Archive for 2019

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December 2, 2019
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The Current State of SME Lending in Canada

December 1, 2019
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Canada FinanceAccording to the latest statistics, there were 1.18 million employer businesses in Canada, with the majority of them located in the provinces of Ontario and Quebec.

  • 1.15 million (97.9%) represented small businesses
  • 21.926 (1.9%) referred to medium-sized ventures
  • Only 2.939 (0.2%) accounted for large corporations

Small and medium companies are blooming in Canada: they represent 99.8% of all businesses, and they are the heart of the local economy. However, these businesses are facing extreme challenges when it comes to raising capital – a crucial element of SME growth.

The Canadian banking sphere, dominated by five large banks, often overlooks these businesses. Banks in Canada typically require 32 articles of information when applying for a loan and still 78% of applications from SMEs are rejected. It is especially stressful for startups: you can’t get a loan unless you have customers, but you can’t start your business and get customers without a loan. Cash flow, on the whole, is a complex concept that may be confusing for small business owners, and this kind of financial exclusion only makes it worse. The problem is global, but this Catch-22 has given the green light to alternative lenders worldwide.

THE ALTERNATIVE

One of the alternative funding options for SMEs to bypass the banks and find the right level of capital that they need is called a merchant cash advance (MCA). MCAs aren’t loans. Instead, they represent the sale of a business’s future revenues in exchange for quick cash — the majority of applications are approved within 2 days. This way, a funder provides a lump sum payment with a predetermined percentage (the factor rate) of a merchant’s future credit or debit card sales — cash and check sales typically don’t qualify to be counted. The process goes on until the contractual terms are satisfied. The MCA industry is growing on Canadian soil, but since it is a relatively new domain, the sector remains heavily influenced by American providers, especially when it comes to business models and pricing. But domestic providers don’t see it as a threat. Bruce Marshall, VP of British Columbia-based Company Capital told deBanked in 2016 that “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.”

The question of raising awareness of new technology is vital. In comparison to American SME owners, their Canadian colleagues are slower to adopt technology — for instance, only 27% say they currently use technology to analyze customer data. Another study by BDC claims that only 19% of Canadian businesses are digitally advanced.

On the other side, those established companies find the Canadian alternative lending market to be “a very manageable extension of the US market.” However, it’s a smaller market, and Canada’s geographical position (the majority of businesses are located in four main provinces out of thirteen) and regional differences play their part as well. For instance, because of the restrictions that require businesses to advertise and produce marketing materials in French, the majority of alternative lenders from the US don’t operate in Quebec.

RATES, COSTS, AND FIGURES

All in all, MCAs are slowly becoming a financing option for Canadian SMEs looking for quick cash. That “slowness” comes from a lack of understanding about how exactly merchant cash advances work. Some alternative funders take advantage of their non-bank status to neglect regulations that require clarity resulting in somewhat unethical lending practices. Because of this, a certain number of business owners still hesitate to take a chance on a merchant cash advance program.

MCAs in Canada are generally available to businesses that have a steady volume of credit card sales, such as retail stores or restaurants. The amount of personal and business information required when applying for an MCA is much lower in comparison to a regular bank loan application: the documentation generally includes proof of identity, bank statements, and business tax returns. Merchant cash advance rates and costs differ from provider to provider. As MCAs aren’t loans, there are no fixed amounts for repayment installments and no fixed terms either. Typically, the percentage of credit card sales taken to enable the transaction ranges from 5 to 10%. Some companies in Canada charge premiums on their cash advances (which can be as high as 30% or even more.)

THE CHALLENGE

The main challenge for Canadian MCA providers is the absence of reliable data necessary for making underwriting decisions. As previously mentioned, only a small group of large financial institutions dominate the market, so the data is available solely to a handful of businesses. The information obtained from credit bureaus doesn’t help either: in most cases, it isn’t complete for making a wise credit decision. “The availability and access to government and financial data are scarce in Canada compared to other markets,” said Jeff Mitelman, the former CEO of Thinking Capital in an interview with deBanked in a past interview. “Most of the data relationships that fintech companies rely on, need to be developed on a one-to-one basis and is often proprietary information.”

When it comes to the process of underwriting, the availability of data presented in the proper format is a crucial factor. It provides the full picture and saves an enormous amount of time for risk officers. “We pay a lot of attention to our underwriting and decision-making process because if we make a mistake, we can lose a lot of money,” Andrew D’Souza, the CEO of Clearbanc, told TechCrunch.

At the moment, the financial data available to Canadian alternative lenders is meager and needs improvement. Another issue is the legislation that varies with each province. Many alternative lenders find the Canadian rules and regulations that govern the industry rather unclear. However, those challenges are associated with a growing market and emerging ecosystem. One way or another, the business loan landscape has changed for good, and alternative financing methods have captured much attention, with giants like PayPal stepping in the game.

THE NEXT STEP

As the industry is new, and has lots of challenges, the banking sphere and fintechs are turning to partnerships accelerating online lending to small business members. It makes perfect sense to MCA providers to license their automated platforms, banks, and credit unions. Traditional players are familiar with regulations and have data for fine-tuned underwriting, while fintech providers bring innovative technology and customer experience. “We saw that Canada is ripe for technology but the differences in regulation among other things made us go the partner route,” said Peter Steger, the head of business development at Kabbage, to deBanked – a perfect illustration of the growing partnership trend. These mutual interests create a lot of business opportunities, and that’s a good sign for all parties involved.

