Funder Acquires Automated Underwriting Startup for Post Pandemic Market
July 6, 2021
In an age of changeups, the talent or tech a firm acquires has increasingly become what sets them apart from the pack.
Yes Lender, a funder based in Pennsylvania, recently teamed up with MCA AI underwriting startup Edge Funder. Yes bought Edge and will bring co-founders Amotz Segal and Kobi Ben Meir to the team as Vice President of Business Development and Chief Marketing Officer.
Segal, an industry vet with a decade of experience in MCA, said it was a great time to join forces and grow.
“[Yes Lender] weathered this pandemic in a pretty impressive way, I would say,” Segal said. “What they see now is an opportunity to take advantage of the post-pandemic market and the need for a more sophisticated data driven system to improve their chances to become one of the biggest names in this industry.”
Surviving the pandemic in style is something Yes Lender and Edge have in common. Back in 2019, Segal left Yalber and started an investment consulting firm. By May 2020, the pandemic had soured business, but he and his co-founder Ben-Meir saw an opportunity.
“During the pandemic, I realized fairly quickly that many of the MCA companies are going to go out of business because of the nature of the shutdown,” Segal said. “So I decided to take the opportunity and apply my experience, knowledge, and start my own platform.”
The idea was simple, he said: create something that would address the pain points of the industry. They worked with the concept of building a platform that treated business owners just as consumers are treated in consumer finance. They began generating leads directly from SMBs like a consumer funding product, though Segal said they would always be focused on working with ISOs as well.
Next, they focused on turning the application process into a seamless, automated process. While the MCA industry can fund in 24 or 48 hours, the consumer credit world still has it beat, with card applications processed in as little as 30 seconds. That is the target time for online MCA applications, Segal said.
He said they look forward to being a part of the Yes Lender team and executing that vision. Glenn Forman, CEO of Yes Lender, said in a release that the firm is fortunate to have joined forces with Edge.
“Their lead generation and direct-to-merchant funding platform are terrific complements to Yes Lender’s thriving ISO-driven sales channel,” Forman said. “Moreover, the addition of artificial intelligence to our already robust array of data-driven risk assessment tools will further strengthen our underwriting.”
CC Splits Still Make Profits, Payments Knowledgeable Funders Benefit
June 15, 2021
Back in its heyday, the MCA industry began as credit card factoring. The original product was simple- purchase future credit card receivables, and collect a percentage of them every day: easy peasy. Then, the industry broadened into ACH, funding businesses that did not have credit card purchases and credit card receivables became less common.
But some funders still work with credit card payments through long-standing payment processor relationships. Cash Buoy is a Chicago-based MCA firm that uses a network of twelve major credit card processors and thousands of representatives from payments ISOs to fund old-fashioned MCAs. Co-Founder and president Sean Feighan would tell you that having connections in payments pays off for both merchants and ISOs.
“The whole point is to add value to their business. By doing split funding remittance,” Feighan said. “It’s a much more comfortable way for the merchant to pay back the advance, it gives them some breathing room on the ebbs and flows of their volume, as opposed to having that hard fixed daily ACH that doesn’t care if they were closed on Monday, are slow on Tuesday, or we’re in a global pandemic.”
Feighan attests that the CC model still works great. He said alongside co-founder Brian Batt, they started Cash Buoy to give ISOs a better option. He boasts a renewal rate of 90% on his CC products, and his default rates for standard MCAs are a “night and day difference” with CC splits.
But operating heavily within the payments realm requires some expertise, something that long-time veterans of the MCA space are fortunate to have accumulated from the era of the product’s origin.
Steven Hunter, a multi-decade industry vet explained where the MCA concept came from. Hunter worked at CAN Capital back in 2000 when it was still was called AdvanceMe when he and the data team developed one of the first credit card factoring products.
“The idea came across to build a credit card-based product, because a lot of the original development team other than myself, were the First Data guys,” Hunter said. “And they said ‘okay well what if we could factor future sales, instead of three invoices or accounts receivable or inventory’, which we all know how to factor those things, that’s been in place since biblical times.”
So they built a model, aiming to fund merchants and take out a small amount of money from their credit card splits. Merchants would never see the money hit their bank, and the product just felt like free investing money paid for off of the increase in future sales.
When restaurants and other merchants shut down during the pandemic or rolled back to 25% capacity, many ACH funders found out their customers could not keep up with the pre-set debits. While defaults were on the rise, Cash Buoy was getting paid back, Feighan said, at an admittedly slower rate but still seeing returns.
