card and I was told that in order to do so, I’d have to visit the bank branch where I had originally signed up for the card (I don’t even live near that branch anymore) and that I would have to bring financial statements with me to present for review. By the way, this was for a limit increase to an amount that was much less than $35,000.
I learned that day that the rumors about (some) banks are true. They wanted me to visit a branch… and bring paperwork… for some kind of unspecified analysis… in 2016. Lo and behold I never showed up, and was more entrenched in my belief than ever before that the world needed to become de-banked and soon.
My business already processes cards through Square so I’ve got a track record with them. Applying didn’t place any inquiries on my personal credit report nor did anyone at Square ever call me to ask me any questions. I know that most of their competitors conduct what is commonly known as a “merchant interview” prior to full approval or funding, but they didn’t. It wouldn’t have bothered me if they did though since we have a good business and would be using the money for the right reasons.
Alas, the entire process really all just came down to clicking a button online. I kept waiting for the catch, for them to let me down, to come up short of all the promises that the Fintech revolution has made about changing the world, but it never happened. A month later, Square withdrew their first payment from our account. Like I said earlier, I was satisfied with the entire process and it was a big help. Had I been given the option however, I might’ve opted to structure the arrangement differently and sold a portion of our future sales proceeds rather than simply borrow money. Allow me to explain.
It’s entirely possible that the next 12 months of business won’t pan out the way I project. If my sales drop, I still have to make the fixed monthly payment in accordance with my loan terms regardless. Not so when selling future sales since the delivery of those funds to the buyer is entirely tied to actual sales activity. A structure like this, what many consider a merchant cash advance, is actually what Square used to offer up until early 2016.
When the pace of sales slow down, delivery of the sales proceeds slows with it. When the pace of sales increases, so too does the delivery to the buyer. And if I went out of business, well then the buyer would get what they purchased, nothing.
Merchant cash advances are harder to bundle up and securitize though because there are no maturity dates nor is there even a guarantee the buyer will get what they purchased in full. They’re investments with loads of uncertainty built in for the buyer, and that’s probably why Square switched to loans and also probably why the cost of my loan was relatively inexpensive. They’ve minimized the uncertainties.
Nonetheless, the loan I ultimately got, is just fine. In the moment that I needed it, the process couldn’t have been any simpler or any faster. The banks have met their match. I got funded and loved it, now it’s your turn.
