Archive for 2020
Maryland Merchant Cash Advance Prohibition Bill Put on Hold After State Abruptly Ended The Legislative Session
March 19, 2020
The State of Maryland decided to end their 2020 legislative session late last night rather than on the original April 6th deadline, due to COVID-19 concerns. Legislators managed to pass 650 bills in a “3-day sprint” but did not get to everything. Among the bills that did not even make it to the floor were SB913 and HB1478, the bills that called for an outright prohibition on a narrow definition of merchant cash advances.
But it’s not over. Legislative leaders plan to hold a special legislative session at the end of May which they may use to vote on the numerous bills they were not able to pass in time this week.
Senate President Bill Ferguson told the Baltimore Sun, “We want to give enough time for the public health crisis to move past.”
The bills were not exactly on the fast track as it was, having only gone through 1 committee hearing leading up to the deadline.
If the bills do not pass during the special legislative session in May, they might not be picked up again until the normal session resumes in Mid-January 2021.
Square is About to Become a Real Bank
March 18, 2020
Square is on its way to becoming a bank. The payments and online lending company was approved by both the FDIC and the Utah banking regulator this week to create a de novo “industrial” bank. The company has been trying to accomplish this for more than two years. The news means that Square will likely no longer rely on a relationship with Celtic bank to make loans, while also being able to take on deposits.
The FDIC said in an announcement that, “The bank, Square Financial Services, Inc., will originate commercial loans to merchants that process card transactions through Square, Inc.’s payments system.”
Another fintech company, Nelnet, was also granted approval for an industrial loan charter at the same time.
Square and Nelnet’s move to become a bank is similar to the path taken by LendingClub. Rather than become chartered themselves, LendingClub recently agreed to acquire a chartered bank. However, LendingClub still must wait approximately 12 months for the deal to go through the process of regulatory approval.
How Small Business Funders Are Reacting to the Coronavirus
March 17, 2020
In the past week and a half it appears as if six months of panic, reaction, and preparation have taken place. With the coronavirus having transformed from a subconscious worry at the back of our minds to a global pandemic that is leading industries and nations to be reshaped, uncertainty and a lack of information may lead to further confusion and anxiety.
As such, deBanked reached out to a number of funders within the alternative finance space to gauge how they’re feeling on the pandemic and understand what measures they are taking at this time.
One such company was BFS Capital. With its headquarters in Florida, CEO Mark Ruddock explained that he and his employees are used to preparing for crises. “It’s prime hurricane land. So we have a capability to operate without a single human head in the office. We have 100% capability for all of our team to work remotely regardless of whether they have work laptops or not.”
Communication is at the heart of this ability, with offices in Toronto, Omaha, New York, Chelmsford in the UK, and outsource partners in Guatemala, BFS relies on software like Microsoft Teams and Zoom to ensure smooth contact is maintained between its employees across the world.
And this mindset has recently been further enforced with regards to company-customer relations, Ruddock explained, noting that in that wake of the coronavirus, BFS has amped up its outreach to existing customers.
“Instead of just waiting for active inbound communication from our merchants, we actually now have an active outbound calling program. We’re trying to reach out to many of our merchants and understand how their businesses are doing, understand what sort of support and help they’re looking for. We’re trying to draw from this not only information about the specific merchant, but also information about that merchant’s geography, sector, and so on. And all of that is being fed back into a real-time dashboard internally.”
Beyond BFS, merchant outreach was a trend amongst the companies deBanked talked to. With funders reporting that they have teams trained to discuss future funding options with businesses if their finances suffer from a decrease in customers.
At the same time, some funders have decided to focus their efforts on tightening underwriting and funding channels, applying a conservative approach to which industries and locations will be served.
Velocity Group USA shared an internal memo to its ISOs with deBanked which detailed some instructions to brokers. Among these was the prompt for “our ISO’s to place more focus on essential businesses.” Non-essential businesses being categorized as community and recreation centers; gyms, including yoga, spin, and barre facilities; hair and nail salons and spas; casinos, concert venues, and theaters; bars and liquor stores; sports facilities and golf courses; most retail facilities, including shopping malls.
Placing a limitation upon funding like this has been a hot topic amongst the alternative finance community within recent days. A thread on the online discussion forum DailyFunder featured speculation and arguments over who is and isn’t funding anymore.
With so much of this being hearsay and rumor, deBanked found that asking funders directly whether or not they were funding currently to be the best remedy to this uncertainty. As of the time of publication, deBanked found that LoanMe had suspended funding until April 1 and that 1st Merchant Funding suspended further funding temporarily, with Vice President of Credit Risk Dylan Edwards saying that it would be “completely irresponsible” to continue funding.
In regards to how funders have been dealing with the coronavirus in their immediate surroundings, many, such as RDM’s CEO Reuven Mirlis, have noted that their employees have been offered the option of working from home, while others have made it a mandate to work from home. BlueVine’s CCO Brad Brodigan explained that this decision was part of their Business Continuity Plan and that prior to this they took extra measures so that their office was thoroughly disinfected and that social distancing was practiced within meetings of 5+ people.
