Archive for 2023

Fintech Hasn’t Stopped. There’s Still Room for Constant Improvement in Lending

“I think fintech is a broad term,” said Frank McKenna, Chief Fraud Strategist at Point Predictive. “It can apply primarily to technology that enables faster banking, and more digital banking that hasn’t been satisfied with kind of the traditional brick and mortar banks or finance companies. Fintech can be banks, it can be platforms that provide the backbone for that kind of streamline lending. Or it can even be considered companies like ours, technology that helps financial companies make better decisions.”

Fintech, which can take on any one of the forms McKenna described, has been causing transformations for over a decade and yet there are still processes in the lending world still ripe for improvement.

“[Fintech is] growing every day, it will be more because of timing,” said Richard Gusmano, CEO of BCCUSA. “I think we’re going to see more and more people doing it, especially with the SBA opening up lending to non-banks. You’re going to see more of it in many different fashions and derivatives and how they see it is going to continue to emerge.”

Gusmano’s company helps businesses secure bank lines and bank loans, a system that now includes its very own AI-powered solution. He’s already seeing how AI and machine learning technologies stand to disrupt processes in the small business finance ecosystem.

“There’s so many different ways to use it and it is not rocket science,” Gusmano said. “In the MCA space, it’s amount of deposits, it’s average daily balance, it’s business type, and other positions. AI can immediately pick up those things if programmed to do so. I would think that the MCA underwriters over time should be concerned because AI could likely do that and pick that up.”

But it’s not just about replacing manual processes, but also doing it in an efficient manner.

“Since most fintech is dealing in a non-face to face environment, you’re going to have a whole host of risk in fintech, more than you might have in a traditional bank,” said McKenna of Point Predictive, whose company collaborates with lenders to detect potential risks. “I can just name off five or six: you have higher rates of identity theft, use of fake IDs called synthetic identities, you have more falsified documentation, fake employers, people shot-gunning where they’ll go to multiple fintechs the same day and get as many loans as they can, as quick as they can. They call it shot gunning.”

McKenna added that if someone has no knowledge of how to navigate these types of strategies or does not have the right technology to handle it, they may fall victim to them.

The keyword there might be someone, as in a person

“The risks associated is that you still are going to need someone that can make human decisions, even with financial technology,” said Gusmano. “And if you don’t, you’re going to be keeping yourself away from businesses that you want to do business with. It can never be 100% tech.”

Two Commercial Financing Bills Introduced in Pennsylvania

Add Pennsylvania to the list of states with commercial financing bills. Last week, Representative Kristine C. Howard introduced HB1791 and HB1972, which would outlaw Confessions of Judgment provisions in contracts and require mandatory disclosures to businesses respectively. In the latter, commercial financing providers would be required to disclose the total amount of funds provided, the total dollar cost of the financing, the term or estimated term, the payment method/frequency, prepayment policy, and APR.

The bills were expected. Rep. Howard pledged to introduce them back in February when she circulated a memo titled “Protecting Small Businesses from Predatory Lending.“

Nice Yacht, Someone Financed It

Every sentence sounds better ending with the word “yacht.” Enjoying crackers and cheese on a yacht. Sipping champagne aboard a luxurious yacht. Even making money financing high-end yachts, the charm remains intact. Over the past six years, East Harbor Financial has been offering a range of financing solutions under their Luxury Assets category, which includes exotic cars, aircraft, and vessels. While the company has been in business for 11 years, President Bruno Raschio’s foray into the yacht industry provides a unique perspective from an outsider turned insider.

According to Yatco.com, there are currently 592,000 yachts in the United States and the global market size was valued at $8.91 billion in 2022, with expectations to expand 5.8% from 2023 to 2030. The most Raschio has ever financed on one unit was $2 million and he admits there is a lot of money to be made in this sector, but people must be willing to welcome the risk that comes with it.

“Lenders who embrace risk and identify a specialized market can consistently generate profits in a business,” said Raschio. “Nonetheless, market corrections often possess the capability to level out the gains amassed during prosperous years.”

Raschio emphasized that the industry has many brokers that do not necessarily need an in-depth knowledge on yachts. Nevertheless, the significance of understanding yachts itself is always advantageous. In the case of private lenders, like his own company, Raschio advised focusing on financing high-quality yachts that possess strong market appeal and retain their value.

