Archive for 2020
IOU Financial Affected By COVID-19
June 23, 2020IOU Financial approved the re-appointment of all of its current directors and auditors yesterday. The company, however, is currently experiencing challenges similar to other online lenders.
In late May, the company filed its Q1 financials and revealed that the COVID-19 pandemic had put them in an “over-advance position with its financing credit facilities.” At the time, the issue remained “uncured” and “the company received default notices subsequent to quarter end.”
“The Company and the financing credit facilities are working together to remedy the situation,” IOU reported. “Nevertheless, there is no assurance that these initiatives will be successful.”
IOU had furloughed 40% of its full-time employees and implemented a temporary 20% reduction in salary for all remaining employees commencing on April 1, 2020.
The company’s market cap has plummeted to CAD$7 million, down from $18 million in February. The company had previously been on a fairly positive trajectory until Q1 when they cranked up their provision for loan losses in anticipation of the fallout caused by the pandemic.
Kabbage and Uber Partner for PPP
June 18, 2020
Two months after its first round, Kabbage and Uber have partnered to offer a streamlined PPP application process for the latter’s drivers. In a surprise move, the companies have come together to offer Uber drivers a fast-tracked and automated option to apply for the Payment Protection Program. According to a Kabbage press release, the specialized application will be sped up by prepopulating relevant information, outlining eligibility, and automated decision-making.
“They basically will go through a totally separate path that’s purpose-built for Uber drivers,” said Kabbage CEO Rob Frohwein in the statement. “With more than $100 billion left in the PPP, there is a meaningful opportunity for the self-employed to still apply and receive funding. With Uber, we aim to provide hundreds of thousands of more independent contractors access to federal funding.”
With Uber defining its drivers as independent contractors rather than employees, these drivers were initially ineligible for certain unemployment benefits. However the CARES Act expanded these benefits to include independent contractors from various industries.
This is not Uber’s first foray into providing some sort of assistance for its drivers. Following the signing of the CARES Act in March, the ride-hailing company released a detailed guide for its drivers explaining how to apply for these benefits. As well as this, in France the company has offered drivers emergency grants during the pandemic as well as a stipend to cover sterilizing and safety products.
For Kabbage, this marks a step away from the dark days of late March which saw the company close its offices in Bangalore, India; cut executives’ pay; and furlough an unspecified but “significant” amount of its previously 500-person United States staff, according to a company memo.
The PPP program, which ran out of money within two weeks of its first round, had more than $130 billion left to give to business owners by June 9, just three weeks before the SBA is scheduled to close the application process on June 30.
PayPal Appoints New Chief Accounting Officer
June 17, 2020PayPal promoted Jeffrey Karbowski from Global Controller to Chief Accounting Officer. Karbowski is also the company’s vice-president. His new position takes effect on July 31, 2020.
Karbowski has been with the company since 2013.
Good Internet Connection: A Recap of Broker Fair Virtual’s Debut
June 17, 2020
Last week’s Broker Fair Virtual was the first of its kind for the industry. The day-long event offered talks and networking, just like the in-person event, albeit without the catering service and open bar. Offering a digital space that included a virtual auditorium, networking lounge, expo hall, and individual company booths, the event attempted to recreate the experience of connecting and mingling with the rest of the industry, as much as was possible.
Kicking off with a Matrix-inspired introduction to the virtual space led by alternative finance’s version of Neo’s mentor, Mur-pheus (Murray as Morpheus), the show then went in numerous directions, with panels and talks covering a variety of topics and sectors.
Funding Metrics’ David Frascella took to the virtual stage to talk about how his company and the industry at large have been getting through the pandemic; what’s to come for America was up for discussion with Scott Rasmussen, the veteran pollster, who elaborated on how business could be effected by the upcoming presidential election; the future of combining people with data was debated by figures from Become, Elevate Funding, and Ocrolus; Canada’s lending situation and prospects were talked through in Covid and Canadian Credit;The new normal was discussed by NYC’s Fintech Women; and John Henry, an entrepreneur and star of VICELAND’s ‘Hustle,’ spoke of his experience running businesses and what made his story a success.
As well as this selection of talks, another standout was the cannabis panel. Led by a number of industry veterans, which broke down the difference in funding marijuana-based companies compared to other deals, and what could be down the road for the industry as more states consider legalization.
National Funding’s CRO, Justin Thompson, held an extended Q&A session, fielding queries about how National has been faring through these times and what its approaches are as the economy begins to open back up.
How long-term is long-term for the coronavirus’s impact? Are SBA deals the way to go? Does the industry need to go further with its adaption to this new normal? All these questions were asked and answered in The Great Debate, a panel made up of industry figures from various backgrounds.