Feighan has intentionally shied away from ACH. Cash Buoy is modeled on his and Batts’ connections in the payments space. They founded Cash Buoy after five or six years of experience in on-boarding merchant accounts. Feighan said he tried brokering but became disappointed with the process of working with an outside funder.
“[Other firms] may not have the relationships to get split funding at national processors,” Feighan said. “Maybe they didn’t have enough business or money in the bank when they went through the application process with different processors to get true split funding accommodations.”
Hunter agreed that without payment connections it is hard to factor CCs these days. Shortly after AdvanceMe began CC splits, other firms caught up and began developing similar products, with slightly changed terms like automatic set ACH draws. Eventually, he said this made MCAs more loan-like as opposed to a real variable product.
In 2021, there are many reasons that firms adopt ACH right off the bat, he said.
“Well, several reasons one, not every company takes credit cards,” Hunter said. “The thing is that some credit card processors, I’m not going to name any names, are very hostile to the product and they will not actually help people. They won’t help you manage the remittance, they won’t split for you, because they consider you to be a competitor, afraid you will take a portion away.”
The final reason Hunter said is a lot less elegant. He said in order to make this work, as a direct funder, you have to exchange files with every credit card processor you work with every night on every deal you have.
“So you got to send them something out and say, populate this for us. ‘Joe’s Bait Shop, What did they do today? Today they did this much money, your split is 11%, here’s what’s coming to you,'” Hunter said. “Then you import that back into your system and Joe’s Bait Shop’s balance drops by this amount. Right, that’s hard. I mean it’s a pain in the ass to manage, and I have people who do nothing but exchange, you’ve got to have processors who work with you and you’ve got to have the expertise.”
Hunter now works as a consultant, known in the industry as a go-to for MCA funding help. As for Cash Buoy, after the pandemic year, things are only on the up and up. Covid could not have happened at a worse time right after a three-year bull run, Feighan said, but now that things are back, there are “high water funding amounts each month.”
“The biggest thing here in Cash Buoy are our partners, our ISO partners, and processors,” Feighan said. “And if anybody were to say, ‘tell me, what’s the most important thing to you, Cash Buoy,’ it is 100% Our agent partner program. That is number one. The whole point of the company was to be able to provide a ton of value to national processors and ISOs.”
SEAA: 1,000+ Attendees In Atlanta Next year, Thanks AltFinanceDaily
June 8, 2021
1,000 people registered at the Southeast Acquirers Association 20th-anniversary conference Bonita Springs Florida: a smash hit in part due to the hybrid presentation model and AltFinanceDaily’s video coverage, the executive board members of SEAA said. Treasurer John McCormick said next year in Atlanta would be even bigger, following a hybrid in-person venue with recordings and live streams that would pack over 1,000 participants in the show.
“To have our biggest show on the West Coast of Florida was really gratifying,” he said. “We registered over 1,000 and were just shy of that number with check-ins. I think we’ll [surpass that] next year in Atlanta, which will be a great celebration for our board and advisory committee.”
McCormick helped co-found the organization along with Audrey Blackmon and Judy Foster in 2001. In March, he talked with AltFinanceDaily, describing the difficult choice to go back in person full capacity, a decision that turned into a major win. Derek Vowels, director of partner solutions at Aliaswire and SEAA board member, thanked Cypress Planning Group for the venue support and AltFinanceDaily for helping produce the in-person and online hybrid model.
Everyone rose to the occasion, Vowels told Green Sheet, thanking Sean Murray, AltFinanceDaily chief editor, publisher, and AltFinanceDaily reporter Johny Fernandez, who conducted live interviews at the conference. “Attendees can view every breakout session, presentation, and popular CBD panel on the app and web portal for the rest of the calendar year,” he said. “Going forward, hybrid events that combine face-to-face meetings with recordings will be the norm.”
Alongside live streaming from the show floor on May 25th from 9 am to after 6 pm, Sean and Johny pored through interviews with industry experts.
Sam Schapiro, leader of funding application platform Fundomate, talked with Johny about the resilience of the human species, American small businesses, and funding slowdown.
Shawn Smith, the CEO of Dedicated Commercial Recovery, met with Sean to talk about the new post-covid environment in the B2B space and Florida golf.
Aviv Baron, the founder of Direct Payment Group, talked with Sean about changes in merchant spending, payment processing, cannabis, and drop shipping trends in the past year.