When small business owners need financing, timing is essential. Small and medium businesses are vital to the Canadian economy, so for them, the proper financial support means fast and convenient access to credit. In the new fintech-driven reality, applications should be completed within thirty minutes, decisions made within hours, and funds deposited in the applicant’s bank account within days. Canadian small businesses contribute around 30% of the total GDP, so the need for simple finance is acute. The technology has already made small business lending more accessible, and over time, financing alternatives such as MCA will become mainstream.

More Individuals Expected to Be Criminally Charged in 1 Global Capital Case

November 30, 2019
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Hallandale BeachFederal prosecutors have asked a Court to consolidate criminal cases against 1 Global Capital defendants Alan Heide and Jan D. Atlas on the basis that there is substantial overlap between them and that additional individuals are expected to be charged. “Considerable judicial resources may be conserved if, going forward, a single judge is chosen to preside over all 1 Global-related cases,” prosecutors argue. The number of forthcoming defendants was not revealed but has been described as “multiple additional co-conspirators.”

The case, far from over, is being characterized as an active investigation.

Heide, 1 Global’s former CFO, pled guilty on August 23, 2019. He is scheduled to be sentenced on December 18th. Atlas, an attorney who provided fraudulent legal cover for 1 Global via knowingly false opinion letters, pled guilty to 1 count of securities fraud in October. He is scheduled to be sentenced on January 10th.

Hallandale Beach-based 1 Global Capital was once ranked among the largest alternative small business funders by deBanked. That all changed in July 2018 with a sudden bankruptcy filing that revealed concurrent investigations being carried out by the SEC and a US Attorney’s Office.

Prosecutors are calling the company a multi-faceted securities fraud and Ponzi scheme that victimized at least 3,600 investors across the country. While the company took in more than $330 million, $100 million of it is expected to be returned to investors through a bankruptcy court liquidation.

The company’s former chairman and CEO has already consented to judgment with the SEC and agreed to be liable for disgorgement of $32,587,166 + $1,517,273 in interest and a civil penalty of $15,000,000. Shortly thereafter, the SEC reported that he had satisfied the judgment in full with the exception of the stipulation that he sell his condo. Although he has not been criminally charged, prosecutors say that Heide and Atlas both ultimately took direction from, and reported to the company’s former chairman and CEO.

Individuals familiar with the firm may recall that 1 Global Capital was previously reported as being named 1st Global Capital. However, another company bearing the same name sued them for trademark infringment. Since then, news related to the South Florida ponzi scheme have referred to the company by its legal name, 1 Global Capital, LLC.

Fast and Furious Funders – At The Canadian Lenders Association’s Venture Debt Summit

November 30, 2019
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Fast and Furious Funders was the name of a panel at the Venture Debt Summit hosted by the Canadian Lenders Association on October 23, 2019. Panelists included:

  • Karanjit Bhugra, Managing Director, Deloitte Corporate Finance
  • Jyotin Handa, Director of Finance, Espresso Capital
  • Tanay Delima, Co-Founder, Clearbanc
  • Keren Moynihan, Co-Founder, Boss Insights

You can watch the video of the panel below:

Broker Fair / Black Friday ONE-DAY ONLY Special Price

November 28, 2019
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Broker Fair 2020

Broker Fair Returns to New York City on May 18, 2020. Take advantage of this special ONE-DAY only discount code and get 29% OFF THE EARLY BIRD PRICE. This incredible deal ends at 11:59pm EST on 11/29/19.

Promo code: brokerfair29

Register here

Broker Fair’s two previous annual events sold out in advance. Hundreds of brokers from the commercial financing, merchant cash advance, and small business lending industries will be in attendance this year. See you at Broker Fair!

Happy Thanksgiving. It’s Meme Time!

November 27, 2019
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Happy Thanksgiving. You know what that means! deBanked original memes! Here’s the latest:
















SEE ALL THE MEMES FROM PREVIOUS YEARS!
2017 1: The State of The Industry (In Memes)
2017 2: Take a Break From Funding This Thanksgiving
2016: The History of Alternative Finance (As Told Through Memes)
2013: 10 Clues You’re Hardcore About Merchant Cash Advance

SEE ALL OF OUR PREVIOUS THANKSGIVING POSTS!
2018
2017
2016
2012

Flender Makes BIG Mark in Ireland’s SME Lending Market

November 26, 2019
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Dublin IrelandIreland can seem like a small place, so much so that on my way to meeting with Colin Canny, Flender’s Head of Partnerships, I quite literally bumped into Flender’s co-founder & CEO Kristjan Koik who was walking through Dublin’s Silicon Docks. I recognized Koik from the who’s who catalogue of executives I had compiled before traveling abroad to explore the Irish fintech scene. He was cordial and polite. And yet through his demeanor I sensed there was more, that there was a story to be told even if it was not ready to be shared.

The following month Flender would reveal remarkable news, a new €75 million funding line, bringing their total to €109 million raised since the company’s founding in 2015. The company is backed by Eiffel Investment Group, Enterprise Ireland, entrepreneur Mark Roden and former Ireland rugby player Jamie Heaslip.

This large amount of funding, even by UK or US standards, makes Flender stand out, and so when I finally meet with Canny on that warm Fall day in September, I’m pretty thankful he afforded me the time.

Flender, Canny explains, is derived from Flexible Lender. The pamphlet he produces and hands to me says that their idea is simple, to provide businesses with the funding they need and ensure the application process is fast, easy, and transparent.

Application details for products like term loans and merchant cash advances require the usual stips like historical bank statements, a profit & loss statement, and a balance sheet. But there’s also a section quintessentially Irish, that is that it can be beneficial to submit your last 2 years herd numbers if you’re a farmer, complete with your last 12 months Milk Reports and property acreage figure.

