Can a Merchant Fund Themselves with Their 401k or IRA? Sort of
March 3, 2022
“There is a way to use a 401k to fund a business, and it’s possible without triggering a taxable event within the retirement account.”
Daniel Blue, Owner of a merchant and consumer learning program about utilizing retirement funds called Quest Educations, believes that merchants are overlooking untapped funds that they have already paid into when searching for capital to fund their businesses. According to him, not only does the IRS actually allow individuals to tap into their retirement plans if they fulfill certain qualifications, but banks and Wall Street have a vested interest in keeping this information under wraps.
“A Traditional IRA or a 401k from an old job can convert into a Solo 401k,” said Blue. “Since most IRAs and 401ks from previous employers don’t allow you to access the money inside the account penalty- and tax-free, the ‘Solo’ 401k is the solution to that problem.”
A ‘Solo’ 401k is an IRS-approved retirement account for an entrepreneur who doesn’t have any W-2 employees on their payroll. If a merchant works with an entire staff of freelancers or solo, they can convert their nest egg into this type of 401k.
Blue explained in detail about how this particular type of funding is done. By tapping into what the IRS calls a ‘loan feature’ on the Solo 401k, merchants can actually go in and get cash.
“Per the IRS, the loan feature allows you to take fifty-percent or $50k (whichever number is less) out of the Solo 401k penalty and tax-free,” said Blue. “The money taken out must be paid back to the Solo 401k within five years to avoid a taxable event.”
“There is an interest rate on this loan,” he continued. “Once locked in, the interest rate is fixed and returned to the Solo 401k. The interest rate is prime plus one or two percent. The money taken out of the Solo 401k via the loan feature can be used to fund a business.”
This type of loan isn’t as risky as it sounds. Blue says that the merchant isn’t risking their retirement accounts should they default.
“The IRS requires that quarterly payments get made back to their Solo 401k, and the loan must be paid in full within five years to avoid a taxable event,” he said. “If the loan gets into a default status, the remaining loan balance becomes taxable income. [The merchant] doesn’t lose their retirement account or their business if their Solo 401k loan gets into default status.”
Blue referred to the process as a merchant ‘becoming their own bank’. In a time where finding different avenues of funding is the name of the game in small business lending, harnessing a niche customer to provide them a personalized, low risk financial product seems like a no-brainer if the qualifications of funding are met.
Why is Canadian Fintech Sizzling?
March 1, 2022
Downtown MontrealIn recent weeks, Canadian fintech companies have made major splashes in the world market. In the sphere of acquisitions, lending, funding, products and even digital assets, multiple Canadian cities and the companies that call them home have gained a reputation for being a focal point in fintech progression. Cities like Vancouver, Toronto, and Montreal have become start-up hotspots for companies looking to ride the wave of Canadian financial innovation.
In the country’s most internationally impacting financial move, Montreal-based payments company Mobeewave’s acquisition by Apple is set to come to fruition, as the company is about to take their phone-to-POS mobile merchant terminal live around the world. Apple acquired Mobeewave last year for $100M and will use the company’s technology to allow merchants and customers to conduct payment transactions by touching phones.
Other companies of note are Hopper, the Montreal-based mobile travel agency that is embedding ‘travel fintech’ into their products. Things like insurance, price drop guarantees, and price freezing are now offered on the Hopper app, which is now valued over $5B after an influx of capital from Brookfield Asset Management.
BNPL giant Klarna has also made moves in the north, opening offices in both British Columbia and Quebec in an attempt to further their expansion into the Canadian market. In a recent interview, the company’s CEO said their research had found at least half of Canadian shoppers were a prime contender to get the best out of Klarna’s services.
So this all begs the question- Why is Canada so ripe for fintech?
“We’re a fast growing market with a strong immigration policy, cheaper technical talent, and strong government hiring incentives,” said Tal Schwartz, Senior Product Manager at Nomis Solutions. “Secondly, we’ve been successful at ‘Canadianizing’ global solutions. For example Brex and Ramp have no client presence here, but Caary and Float have successfully built homegrown solutions that fill a local need.”
Schwartz spoke further on Canadian companies putting their own improvements on established products, making ‘Canadianized’ versions of fintech products and ideas. “Revolut tried entering Canada with little success,” said Schwartz. “Now two years later Koho, Wealthsimple and Neo have cornered the digital banking market from within.”