And brokers’ futures were considered by Lendio’s Brock Blake, United Capital Source’s Jared Weitz, National Business Capital & Service’s James Webster, and The Watson Group’s Gerald Watson. Here, the idea of a recovery, how each struggled through March and April, and PPP were all debated by the panelists, with perspectives of what’s to come leaning both ways.
There’ll be an evolution of new industries and how we do business,” Gerald Watson noted in his closing words, “just look at this conference for example.”
There was no lobby to find brokers and funders hashing out deals in relative privacy away from the expo hall, instead this was replaced by private messages exchanged. Rather than line up for some chicken wings, people chowed down to whatever was in their home on that day. And instead of gathering around a bar and finishing the day after the final talk, attendees cracked something at their desk and chatted it up in the networking lounge, recalling previous events and what was once taken for granted: the ability to connect effortlessly.
The coronavirus continues to physically keep people apart, but for one day last week the industry was able to come together and network, make deals, and gain insight; albeit in a different way, internet connections providing.
If You Do MCA, You’re Not a Lender (Part Two)
June 16, 2020
A three-year-old deBanked blog post turned out to be a bit prophetic.
Titled If You Don’t Make Loans, You’re Not a Lender (And definitely not a ‘direct lender’) and posted on January 19, 2017, I hypothesized that the misuse of financial language on the phone or in an e-mail, particularly if one conflated merchant cash advances with lending, could one day result in a subpoena for a deposition to explain it.
In the People of the State of New York, by Office of the New York State Attorney General v. Richmond Capital Group LLC et al, that very scenario played out. Several people were subpoenaed last year and were required to give testimony to lawyers for the New York State Attorney General to explain why internal company communications allegedly referred to MCAs as loans or why a purported MCA company website made use of lending terminology.
The answers, which are public record, were not great. At least two individuals answered that line of questioning by pleading the fifth to potentially avoid self-incrimination.
While there are a lot of colorful details to consider in this case, the AG’s lawsuit dives into the various ways in which the defendants allegedly conflated financial products, including that a defendant company allegedly advertised itself as a “lender” when it actually was not.
While the allegations in the AG’s complaint are probably somewhat unique, there are claims and arguments within them that may be worth further legal review and analysis. Contact an industry-knowledgeable attorney if you have questions.
Broker Fair Has Completed A Historic Milestone
June 12, 2020Broker Fair reached a milestone yesterday by successfully completing the industry’s first-ever virtual conference. The experimental concept was a response to this year’s restrictions and precautions on large gatherings.
We hope that the hundreds of attendees found the event fun, educational, and productive! The in-person show is still happening at Convene at Brookfield Place in Lower Manhattan on March 22, 2021.
Yesterday’s show included live sessions, a networking chat, and a virtual exhibit hall. Attendees will have formal access to the recorded sessions very soon (There were a lot of them).
The Commercial Finance Coalition Applauds Actions by the Federal Trade Commission and New York State to Thwart Bad Actors in Business Lending
June 11, 2020
The Federal Trade Commission (FTC) and the office of New York State Attorney General Letitia James have filed formal actions against two small business financing companies for allegedly using egregious and deceptive tactics to seize assets from small businesses, non-profits, religious organizations, and medical offices.
“The Commercial Finance Coalition whole-heartedly applauds the efforts of the FTC and Attorney General James. As a coalition of responsible financial services companies committed to funding small businesses, the CFC believes there should be zero tolerance for bad actors and deceptive practices in our industry,” said Executive Director Dan Gans.
Gans added, “Hopefully this will serve as a warning to all companies in the business finance space to serve merchants through best practices centered on respect and integrity in compliance with state and federal law.”
The CFC is a not-for-profit alliance of innovative financial technology companies that are working together to deploy capital to help small and mid sized businesses grow.
Press Release
Contact
Dan Gans
626-755-6545
Release Date
June 11, 2020
The Funders Are Coming Back
June 10, 2020
Nearly three months on from the beginning of the United States’ lockdown, the alternative finance industry is starting to feel a recovery. As states look to ease lockdowns, businesses seek to start back up, and offices are reopening, an element of normalcy, if it can be called that, appears to be returning. deBanked reached out to a number of businesses in the industry to find out how they were plotting their recovery, as well as what they thought of the future for the space and the American economy.
One such company was Everest Business Funding. After experiencing a strong start to 2020 in January and February, covid-19 and the economic shutdown that accompanied it came as a shock to Everest, CEO Scott Crocket explained.