Flender GuideCanny explains that Flender is not a high-risk fall-back lender, but rather the opposite. “Our credit process is extremely tight,” he says, “in line with banks.” And with good rationale, seeing that the company is still somewhat reliant on a peer-to-peer funding model. More than half of individual peers on the platform are Irish but Canny says that it’s not unusual for non-residents including Americans to lend on the platform as well.

Canny says the Irish market is very “community based.” The transparency of the marketplace aligns with that characterization. Like other peer-to-peer small business lenders in Ireland, borrower identity is publicly accessible on the platform, as are the terms of the loan. Anyone can view the business name of a prospective borrower on the website, the address, a bio, and even their “story.”

Flender taps several marketing channels like Google Adwords, radio, direct sales, and even brokers. Canny says they generate an underwriting decision in as quick as 4-6 hours and fund a business in as little as 24 hours. Borrowers like the product so much that many renew. Seventy percent of the SMEs in the country are peer-to-peer bankable, Canny explains, creating a wide playing field to target.

Meawnwhile, CEO Kristjan Koik told the Irish Times that the top 3 banks in Ireland have 92 percent of the SME lending marketshare so there is still a ton of opportunity for non-banks like Flender to grab hold of.

As for how the massive credit line impacts them going forward? Koik told the Times that they would be cutting interest rates by up to 1 percent across their various loan products. Interest rates now start as low as 6.45% and terms range up to 36 months.

As Canny and I part ways I present one final question, will Flender be expanding abroad? I get no definitive answer. He was cordial and polite, and yet I sensed through his demeanor that there was more, perhaps even a story in the works that was not yet ready to be shared.

Bloomberg is Officially Running for President

November 25, 2019
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Michael BloombergFormer NYC Mayor Michael Bloomberg is officially running for President. He announced it over the weekend.

His campaign’s website paints him as a self-made entrepreneur who at 39-years old founded a company in a one-room office with the idea of turning a computer that connects users to a vast network of information and data. Today, Bloomberg LP employs more than 20,000 people and Bloomberg the individual is the 9th richest person on Earth (Forbes).

mike bloomberg 2020His campaign’s website is light on the name Bloomberg and heavy on the name “Mike,” perhaps to cast him as the friendly hegemon next door. One page on his website refers to him as Mike 128 times while the word Bloomberg appears only 12 times and almost entirely in connection with things his businesses have done. Even his logo leads with a soft all-lowercase mike atop BLOOMBERG2020.

Baby apparel for sale on his website goes even further to understate his power by simply stating m 2020.

m 2020

Democratic voters will now have to choose between frontrunners Joe Biden, Elizabeth Warren, Bernie Sanders, and this other dude named mike.

Sanders was quick to voice his displeasure with the new competition:

Canadian Lenders Summit Recap

November 23, 2019
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canadian lenders summit 2019The Canadian Lenders Association’s largest annual event brought together hundreds of executives from the fintech and lending industries. It was hosted at MaRS, a dedicated launchpad for startups in Downtown Toronto that occupies more than 1.5 million square feet and is home to more than 120 tenants, many of which are global tech companies.

After OnDeck Canada CEO Neil Wechsler was introduced as the new chairman of the association, the day kicked off with a presentation by Craig Alexander, the Chief Economist of Deloitte Canada. Alexander explained that after some major warning signs sounded off late last year and early this year, Canadian growth and positive economic indicators have returned. He opined that politics in Canada and the United States will play a strong role in the economic outcomes of both countries going forward.

Panels on a variety of topics dominated the rest of the day with an interlude keynote from author Alex Tapscott who spoke about the financial services revolution.

The sessions concluded with an award ceremony focused around the Top 25 Company Leaders in Lending and the Top 25 Executive Leaders in Lending. The Canadian Lenders Association will make videos of the sessions available online. deBanked was in attendance.

Top Canadian Companies of the year

Merchant Cash Advance Valuation Dynamics

November 20, 2019
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Understanding the differences in cashflow dynamics between small business loans and MCAs is crucial for investors when valuing these alternative investments. A small business loan usually has familiar terms such as a principal amount that is paid back with interest over time, typically with a monthly payment schedule. An MCA agreement does not have these terms. Instead, the merchant agrees to sell a certain percentage of future revenues generated by the business, up to a specified “Purchased Amount,” to the funder in exchange for a lump sum of cash (the “Funded Amount”). MCAs often have an initially agreed-upon dollar amount that is debited daily by the funder via ACH. However, merchants have the ability to reconcile the total debited at the end of each month based on their actual sales activity and the agreed-upon percentage. If the merchant’s sales are slower than projected, the MCA company owes the merchant back a portion of the month’s debits to be in line with the contractual percentage of sales, and the daily ACH amount may be adjusted.

The preferred approach for valuing MCAs is discounted cashflow analysis. Given the nuances of MCA cash flow dynamics, modeling should be done individually for each MCA. Projections should be modeled using assumptions that are supportable from historical data and the methodologies used should be transparent. This modeling should incorporate not only the cash flow from the merchant, but also the cash flows arising from deal mechanics such as commissions paid, origination fees and ongoing fees as well as expected charge-offs. Since the funder cannot know for certain which merchants will realize revenues higher or lower than projected or default when underwriting the MCA, any attempt at an accurate projection of future cash flows must incorporate probabilities for scenarios where the timing and amount of cash flows is different than the underwritten scenario. Because businesses in a particular sector may have similar historical cash flow behavior, each MCA should be analyzed based on the historical experience of MCAs with similar characteristics such as business type, advance amount and purpose for taking out the MCA. A smaller but related issue is incorporating the probability that the merchant chooses to pay off the Purchased Amount via a lump sum payment and negotiates a discount to the Purchased Amount.