Even Canada’s legacy financial institutions have been challenged by fintech, as the nation with the notorious ‘Big Five Banks’ has seen neobanks creeping towards the top as the highest used, as the neobank dubbed Equitable Bank is now Canada’s 7th largest after acquiring Saskatoon-based Concentra Bank earlier this month. Equitable has newly grown its mortgage portfolio thanks to its partnership with Canadian fintech Nesto, a mortgage broker marketplace. The move also gives Equitable a footing in the credit union space, as Concentra provides treasury and trust services to over 200 credit unions in Canada.
Even the metaverse has taken interest in what Canadian finance can offer it. Terra Zero, a Canadian metaverse real estate platform is now offering mortgages on Decentraland for those looking to purchase property in the trendiest space on the internet.
Canadian finance has made a big leap since a year ago. Pandemic-induced restrictions decimated the country’s financial fortitude, and international competition has never been more intense. Like Schwartz mentioned, it’s the ability for Canadian companies to innovate the innovators, using ideas stemming from other products to “Canadify’ fintech, that has surpassed their industry past the point of survival.
“I think Canadian fintech is hot right now because in Canada, we don’t have the alphabet-soup-level of federal bodies as the U.S. does, primarily leaving enforcement to smaller, more personal, more flexible provincial organizations,” said Nick Chandi, CEO of Forward AI, a Vancouver-based fintech. “In addition, Canada is set on Open Banking, with the Advisory Committee’s final report published in August 2021 and follow-up survey showing that the majority of the Canadian financial services industry wants to move ahead on implementing open banking in Canada ASAP.”
On top of financial friendly politics, Chandi believes it’s Canada’s concise population centers that breed collaboration and innovation. “It’s also a smaller community,” Chandi said. “With most fintech workers living in one of a few key cities, it’s easy to network and make things happen.”
Tomorrow’s Broker/Funder Relationship, According to Funders
February 23, 2022
“In the end, we all press zero to talk to someone.”
The conversation about what characteristics will make up tomorrow’s loan brokers is surrounded with ideas latched in fintech, social media, and more. Brokers from around North America have been showcasing these new strategies on social media or in chats with AltFinanceDaily, which sparked the question — what do the funders think of all of this?
Efraim Kandinov, CEO of FundFi Merchant Funding, has a lot of ideas about how brokers should function in a constantly changing financial landscape. According to him, it’s not the style of funding or modernization of business logistics that will make tomorrow’s broker, but it’s leveraging ethics with both merchants and funders to preserve future business down the line.
“I believe more and more merchants look for the digital aspect and remove the broker because of the dishonesty that we usually uncover and want something clean without interpretation. Many issues with merchants in my opinion [stem] from being misled by the broker, promising something after to just take this deal or promising to get payments lowered and take an overleveraged position.”
Other funders think much differently, identifying a sense of community being brought about by tech, having a ‘we’re in this together’ type of mantra to hold the legacy industry up.
“There’s a sense of familiarity when dealing with my brokers,” said Amanda Schuster, CEO and President of Fundhouse LLC. “We’re your friends, we get you, we get your business.”
Schuster believes that relationships between funders, brokers and merchants alike will help them weather the storm of tech’s emergence into their industry.” We are your business and it’s just as important to us that you succeed,” she said. “I have business owners that I still speak to this day, that I funded over five years ago.”
Schuster dismissed companies like PayPal, Square, and Shopify’s takeover of small business lending, circling back to the interpersonal value that a broker provides as a face to a financial product.
“At the end of the day, business is always about the people,” she said. It’s about creating a need and filling it. You can’t do that on a website.”
When asked about the value of this happy-go-lucky community of brokers, funders and merchants, Kandinov brought up how some brokers have found ways around the ‘repeat business’ model of funding deals, thus making relationships between brokers and merchants pointless.
“I think brokers are less caring of repeat business because they have discovered a short term model of stack, stack, stack, and then put in a reverse. This front loads commission. I believe a broker has a huge advantage in creating the relationship. [This] unfortunately is starting to take a back seat to a new way to score big commissions.”
Kandinov spoke about brokers who will say anything to make a sale carelessly shooting themselves in the foot when it comes to forming a book of business. By saying whatever they need to get paid now, merchants are either going straight to the funders to big tech for their next source of funding.
“Jaded merchants then look to only speak to the funding house in the future and stay or just prefer the direct to consumer model of fintech,” said Kandinov.
Despite these feelings, Kandinov does believe that there’s a bright outlook on the future of the broker/funder relationship if some change occurs.
“[Brokers] deserve their high commissions as they do a lot of work. I think funding houses have much less overhead with the broker model, but lately with the broker behavior it is almost pushing themselves out if it continues. I do not believe fintech alone is advantageous, just in speed and clarity. It’s a byproduct of poor behavior.”
