New York State Loan Initiative Takes on Fintech Type Pitch
July 24, 2023
If a business owner told you they had been approved for a 3-6 year loan up to $150,000 with no origination fees, no prepayment penalties, and interest rates ranging from 9.25 – 12.25%, would you believe it was a real offer?
The criteria, after all, is just a matter of:
– having been in business at least 1 year
– having strong previous cash flow and projected cash flow
Not only is this real but it’s being rolled out by New York’s “Forward Loan Fund 2” as a working capital loan that can be used for equipment, payroll, utilities, rent, supplies, marketing and advertising, building renovations, and other expenses. The state stops short of calling itself a fintech platform or online lending platform, instead referring to itself as a “virtual platorm” that is “accessible anywhere in the state.”
This is the second run of this program. The first distributed loans to 1,700 small businesses.
“It was a godsend,” one testimonial posted on the NY loan fund site says. “NDC made it so easy. It took two weeks and the money was in our account. Can you feel my joy?”
The program offers more than just capital, promising that there is a “network of Entrepreneurship Assistance Centers (EAC) available to provide free support before, during, and after the loan application process.”
The program is backed by participating lenders that include Accion Opportunity Fund, Ascendus, NDC, Pursuit, and TruFund Financial Services. There is about $150M available to be loaned out “with plans to recycle and lend additional funds over the life of the program.”
“Due to a limited amount of funding availability and the high volume of applications expected, it is anticipated that not all applicants will be able to receive a loan,” a disclaimer says.
At a minimum, the documents required to be considered are:
1. Most recently filed tax returns OR internal financial statements.
2. Schedule of ownership
3. Personal guarantee from each individual owner greater than 19%
4. Articles of organization
5. Credit report
Congressional Effort Underway to Reinstate the SBLC Moratorium
July 23, 2023
It only took 40 years for the SBA to lift the moratorium on licenses for Small Business Lending Companies. Now there’s a congressional effort underway to reinstate it. The “Community Advantage Loan Program Act” which had not been assigned its own individual bill number in the Senate at the time of this writing, nevertheless garnered 18-1 approval by the Senate’s Small Business and Entrepreneurship Committee last week.
First, the proposal concludes that the SBA does not have adequate resources to issue more than 3 new SBLC licenses. Second, it calls for a 5-year moratorium on new licensees having Delegated Authority which is the authority granted to a lender to process, close, service, and liquidate SBA loans without prior SBA review. Third, it imposes new annual stress tests that would enable the SBA to revoke the new licenses. All in all, it is effectively a rollback of the new SBA rules, and those are just some key components of it.
Senators Ben Cardin, D-Md. and Joni Ernst, R-Iowa, are the sponsors of the proposal.
Among the small business lending companies that would be impacted by this is Funding Circle. Ryan Metcalf, Head of U.S. Public Affairs at Funding Circle, told AltFinanceDaily that “We estimate that the proposed Cardin/Ernst bill would reduce 7(a) Small Loans made by Funding Circle over the next three years by 26%, of which 33% is to SMB in LMI neighborhoods and 40% in rural areas.” That’s without considering the increased regulatory costs or the likely reduced borrower conversion rate as a result of having non-delegated authority, Metcalf added.
The initiative by Cardin and Ernst does not come as a surprise. The two had been critical of the the SBA’s plans to allow more SBLCs all along, arguing that new licensees were likely to be fintechs who were “the very entities responsible for issuing billions of dollars-worth of Paycheck Protection Program (PPP) fraud”
Please Send Four Months Bank Statements
July 20, 2023
At some point in time the industry decided that the most recent four months bank statements constituted a solid baseline to understand a business’ financial picture. So deeply rooted is this precise number of statements that certain states like California now require that underwriters collect a minimum of four months statements to calculate a business’ average monthly historical sales. Curiously, there’s also a maximum. California does not want funders using more than twelve months of historical data in their calculations.
“The current four bank statements just give us a general idea of how the current position and standing with the business is, if they’re paying their proper overheads and their expenses,” said Ken Tsang, the Head Underwriter and VP at Fundkite. “And more of a general idea of what revenue they’re making right now…”
For deeper underwriting, however, he said they may ask for more, a common trend in the industry.
Gary Jules, Underwriter at Power Capital, also asserted that they rely on four statements as a baseline.
“If it’s a seasonal business, we may ask for more [statements],” Jules said. “Basically, we just want to see get a general broad picture of how much the business is generating a month.”
For Jason Hausle, who does Sales and Business Development at Quikstone Capital Solutions, the requirement is only two months bank statements but they also need six months worth of merchant processing statements because they specialize in split-funding. Although the merchant processing statements give them a feel for historical revenue figures, they find value in the bank statements for other reasons.