Examining payment behavior involves creating payment curves that compare the cash flow received at each point in time, expressed as a percentage of the Purchased Amount, to the cash flow projected to have been received at that time during underwriting. This curve is the “Cash Flow Curve,” and its steepness is the “Cash Flow Speed.” More specifically, the Cash Flow Speed is the cash flow received to date divided by the cash flow projected to be received as of that date during underwriting. A perfectly underwritten MCA would be one on which no reconciliations are made and each daily ACH goes through without issues, meaning that all of the Purchased Amount was received exactly as originally projected, and its Cash Flow Speed would be 100.0% every day. As with most things, this does not work in practice like it does in theory. Some merchants will have ACHs which fail, make additional payments to make up for failed ACHs, renegotiate the daily ACH amount as part of a reconciliation or after a failed ACH, turn off ACH completely or have other issues. Analyzing the Cash Flow Curve for each MCA and comparing it to its cohort is essential to understanding performance drivers when projecting future cash flows.

To illustrate a possible MCA agreement, assume a merchant sells $70,000 of future sales (the Purchased Amount) to the funder for $50,000 (the Funded Amount). The Purchased Amount is to be received via ACH daily, with $500 debited per day for the next 140 business days based on projected revenues. In this example, the Gross Factor is 1.40, i.e. $70,000 divided by $50,000. Assuming that the funder pays a commission of 8% of the Funded Amount, the Funder’s Cost is $54,000, and the Net Factor is 1.30, i.e. $70,000 divided by $54,000. The graph below illustrates some possibilities of what the actual Cash Flow Curves might be.

mca curve 1

Received as Projected: depicts an MCA where debits via ACH are received each day, and the ACH is unchanged until the full Purchased Amount is received. Its Cash Flow Speed at the measurement day (and every day) is 100.0%.

Pays Off Early: depicts an MCA where the merchant elects to send additional cash flow to the funder, eventually negotiating to pay off the MCA early after 49 business days with a discount to the Purchased Amount negotiated with the funder. Its Cash Flow Speed at the measurement day is 121.4%.

Defaults: depicts and MCA where the ACH debit fails with increasing frequency until the bank account is closed and the funder takes the merchant into litigation for the remaining Purchased Amount (the “Defaulted Amount”). Note that the funder may be entitled to recoup amounts beyond the Defaulted Amount in litigation. Its Cash Flow Speed at the measurement day is 71.4%.

Slower than Projected: depicts an MCA where ACH fails sometimes, but the merchant does not shut down and the funder receives cash flow slower than projected. An example of a one-off reconciliation payment is included, assuming the merchant had not been paying in accordance with the contract and agreed to make a “catch-up” payment. After 140 days only $59,000, or 84.3% of the $70,000 Purchased Amount, has been received, although the funder would likely still expect to recoup most or all of the remaining Purchased Amount. Its Cash Flow Speed at the measurement day is 85.7%.

Used for Modeling: When analyzing this MCA on day 0, before any cash flow behavior is known, each of these possibilities (as well as others) would be incorporated into the analysis on a probability-weighted basis. An example of a probability-weighted average Cash Flow Curve is shown. After 140 days 85.7% of the Purchased Amount has been received, although cash flow is assumed to continue to be received until 210 days (150% of the underwritten projection), with 90.3% of the Purchased Amount received by then. Its Cash Flow Speed at the measurement day is 104.6%.

Based on the Funder’s Cost, the chart below shows some return metrics based on these Cash Flow Curves.

mca curve 2

As the industry matures and attracts more capital from institutional investors, it is increasingly important to have clearly defined metrics in place to evaluate underwriting effectiveness, assess relative credit performance of originators or cohorts of MCAs, and to perform valuations. Standardizing on terms such as Funded Amount, Purchased Amount, Gross Factor, and Net Factor and concepts such as Cash Flow Curve and Cash Flow Speed should ease the understanding of MCAs by eliminating ambiguity amongst various participants in the industry.

OCC Believes It’s Time To Fix Madden Issue Once And For All

November 18, 2019
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OCC SealIf a bank makes a legal loan to a consumer and then later sells the debt to a third party, the terms of the loan are still legal right?

“Yes” should be the obvious answer, but in 2015 a federal appeals court said “no.” The case was Madden v. Midland Funding LLC, which started as a credit card debt owed by a consumer to Bank of America at 27% interest and ended as an allegedly illegal loan once the debt was sold to Midland Funding.

The ruling, which deBanked has covered extensively, shook the consumer and business loan markets in New York, Connecticut, and Vermont with its jurisdictional reach. Midland Funding appealed the ruling to the United States Supreme Court but the Court declined to hear the case.

Congress attempted to bring clarity to the lawfulness of the practice with a bill called the Protecting Consumers’ Access to Credit Act of 2017 but failed when the approved House bill never even came up for a vote in the Senate.

On Monday, the Office of the Comptroller of the Currency (OCC) proposed a rule to clarify the “Valid When Made” Doctrine that had been pierced in Madden. “This proposal will address confusion about the effect of a transfer on a loan’s valid interest rate, including confusion resulting from a recent decision from the U.S. Court of Appeals for the Second Circuit (Madden v. Midland Funding, LLC),” OCC wrote in a statement.

A 60-day public comment period will be open once the proposal is published in the Federal Register. To find out how to comment on the rule, click here.

Merchant Infamous For Safari-Themed Home, Has Died

November 18, 2019
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African QueenThe saga of Michael Willhoit has come to an end. deBanked wrote about Willhoit in December 2018 when we learned he defaulted on nearly half a million dollars in merchant cash advance transactions and was sued by banks over $4.5 million in bad loan deals. This past June he was also indicted on 36 counts of bank fraud.

But on Sunday, Willhoit passed away of natural causes, the Springfield News-Leader reported. He was 66.