And automated accounts receivable fintech CEO Garima Shah talked with Johny about her firm Biller Genie, and the world opening for business after a year of covid.
AltFinanceDaily is looking forward to the new year as covid restrictions lift and events come back in person.
Forward Financing Gets $250M to Grow
June 4, 2021
Forward Financing announced a $250 million credit facility from one of their current capital providers.
“This is a big win for our business and a testament to our strong financial performance throughout this difficult past year,” said Eugene Wong, Vice President of Strategy and Finance. “The increased facility gives us the flexible capital we need to grow and expand so that we can support the small business economy as it recovers on the other side of the COVID pandemic.”
Forward said it reported growing 60% in the past six months and expected to double the employee headcount in the coming year. The numbers back this up: the firm originated a total of $165,826,203 across 6,142 advances in 2020, a representative said. Forward reached a total of $1B in funding as of March 2021 since the firm was founded in 2012.
Irish E-commerce Revenue-Based Funder Raises $76 Million Series A After First Year
May 27, 2021
An Irish revenue-based e-commerce financing platform called Wayflyer raised $76 million in a funding Series A round this past week. It has been a roaring first year for the small fintech, so far funding $150 million to online merchants. The firm just launched its cash advance product 14 months ago and raised $10.2M in a seed round only six months ago.
Wayflyer offers e-commerce sales-based funding, without the need for collateral, from $10k up to $20M. They partner with firms across the UK, including a recent deal with the international athleisure brand Gym+Coffee.
Left Lane Capital led the round with investments from DST Global, QED Investors, Speedinvest, and Zinal Growth. The successful funding comes after the firm widened its credit facility by $100M to keep up with the demand for capital and a partnership announcement with Adobe Commerce.
The cofounders, Aidan Corbett and Jack Pierse came together in 2019. Back then, Corbett led an online marketing analytics firm called Conjura when Pierse, a former venture capitalist, proposed using analytic tech to underwrite what amounts to digital MCAs.
“Jack came to me and said, ‘You should stop using our marketing analytics engine to do these big enterprise SaaS solutions, and instead use them to underwrite e-commerce businesses for short-term finance,'” Corbett told Tech Crunch. “We just had our heads down and started repurposing the platform for it to be an underwriting platform.”
Launching in April 2020, Wayflyer funded $600,000 in the first month. In March of 2021 alone, the firm did about $36 million in advances.
“So, it’s been a pretty aggressive kind of growth,” Corbett said.
Ebay to Launch Sales-Based SMB Loans in UK
May 13, 2021
Ebay is launching a small business working capital product in the UK, offering sales-based loans to 300k SMBS through YouLend.
The product, called “Capital for eBay Business Sellers,” offers loans repaid through a percentage of daily sales and a lump sum. A year after eBay first ventured into offering merchant payments services, the firm is joining the likes of PayPal, Shopify, and Amazon by offering a business loan product. Loans will vary in size based on sales volumes, from £500 to £1 million, or about $640- $1.3M.
“Capital for eBay Business Sellers is intended to help plug this gap, giving small businesses quick access to a range of financing options,” Murray Lambell, GM of eBay UK, said. “With 300,000 UK small businesses trading on eBay, this proposition will help them reinvest, protect jobs, and succeed, even as the government’s support schemes dry up.”
The application process will take five to ten minutes, the firm attests, landing funds that same day.
“Our focus is on giving leading e-commerce platforms, tech companies, and payment service providers the ability to offer their customers rapid funding through our technology platform,” CCO of YouLend Jakob Pethick said. “We’re delighted to partner with eBay UK to support their business sellers thrive and grow.”
How Funders Survived PPP and a Year of Covid
May 4, 2021
A year into the pandemic and from the AltFinanceDaily office in Brooklyn, it looks like the world is opening up again.
After a year of Zoom and LinkedIn networking, those in the industry lucky or talented enough to have survived can still complain without restraint about big government lockdowns and misguided legislation. Competing with Uncle Sam’s deep PPP pockets have slowed deals down, and with a new fund opening this week for restaurants, it might be more of the same.
But two funders said that though there is an initial slowdown when a new stimulus is rolled out, the programs have still been vital for business– and if firms kept up with contacts, the business could be booming even after the pandemic.
CEO David Leibowitz of San Diego-based Mulligan Funding said that his firm survived the worst of the shutdown. That was due in no small part to government programs that kept merchants in business.
