Archive for 2018
The Broker: How Industry Veteran Joe Cohen Closes Deals and Dodges Backdooring
November 11, 2018Role: I’m the manager of Business Finance Advance in Brooklyn. I manage a team of about 20.
Years in the business: Since the beginning. 2005/2006.
How he closes a deal:
You have to really know the customer. You have to have a feel for what his needs are. Is his hot button the amount of money? Is it the term? Is it the rate? Is it all of the above? You have to know what the customer is looking for and try to hit a bullseye…I make sure that I know exactly what the customer wants before I make an offer.
What were your first deals like?
In those days, when we first started doing it, the hard part was just convincing the client that we were for real – actually willing to give him money – and not some fraudster trying to get a hold of his bank statements. And it was only based on credit card revenues at the time. We used to call them up, “Hi, Mr. Smith, do you accept credit cards?” “No.” We’d hang up the phone [because] we couldn’t do anything. There was no ACH program in those days.
Once we got the statements back, we’d just have to figure out how much we could give him based on his credit card sales…We never knew what a decline was in the early days. Everybody that sent in paperwork was approved, it was just a matter of how much money he was going to get approved for.
Biggest challenge as a broker:
The most challenging part of my job is the silent thief. When we send out deals to funders, not only do we have to worry about closing the deal…but when we send a file to some of the funders, either there’s someone at the funder that’s backdooring the deal or there’s a whole syndicate taking the deal and calling the merchant behind our back. That is the biggest challenge to [brokering] today…You’re going to make some deals and you’re going to lose some, but the biggest issue we have is the drama that’s been set up by the backdoor channels that are rampant throughout the industry.
Advice for newcomers:
You have to [understand] that it will take you a year, at least, before you start making any money because a) there’s a lot of people doing it, and b) you have a lot of [backdooring] and if you don’t understand the business, you’re going to get caught up with the wrong funders.
What are some funders you work with, who you trust?
Quarterspot. And CAN Capital and OnDeck. These are the ones that will not backdoor us.
What do you look for in a good broker?
A guy that basically is hardworking and tenacious. You can’t give up. It’s not an easy business. You’ve got to work very, very hard and you have to deal with the successes and compartmentalize the losses.
Newtek Announces Growth in SBA Funding
November 8, 2018In its third quarter financial statements released yesterday, Newtek Small Business Finance, LLC (NSBF) announced that it had funded $122.4 million of SBA 7(a) loans during the three months ended September 30, 2018. This is an increase of about 18% year over year compared to $103.6 million in Q3 2017. The company forecasts full year 2018 SBA 7(a) loan funding of between $465 million and $485 million.
“We are extremely pleased to report yet another strong quarter, with double-digit year-over-year percentage growth,” said NSBF Chairman, President and CEO Barry Sloane.
GreenSky Reports Record High Volume
November 8, 2018GreenSky reported record high transaction volume in the third quarter of $1.4 billion, up 33% year over year, from $1.05 billion in 2017. It also reported a record net income of $46 million and its revenue increased 29% to $113.9 million year over year.
Based in Atlanta, GreenSky (NASDAQ: GSKY) provides loans for home improvement and healthcare, among other purposes, and it has funded $15 billion to consumers and businesses.
Square Capital Loaned $405 Million in Q3
November 8, 2018
Square Capital originated more than 62,000 business loans for a total of $405M in Q3, up from $390M in the previous quarter, according to the company’s latest earnings report.
By contrast, OnDeck, a Square Capital competitor, reported loan originations of $648M for the quarter. Both companies find themselves facing new competition from a growing field of tech players like Shopify (who last quarter originated $76.4M in merchant cash advances).
Thanks to an early investment in Eventbrite, the online events company that went public in September, Square turned its regularly scheduled quarterly losses into a profit in Q3. On the company’s earnings call, Square CFO Sarah Friar said that the company would have had a $17 million loss if it weren’t for a windfall related to the IPO of Eventbrite.
The big news that Square CEO Jack Dorsey had to share on the earnings call was the introduction of Square Terminal, a portable, all-in-one payment device that prints receipts.
“People don’t want to use their personal device to accept payments,” Dorsey said of many small business owners.
Dorsey said that this device is essentially meant to replace “those black rectangular boxes,” referring to the ubiquitous credit card processing machines which he described as “dinosaurs.”
Another theme of the earnings call was Friar’s departure from Square. Friar announced in October that she will be taking the job of CEO at Nextdoor, a social network. Dorsey thanked Friar for her contribution to Square and in a tweet expressed sadness that she was leaving. He said that a search to replace Friar is currently underway.
Dorsey also expressed pleasure with the continued success of Square’s Cash app, a peer to peer payments app that he said allows the “underserved and unbanked” to transfer money.
“I’m excited [about] what we can build on top of it,” Dorsey said.
Elevate Posts Loss in “Unexpectedly Challenging” Third Quarter
November 7, 2018Elevate reported a $4.2 million loss for the third quarter of 2018 and also lowered its outlook for full-year 2018 net income to between $10 million to $14 million.
“Despite strong year-to-date growth in revenue and stable credit quality, the third quarter of 2018 was unexpectedly challenging,” said CEO of Elevate Ken Rees in prepared remarks. “We experienced delays in rolling out new technology and credit models that are needed to drive continued improvements in credit quality for our US products. As a result of these and other issues, new customer acquisition and credit quality were both relatively flat with the prior year and anticipated improvements in margins were not realized.”
Rees also explained in the company earnings call that Elevate incurred unexpected costs in its UK operation related to an increase in complaints about its Sunny product, encouraged by UK claims management companies.
“We found many batches of complaints from claims management companies in which the majority of complaints that are made about Sunny, don’t even come from actual Sunny customers,” Rees said.