Willhoit’s local notoriety gained somewhat national interest thanks to his fully-customized multimillion dollar safari-themed home, dubbed “The African Queen.” Willhoit told a News-Leader reporter in 2016 that he spent $3 million renovating the Sprinfield, MO property including $400,000 for a 900-square-foot wood floor and $300,000 for landscaping. Other notable items on the property included:

  • Two roaring lion masks
  • Two 7-foot tall hand-carved wooden tusks
  • An eight-legged genuine impala horn zebra-hide chair
  • A 15-foot African warrior statue
  • A 3,000-pound (approximately) bronze rhino
  • Four gazelle taxidermy mounts
  • A baboon, full-body mount

Willhoit’s criminal trial was scheduled for July 2020.

You can still view a virtual video tour of his home below:

For ISOs Only — How To Develop Your Factoring Brokerage Business (Part 1)

November 17, 2019
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$100 on the groundLet me ask you a question; If you were walking down the street and saw a $100 bill on the sidewalk, would you stop and pick it up? Of course you would, unless you didn’t see it. Or would you say, “I’m in a hurry and it’s ONLY $100. I’ll make a lot more money on that big MCA deal I’m heading into the office to work on, so I’ll just leave it on the sidewalk.” Really?!

Well, Here’s a rude awakening. For any of you who haven’t added Factoring to your financing product mix, that’s EXACTLY what you’re doing RIGHT NOW! And get this, you’re doing it with some of the SAME merchants you’re doing deals with RIGHT NOW! Here’s why; A percentage of your merchants sell Business-To Business (B2B), and get paid in 30 to 45 days, and in some cases, even longer.

Many of these are the SAME merchants who come to YOU for an advance to help cash-flow due to delayed invoice payments, so you provide an MCA, right? Right! That’s what we do. But here’s the problem: Next month they come back again, and then again, and then sometimes they get wise, secure another position somewhere else, and before long, well, we all know the story. After all that, while the last advance may have solved their immediate problem, they will ALWAYS have a continuing and on-going need for cash because they’re ALWAYS waiting to get paid. And the FASTER they grow, the BIGGER the problem! Sound familiar?

So, what does that tell us? In most cases, while an MCA may help stop the bleeding, it’s not designed to heal the wound. More specifically, the “wound” that needs to be healed is the un-predictable timing of customer payments on outstanding invoices. So while an MCA provides immediate relief, factoring solves the timing problem. Here’s how it works: The factoring funder provides an advance against approved invoices, typically 70% to 90%. Once the invoice is paid, the funder deducts the advance, along with their fee, and wires the balance to the merchant. So the advance essentially pays itself off, working much like a revolving Line of Credit (LOC). In other words, no payments! The term I use to describe this is called Self-Liquidating.

$100Here’s how I see it: when structured properly, factoring and MCAs can often complement each other and work well together. Factoring provides predictable cash flow because advances are based on predictable billings to their customers, whether it be monthly, weekly, or even daily. The predictable cash-flow from factoring advances is what the merchant can rely on to cover their continuing and on-going business expenses, i.e. payroll, materials, etc. MCAs can also be used to provide a lump sum injection to cover interim cash needs on a short-term basis, while factoring is being put in place.

Here’s an actual example of a real client situation we recently funded using this approach. Client is a large importer of Spanish wines selling to one of the largest spirits distributors in the country. They typically get paid in 45 to 60 days, so we established a factoring facility, which would take about a week. However, they had a container from Spain that needed to be paid for and shipped IMMEDIATELY to help fill holiday orders. We secured an MCA to pay for the container and negotiated an aggressive early pay-off discount. Once the factoring LOC was in place, the MCA was satisfied using a portion of the proceeds from the first factoring advance. We are now putting a purchase order funding facility in place to cover the upfront costs on all future container shipments from overseas.

This combined approach, enables YOU to provide FUNDING SOLUTIONS for your merchants, much like Ed McKinley described in the September/October, 2019 issue of deBanked Magazine where he talks about Consultative Selling. A true professional focuses on solving financing problems and building a relationship with their merchants, versus simply funding a transaction. You then have the opportunity of becoming a “trusted financing resource” versus a broker simply interested in what I call “hit and run” selling. In addition, this approach can have a multiplier effect on your income, enabling you to get paid on a continuing and on-going basis.

Speaking of getting paid, you may ask, “So how much money can I make with factoring?”

I’m so glad you asked that question. Maybe now is a good time to introduce myself. For over the past 25 years, I have specialized in arranging factoring/PO and contract financing for hundreds of growing business owners all over the country, providing millions of dollars in financing. Over the years I have earned in excess of a seven-figure income, primarily as a broker. I’m sharing this information with you to make a point; there’s a LOT of money which YOU can make too with factoring, IN ADDITION TO what you’re already making with MCAs.

“…YOU WOULD BE PAID $1,000 TO $1,500 PER MERCHANT, PER MONTH.”

So, then you say, “Well that’s great for you Watson, but how much money can I make?” Good question. Let’s take a look at how it’s structured. With factoring, you’re paid by the funder, just like an MCA. Two major differences. The first is that broker commissions for factoring typically range between 10% to 15% of the fee income earned by the funder per month. Fee income is earned once the outstanding funded invoices have been paid by the merchant’s customers. Broker commissions are then paid by the funder the following month. As an example, if the fee income earned by the funder was, say, $10,000 per merchant, per month, you would be paid $1,000 to $1,500 per merchant, per month. Ten merchants would pay you $10,000 to $15,000 per month and so on. Broker commissions will continue to be paid for the life of the factoring relationship and provide you with residual income, or what many refer to as, mail-box money, because it’s actually like getting a renewal every month from the same merchants, and you don’t even have to get out of bed!