“People forget where we were sitting in April, May last year, 20 million people filed for unemployment. The segments of the market that we serve in general don’t have more than 30 days of cash on hand at any time,” Leibowitz said. “There’s no chance that our market survives that without the level of government support that they’ve been given.”
Sure, there’s a dampening effect at first, but there wouldn’t be B2B without businesses to fund. Leibowitz said he thinks the macroeconomic effects of printing money will have consequences in the long term, but it’s the lesser of two evils.
Matthew Washington, the well-known CRO of PIRS Capital, has also been vocal about PPP. Like Liebowitz, he said it has its pros and cons, creating a slowdown and demand for capital in one stroke. In his experience, because the stimulus was limited to payroll and rent, merchants were hungry for other products.
“They’re only able to allocate it for certain things, payroll, and hiring people, right,” Washington said. “Our funding allows them to be able to use capital for other opportunities, like buying supplies, buying inventory. Although it’s kind of been somewhat slow, they need to have other working capital needs to be provided for.”
Washington also said some merchants used their PPP funds as low-interest loans, paying off and refinancing advances. PIRS has succeeded through the pandemic due to its relationship-based model.
“It’s all about keeping in touch with your merchants during this time, having a big pulse with the people you do business with,” Washington said. “We’re really a lean and mean company, we kind of have the community bank approach to this space; we’re more relationship-based.”
PIRS had only paused for 60 days and was lucky enough to be set up with recurring merchant partners that turned out to be essential businesses.
“We were very blessed; a lot of our portfolio was operating during the shutdown,” Washington said. “Our portfolio did very well for the circumstance.”
That was how they survived, a lot of good faith and hard work, but pinches of luck as well. Leibowitz said that contrary to popular belief, many good people lost their business during the pandemic. It wasn’t just bad actors and funders with terrible underwriting.
“In March, we had customers who, for reasons totally beyond their control, couldn’t pay. And we weren’t sure in March, how long that would go on for, we weren’t sure how bad it would get,” Leibowitz said. “If you’d asked me in March, April, were we going to survive this thing. There’s no way I would have been able to give you a confident answer.”
Some with public securitizations, well-run businesses, dropped out and disappeared. Leibowitz said Mulligan was able to keep every employee on staff and got through the “sh*t show.” In part, it was with help from competitors who specialized in PPP funding that Leibowitz said his firm was still going strong.
“So I think for all of its shortcomings, I have a world of respect for the SBA and the program. I think of Brock and guys at Lendio, I think of the guys at BlueVine and Kabbage, who really have done a truly extraordinary job of distributing that product to our target market,” Leibowitz said. “And I’m sitting here today, unquestionably, enjoying the benefit.”
So PPP helped, despite the slowdowns, in the short term, and Liebowitz said in the long term, the government overspending might get hairy. But with talk about the world opening back up, with bars open down the block for the first time in a year, what does Washington think about the near future?
The world just isn’t going to stop; it’s just evolving with the new temp of what’s going on; I think there’s a lot of positive things on the horizon for our business,” Washington said. “Once the vaccine rates, and everyone’s ‘cured’ how are they not going to open up.”
OnDeck Proving to be Extremely Valuable Acquisition for Enova
April 30, 2021
When Enova acquired OnDeck, it thought that the company’s legacy portfolio would have very little value. Now that the dust has settled, it’s become a gold mine. “We now expect to receive over $200 million of total cash from the acquired portfolio, net of securitization repayments,” said Enova CEO David Fisher in the company’s quarterly earnings call.
Enova reported that small business lending was now more than 50% of their portfolio and that they recorded originations of $322 million in small business funding in Q1.
“From an operational perspective, the integration of OnDeck is largely complete,” Fisher added. “Our three SMB products are working together as a single business, and we are on track to deliver more than the forecasted $50 million of annual cost synergies, primarily from eliminated duplicative resources as well as $15 million in run rate net revenue synergies.”
OnDeck’s lending business has also allowed the company to price a $300 million securitization debt facility, backed by OnDeck term loans and lines of credit.
“We’re pleased to report a record first quarter of profitability, driven by solid credit performance, improving originations, and disciplined expense management,” said Fisher. “We are encouraged by the recent signs of a recovery in demand and believe that our diverse product offerings, nimble machine-learning-powered credit risk management capabilities, and solid balance sheet position us well to profitably accelerate growth as the economy continues to recover.”