With the increase in manufacturing costs, Raschio states that prices may not revert to pre-Covid rates, like when they initially joined the yacht industry. For instance, A-credit rates, which used to range from 4½ to 5% before the pandemic, have now risen to 8 to 9%. Similarly, rates for B, C, and D credit ratings, previously between 10 to 13%, have surged to 14 to 19%.”

“Consider this scenario, if you were buying a million-dollar yacht before, you’d typically put down 30%, leaving you with a financing amount of $700,000,” he said. “However, in a post-Covid market, if the same yacht is selling for $1.5 million and you still put down 30%, you’d be looking at financing $1,050,000. That means you’re financing nearly $50,000 more than its pre-Covid value.”

East Harbor specializes in financing high-end yachts, brands like Sunseeker, Azimut, Ferretti, Pershing, and Princess. Transactions typically range from $600,000 to $1 million, covering yachts that fall within the 40 to 75-foot size range. Working with clients nationwide, the primary regions where the company provides financing are South Florida, which is the largest market, California’s Newport Beach, the second largest, and various areas along the east coast, the third-largest market. The company exclusively offers short-term loan options, typically lasting between 5 to 8 years, as opposed to the more common 15 to 20-year loan terms for yachts.

“We prefer to expedite our financing process since we rely on private funding,” Raschio explained. “Furthermore, this type of financing is generally costlier than traditional bank loans. Therefore, many individuals find it more sensible to present it as a short-term solution, where you secure your financing, achieve your objectives, and exit, or sell the boat.”

Upon entering the boat financing business, Raschio first’s client came to him with a million-dollar yacht with a $500,000 down payment. It seemed like a solid deal, but there was also a high likelihood that the yacht was going to need very expensive repairs. Its details like this that can change the entire dynamics of the deal and it was a teaching moment for him.

“As an example, a major repair on a used yacht that’s heavily depreciated could cost more than the entire used yacht price,” said Raschio.

ELFA Announces Leigh Lytle as New President and CEO

PHOENIX, ARIZONA, October 23, 2023 – The Equipment Leasing and Finance Association (ELFA) today announced the appointment of Leigh Lytle as President and CEO, effective Dec. 4, 2023. ELFA Board Chair Bob Neagle made the announcement this morning at the General Session of the 62nd ELFA Annual Convention in Phoenix, Arizona. Lytle will succeed Ralph Petta, who is retiring from the association at the end of the year.

“We are pleased to welcome Ms. Lytle to ELFA as our new President and CEO,” said Neagle. “Leigh is a dynamic leader whose experience, passion and vision make her uniquely qualified to guide our association into the future. Her experience in banking, operations, advocacy and education, and most recently with a fintech company and a fintech trade association, will add momentum to our current ELFA efforts in those same areas. After conducting a national search, we are delighted with this outcome and the opportunity it offers our organization. I would like to thank our search committee for their tremendous work throughout the process.”

As the Head of North American Policy at Plaid, Lytle led education and engagement efforts with regulators and financial institutions. In this role, she advocated for protecting consumers’ rights within the digital financial ecosystem and in Washington, D.C. She also served as the Chair of the Board of Directors of the Financial Technology Association (FTA), which represents innovative companies shaping the future of finance. The industry trade group champions the power of technology-centered financial services and advocates for the modernization of financial regulation to support inclusion and responsible innovation. Before joining Plaid, Lytle spent over 15 years in the Federal Reserve Bank system in various executive roles ranging from engagements in monetary and regulatory policy to operations and data analytics oversight.

“I am honored to be joining the Equipment Leasing and Finance Association as the organization moves into its next phase and navigates the digital landscape and abundant opportunities on behalf of our members,” said Lytle. “The association has an incredible board, members and team championing this critical sector that adds tremendous value to the American economy. I am proud to join the ELFA staff to build on the solid foundation established by Ralph Petta and the team, and look forward to meeting with and working with our members in the coming months.”

About ELFA

The Equipment Leasing and Finance Association (ELFA) is the trade association that represents companies in the $1 trillion equipment finance sector, which includes financial services companies and manufacturers engaged in financing capital goods. ELFA members are the driving force behind the growth in the commercial equipment finance market and contribute to capital formation in the U.S. and abroad. Its 575 members include independent and captive leasing and finance companies, banks, financial services corporations, broker/packagers and investment banks, as well as manufacturers and service providers. For more information, please visit www.elfaonline.org.

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Media/Press Contact: Amy Vogt, Vice President, Communications and Marketing, ELFA, 202-238-3438 or avogt@elfaonline.org