A second source of income which is OPTIONAL, is to establish a fee agreement with the client to pay a success fee or origination fee based on the size of the facility. It is a one-time fee paid at closing and funding, either from the first factoring advance or over several advances based on what you work out with your merchant. Success fees are much like points in a closing on a real estate loan and typically range from 1% to 5% of the facility size. The fee is paid to you directly by your merchant once they have been funded. It is designed to provide you with IMMEDIATE INCOME. As an example, a $250,000 facility at 2% will pay you $5,000 or $10,000 at 4%. And that’s just for one merchant. How many could you do per month? For large contracts, we’ve established factoring facilities up to $5 million. I’ll let you do the math to see the potential.

“TAKE A LOOK THROUGH YOUR FILES.”

Combining these two income streams can potentially provide a significant increase to your existing MCA income base, and in some cases from your EXISTING book of merchants. These are what we refer to as the low hanging fruit. They include your construction contractors, service and supply companies, transportation, manufacturing, medical and professional services firms, or anyone else who invoices B2B. Some retail merchants also sell B2B, while others, like restaurants, may have catering contracts. Take a look through your files. For many of these merchants you are already asking for A/R Aging Schedules as a stip, right? Now that aging schedule takes on a whole new meaning! And if they’re not factoring now, my friends, THAT’s the $100 bill you “didn’t see” laying on the street, and potentially THOUSANDS more you are leaving on the table! To be sure, close the MCA they need right now, make the money, and set them up with Phase II by establishing a factoring facility on their behalf. Then continue to provide MCAs as needed to cover unexpected problems or take advantage of opportunities. Make sense?

The next article will be what I call Factoring 101 and will focus on 4 major areas: (1) What is Factoring? (2) How does it work? (3) What are the costs? and (4) How do you qualify? We will also talk about identifying and selecting potential factoring funders, HOW TO deal with UCC filing issues, Subordination Agreements, and Fee Agreements with your merchants. We will also touch on Purchase Order Funding as well.

The last article will be designed to bring it all together and talk about HOW TO establish a game plan and options for getting started with your factoring brokerage business and a few key tips on maximizing success in the business.

Clearbanc Offering Funding to Combat US-China Tariff Costs

November 16, 2019
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made in chinaClearbanc, the Toronto-based funding company co-founded by Dragons’ Den’s Michele Romanow, has announced this month that it will be expanding its funding options to support those small businesses who need assistance purchasing inventory from Chinese suppliers.

Specializing in funding businesses who require capital for digital adverts, the Canadian firm decided to expand its offerings after Chinese suppliers started to require inventory payments upfront as a response to the pressure caused by President Trump’s trade war with China. “This isn’t really about the tariffs,” explained Romanow. “This is really about the fact that now all of the Chinese suppliers, because of the uncertainty, are asking for upfront payments for inventory.”

“THIS IS REALLY ABOUT THE FACT THAT NOW ALL OF THE CHINESE SUPPLIERS, BECAUSE OF THE UNCERTAINTY, ARE ASKING FOR UPFRONT PAYMENTS FOR INVENTORY”

Michele Romanow ClearbancWith the Black Friday-Cyber Monday weekend approaching, vendors are looking to be as well stocked as possible, especially when estimates are saying shoppers will spend more than $136 billion in Q4 2019. Most notably affected will be those merchants who deal in electronics. And with worries of the spending extravaganza weekend being affected by the tariffs having persisted for months, Clearbanc is aiming to step in and soothe some of the uncertainty.

Not being limited to goods coming from China, funding is also available to all businesses looking to secure capital for inventory purposes, regardless of the supplier’s location; with a charge of 9% of the total amount funded, and funds available being between $10,000 and $10 million.

Speaking on the company’s strategy, Romanow had to say that “every political change can certainly breed new business, but these are all fairly new so we’re just listening and figuring out what our founders are looking for.”

Google to Begin Offering Checking Accounts in 2020

November 16, 2019
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G PayThis week Google announced that it plans to offer checking accounts to customers in 2020. The news comes after the release of the Apple Card, Apple and Goldman Sach’s controversial joint project, in August; this week’s release of Facebook Pay; and the mass exodus by payments companies from Facebook’s Libra Association last month.

Titled as Google’s ‘Cache’ project, the accounts will be the result of a partnership between the tech giant and a selection of banks and credit unions. Thus far, Citigroup and a credit union based in Stanford University have been confirmed as partners, with more to be announced. Speaking on the venture, Citigroup spokesperson Liz Fogarty said the “agreement has the potential to expand the reach and breadth of our customer base.” Whereas Joan Opp, President and CEO of Stanford Federal Credit Union, remarked that the deal would be “critical to remaining relevant and meeting customer expectations.”

As of yet, not much is known beyond these partners and that the checking accounts will be in some way “smart” according to Google spokesperson Craig Ewer. Whether or not there will be fees attached to the accounts, or who will be the target audience remain unsure. The latter especially given Google Pay’s poor take up in America.

As well as all this, it is equally unclear what exactly Google will be bringing to banking that is new. In his statement, Ewer said that “we’re exploring how we can partner with banks and credit unions in the US to offer smart checking accounts through Google Pay, helping their customers benefit from useful insights and budgeting tools while keeping their money in an FDIC or NCUA-insured accounts.” Such “insights” and “tools” are yet to be expanded upon and may give cause to alarm, as the company has recently come under fire for its questionable use of data after it was revealed that Google has secretly gathered the personal medical data of 50 million Americans from healthcare providers; and has recently been accused of using both human contractors and algorithms to tweak search engine results, potentially exhibiting favoritism as well as a willingness to change results related to at least one major advertiser.