Meanwhile Velocity Group USA has brought in Pat Gugliotta, the Commissioner of the business’s local fire department, to help establish contagion prevention protocols, based upon the screening processes practiced in JFK Airport. Explaining that this includes daily interviews with every staff member in the morning which look for trends relating to where they’ve been, who they’ve been in contact with, and how they’re feeling. As well as this, employee vitals are documented, with infrared thermometers being employed to monitor temperatures. “I’m trying to mirror our program to that program because I know the program works,” Gugliotta mentioned in a call.
While this may sound extreme, it must be remembered that this is an unprecedented crisis, meaning most strategies are untested and many funders are open to exploring novel precautions and solutions.
“This is an unprecedented event, which in its own right means you have to look at it differently,” BFS’s Ruddock explained. “I think it’s the sheer scope and speed that we have to cope with here. Scope meaning that this isn’t a hurricane which hits a region for a period of time and causes economic distress, which requires rebuilding, this is something that is international. This is not something that, like a recession, creeps at you over months and weeks and sometimes even signals orders. This is something that is happening with alarming speed. So in that way, these are unprecedented times now.”
This article will continue to be updated with funders who announce and disclose to us changes in their services, so check back to stay updated. Please do reach out if you would like to discuss the status of your company and how the coronavirus is affecting your business.
Marketplace Lending Association Members Take Steps To Help Borrowers During The Coronavirus Crisis
March 17, 2020
Members of the Marketplace Lending Association are taking steps to alleviate financial pressure facing borrowers during the recent crisis.
“This includes providing impacted borrowers with forbearance, loan extensions, and other repayment flexibility that is typically provided to borrowers impacted by natural disasters. During the time of payment forbearance, marketplace lenders are also electing not to report borrowers as ‘late on payment’ to the credit bureaus,” a letter to senior members of Congress signed by Exec Director Nathaniel Hoopes states. “Members are also waiving any late fees for borrowers in forbearance due to the COVID-19 pandemic, posting helplines on company homepages, and communicating options via company servicing portals.”
Members of the MLA include:
- Affirm
- Avant
- Funding Circle
- LendingClub
- Marlette Funding
- Prosper
- SoFi
- Upstart
- College Ave Student Loans
- Commonbond
- LendingPoint
- PeerStreet
- Yieldstreet
- Arcadia Funds, LLC
- Citadel SPV
- Colchis Capital
- Community Investment Management
- cross river
- dv01
- eOriginal
- Equifax
- experian
- Fintech Credit Innovations Inc.
- FutureFuel
- Laurel road
- LendIt
- pwc
- Scratch
- SouthEast bank
- TransUnion
- tuition.io
- VantageScore
- Victory Park Capital
- WebBank
With New York in a State of Emergency, Its Legislators Rush to Regulate Disclosures in the Commercial Finance Industry
March 16, 2020
On March 7th, Governor Cuomo declared a disaster emergency for New York State. Four and 6 days later respectively, legislators in the state Assembly and Senate introduced commercial financing disclosure bills that would regulate all business-to-business financing transactions including secured loans, factoring, and merchant cash advances. The bills intend to create uniform disclosures for comparison purposes while also placing control of the commercial finance industry under the purview of the superintendent of the New York Department of Financial Services (DFS).
The bills also state that merchant cash advance companies may be required to prepare funding reports on all of their deals for the DFS to inspect so that the superintendent can analyze the difference between the estimated anticipated APR and the actual retrospective APR that resulted after the merchants delivered all of the receivables to the funder on each deal.
The bills are said to have been in the works for some time, but the timing of their introduction is awkward given the sudden economic situation that is unfolding in the state.
The bills are actually quite lengthy so you can read them yourselves in full here:
Assembly Bill A10118 – Introduced by Kenneth Zebrowski
Senate Bill S05470A – Introduced by Kevin Thomas
OnDeck’s Chief Accounting Officer is Leaving The Company
March 16, 2020On March 9th, OnDeck filed a disclosure with the SEC that their Chief Accounting Officer, Nicholas Sinigaglia, would be leaving the company on May 1st. Sinigaglia was with the company for more than 5 years.
OnDeck said it was doing this as part of changes it had made to streamline its finance organization.
Shares of OnDeck have dropped by more than 50% since that time, likely wrought by the sudden economic disruption.
OnDeck NASCAR Partnership
March 13, 2020
This week OnDeck announced a new partnership with JR Motorsports, sponsoring their no. 8 Chevrolet team. The deal will see OnDeck’s colors brandished on the car driven by Daniel Hemric for two races during the 2020 NASCAR Xfinity Series season. The first of these races will be in Atlanta this weekend, with the second being in Chicago this June.
“It’s awesome to see a new company like OnDeck come into the world of NASCAR and I couldn’t be happier that they have allowed me to be the one that gets to represent them at both Atlanta and lat this year in Chicago with our JR Motorsports Camaro,” Hemric said in a statement. “It’s great to see them using a platform like NASCAR to help get their messaging across. Hopefully they’ll have a great time and we can come away with a couple of victories.”