Pick a Niche or Go Far and Wide? SMB Financiers Weigh in
February 18, 2022
As big tech continues to pave the way for new avenues for providing capital for small businesses, the legacy infrastructure in place has their own ideas of how to compete in funding a digitally native business owner. While some say that the strength is in finding a niche, others disagree— claiming that the key is to expand business, avoiding a one-dimensional aspect of funding. On top of this, some commercial finance brokers even claim that an ability to handle digital assets will give them an advantage over a larger tech company, too.
“Finding the niche as far as who you’re funding, and what type of deals you’re funding, will lead to continuing growth,” said Matt Rojas, Senior Lending Officer at Ironwood Finance. While Rojas believes the strength of a smaller brokerage is the ability to service a niche client, he expressed the idea that larger companies getting into the space are going too deep too quickly—resulting in an unsustainable rate of expansion.
“I see the biggest problem with the fly-by-night brokers, these bigger MCA shops that you’re seeing entice brokers to send the clients to them,” Rojas said. “I don’t see how that will sustain long term unless they continue to meet milestones to acquire their capital. I just had a merchant [get] bought out from our firm [by another funder] for over 40K plus, [but] their cash flow could only sustain an 18K MCA max. I’ll never understand how these firms are going to operate on a larger scale unless they are bought by the big firms.”
Other people in small business lending think that the strength is to offer a variety of financial products and options to give merchants choices. “The only way to keep up with the big boys of the industry is to simply just not be a one-trick pony,” said Juan Caban, Managing Partner at Financial Lynx. “Just like they are adapting into new markets and products, we as lenders and brokers need to also enhance our offerings.”
While people like Caban are molding products based on the competitive flow of the industry, Rojas seems to believe the system will bleed the big players dry. “It’s my understanding that as a lender we don’t need to compete with each other on rates like you’re seeing,” Rojas said. “I believe they call this the cash burn stage.”
“They’re going to burn as much cash to acquire clients,” Rojas continued. Then, the dominos fall. […] It’s like a story that paints itself over and over again. The same thing will happen to these bigger firms you mentioned due to the simple fact that their underwriting process doesn’t factor NSFs, non-repayments, or defaults.”
While Rojas focused on what the bigger companies are doing, Caban spoke on what brokers can do on the fly to adjust. He expanded on the idea of using old tactics in new ways, saying that traditional sales tactics may work if implemented with a well-researched and modern spin.
“Before cold calling, research and understand who your target market is and be prepared,” Caban said. “When cold calling, no one merchant has similar needs and goals. We need to ask the right questions, learn about the business, then find customized solutions that are in line with their financial needs and goals.”
A merchant will always appreciate a broker or lender who takes an interest in their business and find solutions that are in line with their goals rather than [their own] financial interests.”
Some brokers have gone outside of the box when it comes to how they will compete in the future of small business lending, saying that traditional currencies have been won over by big tech, and it’s digital assets that will open a brand new market for the next-generation small business lender.
“Since 2008, technology has changed a lot more than just the process in which small business owners find and acquire funding,” said Nicholas Saccone, Senior Funding Advisor at Proto Financial. “As you know, cryptocurrency is becoming more and more mainstream by the day with the Fed scrambling to get control over it. Whether you believe in crypto or not, it will [change] the way we see money.”
Saccone expressed that brokers who embrace learning about digital assets will not only be able to compete with large tech lenders, but beat them out.
“PayPal, DoorDash, and Square can make it easy for companies to secure fiat currency, but as crypto becomes more mainstream, brokers will fulfill a new role as they help educate clients on the new financial system that is upon us,” Saccone said. “It will be physically impossible for large tech companies to integrate crypto into their current systems without brokers doing the dirty work.”
“Mass adoption comes from the top down,” Saccone continued. “Digital collateral tokens, such as Flexa’s AMP, will change the payment processing industry forever. Transactions will become instant and it is my belief within the next ten years, merchants will be utilizing digital assets more than fiat cash.”
Velocity Capital Group (VCG) Secures New $50 Million Credit Facility
February 14, 2022
CEDARHURST, NEW YORK—FEBRUARY 14, 2022– Velocity Capital Group (VCG), a leading provider of same-day capital advances to small businesses, has secured a multi-draw term funding line of credit with Arena Investors, LP, a global institutional alternative asset manager. The line of credit will provide VCG with borrowing capacity up to $50 million and deep pool of capital from which to expand its business, further strengthening VCG’s ability to provide funding for small business merchants. Though the name VCG may be new to some, the company is no stranger to alternative finance. Eleven years of experience in the space with over 25,000 funded clients has helped their team understand what merchants need most during the funding process, primarily trustworthiness and speed.