When asked by CNBC about Google’s plans to enter finance, Senator Mark Warner (D) was apprehensive, remarking that “large platform companies have not had a very good record of protecting the data or being transparent with consumers.” Warner, who was a tech entrepreneur before entering politics, believes more regulation should be in place as the number of tech companies looking to enter finances continues to increase, saying, “once they get in, the ability to extract them out is going to be virtually impossible.”

Such comments come in the wake of Facebook CEO Mark Zuckerburg’s testimony to Congress last month, in which he told the representatives: “I view the financial infrastructure in the United States as outdated.” Just how outdated Zuckerburg and his contemporaries believe it to be will become clearer as more of these Big Tech-Wall Street hybrids are released.

“Predatory Lenders” Slammed as Bill to Ban Confessions of Judgment Nationwide Advances

November 14, 2019
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Rep Nydia Velázquez and Michael Bloomberg
Above: Rep Nydia Velázquez and Michael Bloomberg | Brooklyn, 2011
(Bloomberg is majority owner of Bloomberg News parent Bloomberg LP)

Rep. Nydia Velázquez (D) celebrated the advancement of a bill on Thursday that aims to outlaw confessions of judgment (COJs) in commercial finance transactions nationwide. HR 3490, dubbed the Small Business Lending Fairness Act, made its way through the House Financial Services Committee on a vote of 31-23. The next step will be a floor vote.

Velázquez made direct references to a Bloomberg News story series published last year about “predatory lending” and a NY Times article about Taxi medallion loans as her basis for supporting it. Velázquez said that New York had become a breeding ground for “con artists” that relied on COJs to prey on mom-and-pop businesses. The congresswoman singled out New York because of recent taxi medallion loan outrage and the state’s alleged reputation as a “clearing house” for obtaining fast easy judgments against debtors nationwide. New York took a major step to change that practice earlier this year through a new law that only allows COJs to be filed in the state against New York residents. HR 3490 seeks to prevent them from being filed in every state, including New York.

Senator Marco RubioIronically then, the bill is at odds with the new New York law in that Velázquez’s bill, if it became federal law, would go so far as to prevent New York’s own courts from entering a COJ against New York’s own residents, if it resulted from a commercial finance transaction.

While momentum in the House could be perceived as a partisan initiative unlikely to survive the Senate, the bill has in fact garnered a degree of Republican support, recently through Rep. Roger W. Marshall, a co-sponsor of the bill, and originally by Senator Marco Rubio who initially sparked the call to action in the Senate last year.

A co-author of the COJ-centric Bloomberg News stories was quick to take the credit for the advancement of Velázquez’s bill.

IOU Financial Originated $41.4M in Loans in Q3, Continued Profitability

November 14, 2019
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IOU Financial originated $41.4M in business loans in Q3, according to the company’s latest published financial statements. The figure is a modest increase over Q2’s $38.5M. IOU also kept up its trend of profitability with net income $1M.

Shares of IOU, which trade on the Toronto Stock Exchange, are valued at around (CAD) 14 cents and equate to a market cap of approximately (CAD) $14M.

Apple Card Under Investigation by State Financial Regulator

November 14, 2019
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apple cardApple and Goldman Sachs came under fire this week after numerous users of the Apple Card, a joint venture by the two companies, took to social media claiming that the algorithm used to determine credit limits discriminated against women.

It began when Danish tech entrepreneur and racecar driver David Heinemeier Hansson wrote up an expletive-laden teardown of the card and the companies behind it after he discovered that he had access to twenty times more credit than his wife, despite the couple having filed joint tax returns. Following the twitter thread’s viral surge, other men came forward with similar stories, some noting that their wives had better credit scores than themselves.

Upon dealing with Apple’s customer service, who gave Hansson’s wife a “VIP bump” to her credit limit, raising it to match her husband’s, the entrepreneur lamented the giant’s response to his questions about the decision-making process behind Apple Card.

“Apple has handed the customer experience and their reputation as an inclusive organization over to a biased, sexist algorithm it does not understand, cannot reason with, and is unable to control,” Hansson wrote after being told by two Apple representatives that they were unable to explain the reasoning behind the inequity other than say that “it was just the algorithm.” Hansson went on later to criticize the implementations of algorithms that incorporate “biased historical training data, faulty but uncorrectable inputs, programming errors, or malicious intent” as a whole, pointing to Amazon’s recent use of an algorithmic hiring tool that taught itself to favor men.

And in a surprise twist, Apple Co-founder Steve Wozniak weighed in, saying, “The same thing happened to us. I got 10x the credit limit. We have no separate bank or credit card accounts or any separate assets. Hard to get to a human for a correction though. It’s big tech in 2019.”

Over the weekend word came from the New York Department of Financial Services that it would be investigating the practices behind the Apple Card to determine whether or not such an algorithm discriminates on the basis of sex, which is prohibited by state law in New York. This is the second such investigation recently, with the NYDFS announcing last week an investigation into the healthcare company UnitedHealth Group and its use of an algorithm that allegedly led to white patients receiving better care than black patients.

“Financial service companies are responsible for ensuring the algorithms they use do not even unintentionally discriminate against protected groups,” wrote NYDFS Superintendent Linda Lacewell in a blog post that explained the decision to investigate and called for those who believed they were affected unfairly by Apple Card to reach out. “[T]his is not just about looking into one algorithm – DFS wants to work with the tech community to make sure consumers nationwide can have confidence that the algorithms that increasingly impact their ability to access financial services do not discriminate and instead treat all individuals equally and fairly no matter their sex, color of skin, or sexual orientation.”