“It’s difficult to imagine an exogenous event outside of our control that could more squarely impact an industry like this,” Crockett stated. “I mean, after all, we provide capital to small and medium-sized businesses all across the United States, all 50 states, every type of small business you can imagine. And we’re cruising along, we had a record 2019, we’re off to a great start with January, February, even the beginning of March … and we really saw it come on in the third week of March, the week that started with Monday the 16th. It started as a kind of a trickle in, but by the end of the week it was more of a tidal wave in terms of the number of small businesses in our portfolio that were calling in looking for some type of relief as a result of what was happening.”
Crockett said that they paused all new funding the following week, out of concern for the company’s ability to generate business while there was a national economic shutdown in place. Since then however, Everest has been slowly getting back to what it was, with employees now returning to the office in waves and discussions being had over when exactly to start funding again, be it late June or early July.
Another firm that halted its funding operations was the New York-based PIRS Capital. Similarly, it was mid-March when the pressure was first felt, and PIRS didn’t return to funding until May 15th. PIRS COO Andrew Mallinger chalked this up to the company’s lack of reliance on automated underwriting processes, saying that although “the industry was leaning towards automatic funding and all these models and 20-second approvals, we weren’t fully invested in that yet. So it was good to see that the old-school approach is back and working again, interfacing with these brokers and really understanding their deals and what they’re bringing to the table.”
Mallinger is also confident going into the rest of 2020. Saying that while the company is maintaining a cautiously optimistic outlook, PIRS is working off the assumption that there will eventually be growth this year and that it is set to continue working from home for however long that may be, on the basis that New York may be one of the last states to return to offices.
Also looking forward is Velocity Group USA’s Trace Feinstein, who believes there will tough times ahead for many in the industry, but who also holds that there are opportunities for those who can make it through.
“Anyone who can weather this storm is going to come out 10 times better than they did going in.” The Chief Syndication Officer said in a call. “It’s an adjustment for our economy, it’s an adjustment for our country, and I think it’s an adjustment for our industry on top of that. So there’s a lot of different changes and things are going to be happening, but I think it’s going to be very good for the ones who make it out of it.”
Feinstein, who said that most of Velocity’s workers are back in its offices, noted that it approached underwriting during the pandemic with thoroughness. Daily underwriting meetings entailed going through each state, looking at what was happening there with infection rates, and discussing how various industries could be affected.
Reporting that applications following the lockdown were actually cleaner than before, with average credit scores going up to be between 650 and 750, Feinstein explained that he pushed underwriters to rely on common sense rather than overthinking their decisions and to treat these deals like they would any MCA application.
And while many funders have struggled through the lockdown period, another part of the industry, collection agencies, have been doing well after an initially tough stretch.
Shawn Smith of Minneapolis’ Dedicated Commercial Recovery has claimed to have grown the company’s portfolio by 100% in 60 days despite a particularly trying period in mid-April. Explaining that the company was two weeks away from having to bring in strict measures to keep things going, Dedicated began getting calls again just in time, with its clients mostly phoning in about MCA deals.
Looking ahead, Smith is anticipating a busy summer and fall as businesses, funders, and the courts come back, but he is worried about a second wave and the alternative finance industry not putting in the precautions needed to stave off the economic impacts this next time around.
“Anyone can lend out a lot of money or put out a lot of money on the street, but your ability to get it back is going to be very important, and you want the fire extinguisher in place before the house is on fire … what you’re seeing in the MCA industry is because it’s just not as aged as the equipment leasing and banking industries … the MCA companies just didn’t have 20-30 year veterans in collections and legal … we’re so concerned with how to write more deals and get more money out there, and not about how to get it back and not about having strong enough underwriting standards and things like that. So when it got stress tested, the pain came back real quick.”
Likewise, Kearns Brinen & Monaghan’s Mark LeFevre claimed that after having a rocky road during the earlier stages of the pandemic and switching to a “plan B” for the year, the collections company is optimistic about going forward. Having weathered what may be the worst stretch without having had to furlough or lay-off anyone, KBM now has brought most of its workers back after a reworking of the office space. A pre-return fumigation, sneeze guards, and temperature-taking upon re-entry to the office building have all been employed after KBM’s employees asked to return to the workplace.
“The industry is changing literally day to day,” explained the President and CEO. “Some of the laws that are passed by the House and by the Senate are changing quicker than I’ve ever seen. I’ve just never seen it before. But I think it’s for the better and we’re starting to see the comeback of the economy, the stock market, employment. The unemployment numbers are really good and, in my opinion, [the numbers will] continue to go down from what we’re seeing in our industry.”