“We like to use the bank statements,” said Hausle, “the two most recent just to make sure there’s no other positions or liens that would pose risk for underwriting.”
Requests for statements industry-wide generally seem to top out at twelve months. Indeed, states like California limit funding providers to using a maximum of twelve months data in their monthly historical average sale calculations.
Tsang at Fundkite expressed that a limit of twelve is generally enough anyway.
“I would say, to an extent, yes, anything exceeding 12 months might be an issue because after all, we have to keep our business relationship with our ISO partners and with the merchant in general,” said Tsang. “We don’t want to create any issue where it becomes excess–pretty much excessive, and it might create any issues with our relationships…”
It Says “AI Powered” But Does It Matter?
July 6, 2023
It’s tempting to accept that if the internet claims something is AI-operated, then it must be, but AI is being held to an entirely new standard in 2023, thanks to the introduction of ChatGPT. That means everyone needs to be prepared to examine whether or not something is actual AI or if the use of AI is even integral toward achieving a goal.
“I think [it’s] a really important thing for people to do right now is to look at how they evaluate the AI marketing promise because there’s an opportunity now that people are capitalizing on to just launch with the name AI, that they’re using it, but not really, or they’re not doing anything you need,” said Robert Burke Jr., Founder and CEO of Sobo, a company that matches businesses with consultants. Burke says that one way to try and distinguish fact from fiction is to ask questions about the company’s AI team, their data strategy, and patents they might have, if any.
Jason Feimster, Founder of Moonshine Capital, said that a more fundamental question should be asked first, whether or not the use AI of really makes a difference to achieving the objective. “What is it that you want to achieve,” said Feimster. “Do you want to get funded? Can I fund you? Yes. That’s the only question that matters. Now, if I claim that I can get you funding through AI, and you care about how they work, we’re muddying the water, you’re still not closer to getting funded.”
At the same time, one shouldn’t hesitate to at least experiment with the technology. Jared Schulman, CEO at Lendica, says that “There are probably some small, idiosyncratic risks to interacting with AI but largely speaking, it’s a really exciting time. I think it’s right to be curious and to try, and some really great things are going to come from it.”
Meanwhile, Burke at Sobo said “I think this is the key to remember that AI is not a magic wand that instantly solves all your problems and challenges. It’s a tool that when it’s used properly, can provide benefits. But it also comes with its own challenges and limitations because it is such early stages.”
CFG Merchant Solutions Surpassed $1 Billion in MCA Originations in Q1 2023
June 15, 2023
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Capify Wins SME Lender of the Year Award
June 5, 2023Specialist finance provider Capify were recently crowned SME lender of the year at the 2023 Credit Awards.
The awards, which took place at London’s prestigious Grosvenor House on the 1st June and were hosted by television’s Katherine Ryan, recognise innovation and best-practice in the financial services industry.
In a fiercely competitive segment, which included banks, fintechs, asset finance providers, invoice finance companies, and P2P businesses, Capify was recognised as the SME lender of year (up to £1m lend).
Reflecting on their win, John Rozenbroek, Capify COO/CFO said “This award is recognition of the amazing work the whole Capify team have undertaken over the past year and our commitment to serving the UK’s vital SME community. For many UK SMEs, access to finance can be a real barrier to growth and we are delighted that our innovative and flexible approach to serving this segment of the economy has been recognised”.
Capify’s Q1 2023 business confidence survey revealed that 55% of SMEs are uncertain in their ability to secure finance from their traditional banking partners. “This is where we step in”, Rozenbroek adds. “As an alternative lender, we pride ourselves on our agile yet responsible approach, enabling us to promptly provide the much-needed funds to this underserved audience. In fact, we can approve and transfer funds to the applicant’s account in as little as 24 hours.”
Launched in 2008, Capify was born out of the desire to offer small businesses an alternative way to quickly access responsible business finance when many firms were struggling to navigate the impact of the global financial crisis. With offices in the UK and Australia and approximately 120 employees, it continues to support smaller businesses with funding to meet the challenges and opportunities of today’s economic climate.
About Capify
Capify is an online lender that provides flexible financing solutions to SMEs seeking working capital to sustain or grow their business. Alongside its sister company, Capify Australia, the fintech businesses have been serving their respective markets for 15 years.
For more details about Capify, visit: http://www.capify.co.uk
Capify Media Contact:
Ian Wood, Marketing Director
iwood@capify.co.uk
0161 393 9536
When Your Competitors Do Wrong, Do Right
June 1, 2023
“…no matter what industry you’re in there’s always going to be bad apples, and you kind of have to see which way they’re coming from,” said Heather Francis, CEO at Elevate Funding.