In their response, the Goldman Sachs Bank Support twitter account posted a note listing various factors that come into consideration when determining a person’s credit limit, asserting that they “have not and will not make decisions based on factors like gender.”

And it would appear that this is correct, at least in the literal sense, as the application process for the Apple Card does not include any questions relating to gender.

Bruce Updin of Zest AI, a company that provides machine learning software for underwriters, said of the controversy that “there’s bias in all lending models, even human lenders … race, gender, and age are built into the system. It can show up just due to the nature of the credit scoring system as FICO scores at the end of the scale can correlate to race.”

Explaining that there are connections between identity and information many humans might never perceive without machine-learning algorithms, like Nevada license plates being an indicator of the likelihood of someone’s race, Updin asserts that such links need to be weighed, balanced, and supervised by those in the banks. For Updin, transparency and explainability are the real problems here rather than the algorithms themselves.

Software exists that can pinpoint which variables are producing results that, for example, skew to prefer women over men, and can remove such factors and run the tests again, probing for differences. The trouble arises when banks find themselves unable to communicate such details for whatever reason, be it an inherent misunderstanding of their own programs or an unwillingness to explain why some of their models prefer certain groups over others.

It’s really a case of “giving up a little bit of accuracy for a lot of fairness” when choosing to remove variables that are proxies for gender, race, age, or a variety of other identifying features, according to Updin. “It’s just a lot of math, it’s not magic. The more you automate the tools, the easier it is.

“I’m convinced in 5-10 years every bank will be using machine-learning for underwriting … we don’t need to throw out the baby with the bathwater.”

Brian Holloway, America’s #1 Most Requested Motivational Team Builder, to Speak at deBanked CONNECT Miami

November 13, 2019
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miami beach

Salespeople, are you ready for…

Total Market Domination?!?!



Brian HollowayStanford All-American, 5 time NFL All-Pro, and All-Star front line competitor Brian Holloway will be speaking at deBanked CONNECT Miami on January 16th, two weeks before the Super Bowl takes place just down the road. deBanked CONNECT is taking place at the Loews in South Beach. Last year’s event was completely SOLD OUT.

About Brian Holloway

The New England Patriots made a good decision in choosing Brian Holloway as a first-round draft pick, as he became the 6’7” powerhouse at the core of the 1985 New England Patriots Super Bowl team. In 1986, Brian Holloway was elected by his peers to forge a new direction in NFL policy, becoming the youngest Vice-President of the NFL Player’s Association at age 23. Brian Holloway retired from the NFL in 1992 after eight distinguished seasons with the Patriots and two with the Los Angeles Raiders.

debanked connect miami 2020Today, Brian Holloway is an international motivational speaker and renowned corporate trainer, mobilizing companies and organizations in search of peak productivity, helping them achieve new levels of excellence. He understands how to transform thinking within organizations and challenge the competitive spirit of diverse work teams. His Silicon Valley roots launched him beyond his Hall of Fame career in the NFL to become one of the most requested business intelligence consultants in America.

He has traveled over 10,000,000 miles and been hired by over 279 Fortune 500 Companies, and now entering his 15th year working with Apple. Other clients include; HP, Exxon, Harvard Business School, Wal-Mart, Nike, ESPN, Verizon, Bank of America, Ford, Sprint, Cisco Systems, Honeywell, State Farm, AIG, Reebok, Daimler Chrysler, Best Buy, Wachovia Bank, and more.

Brian Holloway’s stories and case studies are scenes from his own life. Entertaining, motivating and instructional, Brian Holloway uses multi-media technology along with actual NFL game footage to showcase critical points on competitive excellence. These powerful, high-impact presentations have immediate take-home value for everyone — athlete and non-athlete alike.

Register below or visit www.debankedmiami.com


BFS Capital Hires New COO

November 12, 2019
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BFS Capital WebsiteBFS announced this morning that it has hired Brian Simmons as its new Chief Operating Officer. The news come as the company is preparing for the North American launch of its tech platform in December, a move that is part of BFS’s vision to become a more customer-focused business.

This planned “journey,” as CEO Mark Ruddock calls it, has been demonstrated in the past with the hiring of Fred Kauber as Chief Technology Officer and Chief Product Officer in May.

“If you’re going to be a successful venture-backed company,” Ruddock explains, “you need to think differently and act differently.” And this approach is manifested in Simmons’ history. Having worked in a diverse set of fields, the new COO has previously worked with Openlane, a B2B digital automotive marketplace; Wonga, the peer-to-peer lender where he was Head of Global Products and where he was introduced to Ruddock; and the IATF, or International Axe Throwing Federation, where he was a Co-founder and board member.

Together these experiences form a patchworked career, highlighting different skills and industries, but Simmons affirms that they’ve molded him to fit into BFS. “I think that the overarching theme has been that I’ve always been drawn by innovation,” Simmons explains, noting that his experience with Wonga provided him with a knowledge of financial services that is crucial to his role at BFS, while his time with the IATF benefitted him by endowing an intimate knowledge of the financial pressures small businesses face.

“What’s spoken to me at each turn is the opportunity to be involved with organizations who are at the bleeding edge of what they are doing and just incredibly innovative in their approach to doing business […] I’ve been really fortunate to work with a number of quite successful organizations at different phases in their life cycle and I think that’s given me an understanding of what works and what doesn’t.”

Going forward, Simmons will be managing the progress of transforming lead-loan operational processes and focusing on the company’s transition to a fully digital-enabled lending platform.

“To transform anything successfully is an exercise of effective change management, and there’s a real art to doing that right,” Simmons notes. “It’s not just doing things better, it’s how you communicate to people, how you do it in the right sequencing, how you get the right team together to affect things in the right way.”