Still, year over year revenue did increase nearly 17% for the third quarter of 2018, totaling $201.5 million compared to $172.9 million last year at the same time.
The third quarter loss comes not long after a robust first quarter of 2018 which saw a 459% increase in net income year over year from $1.7 million in Q1 2017 to $9.5 million in Q1 2018.
During the third quarter earnings call, Rees announced an agreement between Elevate (NYSE: ELVT) and Utah-based FinWise Bank that will expand Elevate’s RISE product to an additional 18 states. According to Rees, FinWise will use Elevate’s marketing and underwriting expertise for the RISE branded loans that the bank originates. This is similar to Elevate’s current relationship with Republic Bank, which originates Elevate’s Elastic line of credit.
“FinWise clearly appreciates what we’ve built and wanted to take this established product and offer it to more consumers in more places,” Rees said. “This will not only offer more Americans more and better credit options, but it will also make marketing the RISE product much more efficient, spreading out the per-loan cost of national advertising,” Rees said during the earnings call.
At Money 20/20 this year, Rees conveyed that he’s an advocate for banks working with fintech companies and expressed an interest in working with more banks.
Elevate offers three products to non-prime customers: RISE, a state-licensed online lender that offers up to $5,000 in unsecured installment loans and lines of credit, Elastic, a bank-issued line of credit, and Sunny, a short-term loan product for customers in the UK. RISE and Elastic serve the US market.
Founded in 2014, the Fort Worth, TX-based company has originated $6.3 billion in credit to more than 2.1 million consumers.
LendingClub Hits Another Record for Originations
November 7, 2018LendingClub’s Q3 earnings report yesterday revealed a record high in loan originations of $2.9 billion, up 18% compared to originations of $2.4 billion last year at the same time. Consequently, revenues increased, also to a record high of $184.6 million, up 20% year over year.
“The strength of our marketplace is enabling us to responsibly grow revenues and expand margins in a competitive and rising rate environment,” said LendingClub CEO Scott Sanborn. “Our strategy in execution is focused on borrower demand generation and conversion, broadening our investor base with products that meet their diverse needs and driving operating efficiency.”
The veteran online lending company has been growing steadily with originations of $2.8 billion in the second quarter of this year. Regulatory challenges, namely an April 2018 lawsuit filed against LendingClub by the FTC for misleading language to customers, seem to be resolving and have not impeded the company’s growth.
In October, Sanborn spoke at the Money 20/20 conference about the connection between financial health and physical health and LendingClub’s goal of trying to improve both for its customers.
“LendingClub wants to become America’s financial health club,” Anuj Nayar, Lending Club’s newly minted Financial Health Officer, told deBanked at Money 20/20. In his new role, Nayar, who also serves as head of communications, will communicate and try to affect better financial health.
Lending Club offers fixed rate business loans from $5,000 to $300,000 and personal loans of up to $40,000. The company also offers auto refinancing. Founded in 2007, Lending Club is headquartered in San Francisco and went public on the New York Stock Exchange in 2014.
Payroll Costs Still Exceed Revenues at StreetShares
November 7, 2018
According to the June 30 fiscal year-end earnings report for StreetShares, the veteran-run small business lender, the company’s annual payroll expenses of $4,580,130 exceeded its annual revenue of $3,078,766.
StreetShares, which focuses on lending to veteran-owned small businesses, posted a loss of $6,559,702, more than last year’s loss of $6,193,154. But revenue did increase year over year, from $2,168,067 to $3,078,766.
“Our patient approach means we’re not going to be profitable for a couple more years,” StreetShares CEO Mark Rockefeller told deBanked back in January in response to the fact that the company’s losses from 2017 exceeded its revenues by about 4 million. “But it also means we’ll still be here in 50 years.”
The gulf between StreetShares’ losses and revenues is narrower this year, but still considerable. In January 2018, StreetShares completed a $23 million series B funding round led by Rotunda Capital Partners, LLC.
StreetShares offers term loans and business lines of credit from $2,000 to $250,000. This in an increase from last year’s maximum loan amount of $150,000. Loans can be repaid between three months and three years.
Founded in 2013 and based in Reston, VA, StreetShares now employs 46 people, up from 32 last year.
OnDeck Reports Record Origination Volume in Third Quarter Report
November 6, 2018
Today, OnDeck released its third quarter earnings report, which revealed origination volume of $648 million, a record high for the company and an increase of 22% from a year ago. OnDeck recently passed the $10 billion mark in total originations. The average term loan size of $56,000 remained largely unchanged from last quarter.
“Lending volume from our strategic funding advisor and referral partner channels continues to build, reflecting growth at our network of partners and alignment between the quality of applications coming in and our risk appetite,” said OnDeck CEO Noah Breslow, “…[and] we were pleased that we saw increased website traffic leading to higher applications.”
Gross revenue increased to $103 million, up 8% from the previous quarter and up 23% from a year ago. This was driven by higher Interest income due to portfolio growth and higher yields, according to the company earnings statement.
In the middle of October, OnDeck announced the creation of ODX, which will focus on providing an online lending platform to banks to help them serve their clients more efficiently. At the end of the month, and coinciding with the Money 20/20 conference, OnDeck announced that PNC Bank was ODX’s first customer. ODX grew out of a successful partnership that OnDeck has developed with Chase bank, starting in 2016.
In response to a question after this morning’s earnings call, Breslow said that about $10 million is being spent on startup costs and infrastructure for ODX, and that the revenue model will be slightly different depending on the bank client.
“The revenue model [for ODX] does differ a bit between banks,” Breslow said. “But generally speaking, there is a technology licensing component, there is a professional services or customization component and then there is a volume-based component.”