Since VCG’s inception, CEO/Principal Jay Avigdor has made it his mission to provide an efficient and flexible funding experience and product for merchants. “We’re setting new strides for speed and service every year. 2022 is going to be even more impactful for VCG and our stakeholders!” said an enthused Jay Avigdor. “We have a big opportunity for us this year to build on last year’s initiatives. This line will give us the wings we truly need to fly! Giving us the ability to fund larger deals and provide longer terms.” said Jay. The previous year, VCG made news by switching to their own internally developed processing software for deal applications called Drag-in. The software pulls critical data from VCG’s applications to conduct all necessary screenings via API, then uploads that data to their CRM with the click of a button. Drag-in gives VCG the ability to provide offers within minutes rather than hours, giving them a leg up on the industry. Stakeholders have been thrilled with the improved response time on their deals. Drag-in is Currently working on a beta version to provide multiple other industries.
Speed isn’t the VCG’s only focus. “Merchants and ISOs alike deserve to have more control of the capital they’re provided,” Jay added. In August 2021, Velocity Capital Group began offering ISOs and Merchants the option to receive their capital in a Cryptocurrency. Primarily sent through as stable coins (USDC, DAI, USDT). “Due to the cut-off times within which banks have to operate, they can become a bottleneck for our transactions. The opportunity for providing capital in Crypto couldn’t have come at a better time,” said Jay. Available to transfer during all times of the day, funding in Cryptocurrency was added as an option for how Merchants & ISOs receive capital.
“We are excited to facilitate VCG’s activities in small business finance at a time when there are limited options and great needs for capital, and where VCG can provide that capital without unduly burdening merchants receiving it. This transaction fits well with Arena’s broader mission to provide flexible, scalable funding solutions for companies and ideas which have unique growth or liquidity needs. We look forward to working with Jay and his team,” said Victor Dupont, who leads Arena’s investments in the SME sector.
The new line of credit gives steady rails for Velocity Capital Group to continue growing and funding at a significant rate into 2023. “We anticipate we will do north of 150M in funding this year with our current deal flow and this new line. We can provide well-needed cash during these troubling times to small businesses and fuel their success while growing ours as well. We can help small businesses access funding like never before in company history. Through implementing Drag-in, this new credit line with Arena, and with our amazing loyal employees and brokers, the sky is only the limit! ” remarked Jay.
About Velocity Capital Group
Velocity Capital Group helps small businesses all over the United States access capital at incredible speeds. Our team has serviced over 25,000 clients in under 11 years. We’ve grown our business to great heights by focusing on speed, efficiency, and transparency.
About Arena Investors, LP
Arena Investors is an institutional asset manager founded in partnership with The Westaim Corporation (TSXV: WED). With $2.8 billion of committed assets under management as of January 1, 2022, and a team of over 100 employees in six offices globally, Arena provides creative solutions for those seeking capital in special situations. The firm brings individuals with decades of experience, a track record of comfort with complexity, the ability to deliver within time constraints, and the flexibility to engage in transactions that cannot be addressed by banks and other conventional financial institutions. See www.arenaco.com for more information.
Velocity Capital Group Specializes in Funding
Up to $1 Million Same-Day thru MCA (1st thru 4th Positions), Reverse Consolidations, & Consolidations
NEW ISOs Sign up to Fund with Velocity Here
We’re Hiring – Join one of the fastest-growing companies in the industry!
Do you have a book of business and experience managing relationships with ISOs?
Join VCG and we’ll beat any competing commission structure!
Inflation is Impacting Merchants, and Capital Providers are Noticing
February 10, 2022
As the Department of Labor survey reported sky high inflation this week, the 7.5 percent rate is starting to impact the small business financing industry. With things like gas, food, electric, and oil leading the way in rising costs, merchants are requesting more capital, or none at all — as inflation continues to rise.
“I read that 45% of small businesses say they have dealt with inflation by taking out a loan over the past year,” said Ronald Curiel, Business Development Manager at Advantage Capital Funding. “Small businesses are the backbone of the U.S economy and a lot of businesses are relying more and more on small business financing to get them through times of high inflation.”
Small businesses have been forced to raise prices in many areas. Delis are adding surcharges to bacon, lunch deals are disappearing from pizza parlors, and delivery minimums are being raised. According to Curiel, the need for financing has gone hand-in-hand with the rise in inflation.
With payroll costs at a two-decade high and prices of goods going up seemingly exponentially, capital providers might be able to leverage this to fund merchants who haven’t raised their prices or expanded in order to keep up. The challenge is that if inflation keeps rising, businesses will certainly need to put those funds to good use.