Competition within this industry will always exist, fueling the drive of professionals in the field. But how can one compete with a competitor who is actively deceiving the merchant? Furthermore, how can one advise that client to exercise due diligence without appearing to display dishonest intentions? Transparency has become a rising issue separating those in the field for the right reasons from those who are not.
“Companies should be dedicated to conducting their business consistent with the highest standards of ethics and integrity,” said Laura M. Marolla, VP ISO Relations at World Business Lenders (WBL). “We have an obligation to our colleagues, customers, business partners and investors, as well as the communities in which we operate to be honest and forthright in all our business practices and interactions.”
Funding and lending companies working with customers should be forthright about everything, from the amount the customer will receive, the total cost, and what they should expect throughout the relationship. Also they should be consistent with the terminology used so that the customer doesn’t become confused.
Francis explained that terms like “fee” could be interpreted in several different ways. Her company has developed an entire blog dedicated to terminology to help merchants weed out jargon.
“Terminology is very very important because I could understand fee to mean one thing and you could understand it to be different,” said Francis. “And that’s not transparent if we’re speaking a different language, that can be misconstrued.”
Case in point, Francis’s company Elevate offers Revenue-based financing while Marolla at WBL offers loans. On this basis alone, each company’s product works very differently.
“Ongoing education for all staff should be required, during which responsible lending practices should be emphasized and ingrained into the culture of the organization,” said Marolla. “While in the end, each merchant must take responsibility for its business decisions, informed decisions by merchants can be facilitated through transparency in disclosures and responsible business practices throughout the lending process.”
And if a competitor is not being transparent or responsible, Francis said that there is a delicate way to communicate that to the customer.
“From our team, what we do if a merchant says, ‘hey, so and so promised me X, Y, and Z,’ if there are reviews out there that show the other company can’t deliver that, we will send them the link. ‘You can see what previous customers have said, and it seems like they haven’t always been true to their word.’ We can also give the client something to look out for.”
One particular thing she said can be a red flag is if a company tells the customer at the last minute that they’re going to get a lot less than what they originally contracted for, which they have seen happen. Elevate hopes that when a customer recognizes a warning sign that they will remember Elevate’s polite manner of advising them what to have looked out for in the first place.
Francis explained it’s about making them feel free to come back to them, that there’s no hard feelings if it looks like they got a better deal. “‘If you have any questions. If you don’t feel that the person is being truthful with you, we’re happy to answer any questions, or you can bounce ideas off of us,'” is the message they try to leave them with. “We’re just trying to have a relationship so that we can curtail someone who’s lying about what they’re doing.”
Revenue-Based Financing? This Team of Entrepreneurs Learned The Trade in Argentina
May 26, 2023
Javier Alvarez Wrobel and Juan Cruz Alvarez Wrobel, brothers from Argentina, have worked in the lending business together for years. They’re even co-founders of a company that’s based in Buenos Aires.
It’s taught them a lot. While Americans fret over single digit inflation, Argentina’s rate of inflation soared past 100% earlier this year, the highest rate since it began dramatically increasing in 2018. That makes it very challenging to lend in the country.
“Due to the recent complicated economic situation, lots of lending companies in Argentina have closed,” said Javier. “I’d say there are only around 30 to 40 companies in the country doing what we do right now.”
For a population that largely also has little or no credit history, credit reports generally can’t be relied upon to approve loans at scale.
“That is why a lot of the underwriting in Argentina, when people request a loan, is made based on the cash movements on the consumers bank accounts,” said Javier.
That’s what they learned how to do. And with such a skillset as theirs, they were intrigued to learn that a similar model had taken off in the United States, one where business owners can get approved for funding based on data mostly available in their bank statements, revenue-based financing. The result was an expansion to the US and their launch of Upfunding Capital in Miami, FL in 2022. There, they teamed up with a third co-founder named Paula Sborovsky, who previously worked in Entre Ríos, a province directly north of Buenos Aires that sits along the border of Uruguay.
In the process, they’ve established a niche, a clientele mostly made up of immigrant business owners that have an Individual Tax Identification Number (ITIN) but not a social security number. The thin credit or lack of credit that may come with that is something they’re already used to.
“As we work with the Latino community, most of our clients are actually non-US citizens or at least not US born,” Javier said.
Javier said that the best and most reliable information they use for approvals is the way business owners conduct transactions on a day-to-day basis. Nevertheless, the company is pacing itself, testing out its technology and its underwriting models. Upfunding hopes to ramp up its volume in the second half of this year.
The work so far has been personally rewarding for the Upfunding team.
“It’s amazing to see,” said Javier, “for example, I got the chance to speak to a guy that is actually Argentinian living [in the US], trying to sell shoes, and seeing that we can actually offer a product for them to improve their own business that’s just starting out, for us is amazing because we are actually doing the same right now.”