“We are always looking for innovative ways to engage and connect with small business owners all across the US and Canada, and NASCAR is clearly just a huge and growing phenomenon in the US,” OnDeck’s Sr. Vice President of Marketing Shannon Smith told deBanked in a call. “NASCAR fans are 13% more likely than the national average to be small business owners. So given that, this is just a great way to align our brand investment with something that clearly small business owners are really interested in.”
The news comes as OnDeck had an unfortunate week in the stock market, with its value having plummeted by over 40% due to market turbulence.
“Panic Induces Panic”: David Goldin on Small Business Funding and the Coronavirus
March 12, 2020With companies in Australia, Britain, and the United States, David Goldin has weathered storms of various sizes and seriousness over the past two decades. Whether it was the recent wildfires that saw state-sized infernos engulf the Australian countryside, the regulatory upheaval that is Brexit, or the unprecedented shockwaves sent by the 2008 financial crisis, the CEO has seen his fair share of global disruption.
So when deBanked got in touch with Goldin about his perspective on the coronavirus pandemic, how it compares to what he’s seen before, and what funders should do to combat contagion, he was happy to discuss the insights he’s garnered from twenty years in business.
The following Q&A has been lightly edited for clarity and succinctness:
deBanked: Generally speaking, how bad do you think the coronavirus pandemic is going to get?
“I don’t think anyone knows the outcome. I think what you’re going to see is the industry completely change over the next few days. In the last 48 hours you went from mild cancellations to, today alone, the NBA, NHL, and MLB. And Cuomo just announced in New York that there can be no more than 500 people at events, colleges are shutting down left and right, and schools as well. Basically, we’re heading in the direction of shutting down the entire country at some point.
So I think funders have two issues. One is their existing customers, right? And how do you lend in this market? There’s the obvious and the not so obvious, because, for example, a deal that may have been great a few days ago, let’s say there’s a college bar near SUNY Albany, and they just announced this shutting down of schools, that bar may not see any business for who knows how long.
I’m not the CDC, I’m not the WHO, I’m not a medical expert, but I know in life, people are always afraid of the unknown and panic induces panic, but this is just my opinion. So I think once people start getting this virus, which is inevitable, and they recover from it, I think that’s going to offset some of the panic.
I think you’re going to have a couple of more shock factors. I would not be surprised if we learn in the next few weeks that the President of the United States has it.”
And what about our industry specifically?
“I think right now, lenders will say, ‘Well, if I [tighten up], typically what happens in our industry is if a company runs into trouble, it’s usually just that company,’ right? So if they start tightening up, they lose the business.
The entire playing field will be level by Monday or Tuesday of next week, by the latest. I think some of the playbook will be that some funders may take the position to stop funding for the next couple of weeks and look to see what happens because no one knows how bad this is going to get.”
Do you have any advice for funders?
“I think you have to price the risk because I think everyone is foolish to think that the bolts are not going to go off. So you’re either going to have to increase the pricing to the customer or raise the rates to the broker and limit the amount they could charge the customer temporarily for the increased risk your portfolio is now going to take.
I think you need to shorten the term. During the 2008 recession, the industry was at a 1.35 to a 1.37 factor rate, averaging six or seven months. There weren’t too many providers back then going past a year, there really was no such things as a second or third position.
This is a much different world we live in. So I think, unfortunately, some of the platforms that tend to be longer-term players which do one year, two years, three years, even four years, I think they’re going to be in a lot of trouble. Their ships are too far out to sea and I think they’re really going to have to focus on portfolio management and collections.
There’s going to be opportunities in the marketplace for those that don’t take a prudent approach, but I think in the short term people have to shorten their terms, potentially raise pricing for risk, and decrease the amount of capital that they’re taking out of a customer’s gross sales.”
What lessons do you think can be learned from this?
“I think as a platform you have to look at redundancy of capital, and that the time to raise money is when you don’t need it. So I think this could be a lesson for all to perhaps have more than one funding source.
I think brokers are going to really have to diversify. There’s good and bad, I think the approval rates at companies are going to fall through the floor, but I think you’ll get a lot of borrowers over the next few weeks that can typically go to a bank that won’t be able to go to a bank. But you’re going to see a lot of watching and waiting right now. And you’re going to see the industry revert back to where it was a while ago: shorter term deals, pricing in the risk, lower gross sales taken.”
How does this compare to previous crises?
“So I think this one’s a little bit different. It’s affecting everything and your playbook is going to change literally daily. This will be affecting the majority of the major cities. When you’re shutting down things like the MLB, the NBA, the NHL, shutting down colleges and universities, I don’t think this country or the world has ever experienced anything like this for this extended period of time.
Now that doesn’t mean everyone’s going to go out of business, there’ll be a redistribution. For example, if it was a restaurant in midtown Manhattan that relied a lot on people going from work, and these people are now working from home, perhaps their local restaurants or supermarket may see an uptick in business.
I think you’re going to see decisions slowing down and really digging a lot deeper into the underwriting, understanding what the business actually does, how it’s potentially affected.”
What should funders be doing to combat contagion?
“They should be testing a disaster recovery plan to work remotely.
But most importantly it’s really about everyone being healthy, helping their families and their employees. That’s first and foremost.”