Inflation has even hit the equipment financing sector too, with merchants holding whatever cash they have left in hopes of prices of machinery coming down. “We have seen an increase in clients putting off Equipment purchases until the prices of equipment come back down to realistic prices,” said Josh Feinberg, CEO of Everlasting Capital.
“[Merchants] are saying they have seen the prices increase between 20 and 40 percent, which impacts our ability to help business owners scale.”
El Salvador Partners with DeFi Lending Platform for Bitcoin-Backed SMB Loans
January 21, 2022
El Salvador continues to be an unprecedented experiment of mainstream crypto use. The small Latin American country that shifted its national currency to Bitcoin alongside the US dollar in June is now partnering with Acumen, a DeFi lending platform, to power Bitcoin-backed loans.
“Basically what we are doing is an alliance with the government,” said Andrea Maria Gomez, a Project Manager for Acumen. “[The government] is not backing anything. They are just giving us the channels for which we will reach the small and medium enterprises.”
CONAMYPE, an acronym in Spanish that represents the national commission for medium and small enterprises, already offers business financing. Rates for this are generally high, and just like in the US, the qualifications to get financing are extensive. With Bitcoin-backed loans, it seems that the funding process will be the thing that affects El Salvadoran merchants the most.
“We work through a stable doc so investors put their crypto in there, we convert it into a stable coin, and what we eventually loan out to the end user is dollars,” said Gomez. “So we don’t give Bitcoin or Solana or anything like that, we give them dollars.”
“For [merchants], it’s easier,” Gomez continued. “You are not depending on the volatility of a coin, you just have dollars.”
Just like in the US, funders borrow money at high rates from banks, resulting in the cost of financing being pushed down to the final borrower. In a government that has Bitcoin as an official currency, Acumen can lend Bitcoin backed dollars at a lower rate than what’s already being offered in the marketplace.
“What we are doing, this is like an initial run, is we are going to contribute one fund to CONAMYPE for them to be able to [lend] at a lower rate,” said Gomez. “We can provide at a lower rate because in crypto, the capital is loaned at a lower rate.”
When asked about the lack of digitally-native people in El Salvador, Gomez stressed that the application process doesn’t require a crypto-enthused business owner. “Business owners don’t need to understand the tech or go to a wallet to ask for the loan. It’s a regular loan to them. The difference is, the source of the funds is coming from this protocol.”
The El Salvadoran government is confident that these loans will open up access to capital to small businesses who would have no alternative source for funding. Mónica Taher, Technological & Economic International Affairs Director at Government of El Salvador, shared her thoughts with AltFinanceDaily about the vision for this plan down the line.
“The Bitcoin small loans for Salvadoran businesses will re-energize the economy by allowing the unbanked to have the opportunity to have access to digital money and create a credit history,” said Taher.
Canadian Lending Looks Strong Post-Pandemic
January 11, 2022
After having their entire industry threatened by pandemic-induced restrictions, the Canadian alternative finance space has started 2022 off with a bang. Canadian lending saw billions in growth, as the industry hopes to utilize fintech’s technology and the government’s new take on open banking to bring their industry back to full swing.
“Main Street small business recovery is looking very strong for 2022 as restrictions ease moving into the warmer weather,” said Tal Schwartz, Senior Advisor for the Canadian Lenders Association. “However, in the short term, lenders are paying close attention to the Omicron variant, and particularly how aggressive the federal government is prepared to be in terms of sustained subsidies.”
Despite the uncertainty of the next several months, Canadian finance seems to have a healthy balance of offering modern financial products alongside an effort a return to normalcy. The crypto-lender Ledn raised $70M USD for the world’s first crypto-secured mortgage product, while the BNPL company Flexiti received a $527M facility from the National Bank of Canada. Merchant Growth, a small business lender, also raised $4m in equity financing.
According to Schwartz, most lenders who stayed in business used the last year to deeply invest in their technology across the board.
“[Lenders] have equally repositioned themselves in ways that better service a post-pandemic SMB clientele,” he said. “There is significant effort among lenders to evolve into financial health dashboards of a business, rather than being viewed exclusively as a financing source.”
According to the numbers, there has been significant growth by two notable Canadian lenders that are acting both as a financial management tool and a lending source. Canada’s largest subprime lender goeast Ltd, and Borrowell, a mobile loan marketplace, achieved $2B in portfolios and 2M users respectively to end the year.
“Fintech platforms become more sticky and can capture more client data if they become a hub for business management, with financing simply being a component of their platform,” said Schwartz. “Fintech lenders are coming out of the pandemic much stronger and with a sharper mandate than before.”
