|08/12/2021||Idea Financial promotes Sean Hritz|
|07/08/2021||Idea Financial closes on $84M|
|02/05/2021||Idea Financial appoints CRO and CFO|
|02/16/2020||Idea Financial chimes in on new hire|
|06/20/2019||Idea Financial closes $70M with Cross River|
Justin Leto of Idea Financial on the Red Carpet
In just eighteen months since Idea Financial closed on an $84M warehouse facility with the Specialty Finance Division of Synovus Bank and Hudson Cove Capital Management, the company has gotten it upsized to $112M and the term extended by another 3 years. Idea Financial provides small businesses with lines of credit while its sister company LevelEsq finances the cost of lawsuits mostly undertaken by lawyers that work on contingency.
Co-founders Larry Bassuk and Justin Leto say that the upsizing news is “a testament to our discipline and our focus on risk management.”
The company has around 50 employees, less than what might be expected, but Bassuk and Leto say that technology has helped make tremendous efficiency possible while emphasizing that they have a human underwriting team that reviews every single loan before it goes out.
Jayan Krishnan, Managing Director of Synovus Bank, said that they were “very happy to provide them with the growth capital they need.” Synovus is the senior debt in the arrangement. Krishnan said that they love to work with companies that are thoughtful, mindful, and conservative and that Idea fit that criteria.
Fred Wang, a Co-Founder and Partner at Hudson Cove, said his firm is pretty selective on mezzanine within the small business lending asset class but that Idea’s performance has been very strong and consistent. “We’ve gotten a very good feel for them as a management team,” Wang said.
Both Synovus and Hudson Cove are well-versed in the commercial finance space.
“We’re obviously growing and they’re happing to be growing with us,” said the two founders of Idea Financial. “We run our company risk management first and sales second.”
Miami-based Idea Financial closed on an $84 million warehouse facility with the Specialty Finance Division of Synovus Bank and Hudson Cove Capital Management. Co-founders Larry Bassuk and Justin Leto said the funds are going right toward financing their pandemic proof SMB line of credit product and supporting their one-of-a-kind litigation insurance and plaintiff-lawyer financing.
“We’re still firing on all cylinders with our flagship line of credit products with small businesses, and Synovus and Hudson Cove are going to allow us to use these facilities to finance the litigation cost finance product,” Leto, who serves as the CEO, said.
The two former lawyers will draw from their experience in insurance, their legal backgrounds, and SMB underwriting to create a product that serves contingency lawyers called Level Esq. Often overlooked, the founders said law firms are just like other small businesses.
“Not only our experience as lawyers but also our experience as fintech lenders; we’re bringing all that expertise to bear here, and this is the culmination of our experience in finance, law, and insurance,” Bassuk, president of Idea Financial said. “Not only is our product going to be revolutionary and the best in market, but the customer experience is going to mirror the experience that our small business customers have.”
They focus on contingency firms — cash-dependent practices where lawyers invest their own money to back plaintiffs in injury and compensation cases. If there is no victory, there is no payout, so their other company, Level Insurance, offered protection for lawyers left holding the bag in the case of failure.
“Larry and I invented a first and only-of-its-kind insurance product that allows plaintiffs lawyers to protect all of their cost investment for their case,” Leto said.
The new brand coming soon, Level Esq., will offer a loan upfront to finance cases, while Level Insurance has lawyers’ backs with insurance if cases fall through.
“We’re providing an actual line of credit, loans, or small business loans for the lawyers themselves, so they finance their case costs. It’s a pretty revolutionary product and we’re doing it the way we financed small businesses,” Leto said. “Lawyers will be able to tap into that fintech side of our business. If it currently takes weeks if not months to get this type of financing, you’ll be able to do it in hours or days.”
In general, Bassuk said the warehouse closing is a sign that the hard work during the pandemic paid off, and Georgia-based Synovus Bank and Jersey-based Hudson Cove noticed.
“Over the last year, 18-months-plus since the beginning of Covid: our underwriting methodologies, our risk management, management strategies, and our operations were validated,” Bassuk said. “And I think that’s also something that Synovus and Hudson Cove noticed is that our business model, our portfolio performed exceptionally well under stress and during Covid, and I think that’s another contributing factor that led us to where we are.”
Leto and Bassuk recently starred in a deBanked TV docuseries about doing business in Miami.
Last week Idea Financial announced that it had appointed Gregory Sandler as its Chief Operating Officer and General Counsel. Having served as General Counsel to both Beyond Finance and Spruce Finance after working as VP and Corporate Counsel to Bayview Asset Management, Sandler believes he’s well positioned to help Idea.
“I have a sense of gratitude to them, because I feel like I’m piggybacking on a lot of the hard work they’ve already done over the last three years,” Sandler told deBanked in a phone call. “But part of the reason for bringing me on I think is that as we move from a startup to a more mature company certain skill sets are needed, and they put the trust in me that I have the skill set that can help them get to that next level.”
Before providing counsel to alternative finance companies, Sandler served as an Associate Director at Bear Stearns in the mids-2000s.
“We’re about to cross into our one hundred million dollars in funding threshold, which is a big deal, very soon,” Justin Leto, CEO of Idea, explained over the phone. “That’s a major accomplishment, and it just shows that we’re in a position right now where bringing on the strongest and the brightest people is exactly what we need. And I think Greg is a symbol of what this company has become and what it will continue to be.”
How many lawyers does it take to start up an alternative finance company? Two, according to Idea Financial’s Co-founders, Justin Leto and Larry Bassuk.
Idea, a Miami-based company which offers lines of credit to SMB owners, is the product of Leto and Bassuk’s partnership over the course of years, the latter told deBanked. “We took a leap of faith and left our practices and we began developing this business out of the conference room of our own firm.” But before that, the pair worked together as both lawyers and entrepreneurs.
Beginning in 2011, they met when Leto was already running his own practice and Bassuk was working as an associate for a different firm on the same floor. What started as a chance meeting developed into talks of what’s missing from their industry, which ultimately led to their early ventures together: their own legal firm, Leto | Bassuk, and Level Insurance.
While the former of these is no longer operating, due to their focus shifting to Idea, Level is still providing services to those looking for a niche form of insurance. Established in 2016, the company offers Litigation Cost Protection which covers those lawyers who work on contingency, this being the agreement of them being paid a percentage of the assets they recover for the client, thus earning nothing if the client loses.
Born from Leto and Bassuk’s own experiences as attorneys, Level Insurance provided that initial entrepreneurial step outside of a law firm. And while it afforded the comfort of overlapping with the legal industry, their decision to go into alternative finance brought with it a new marketplace as well as new challenges.
Although it was founded in March 2017, Idea Financial’s first year in business was largely spent working out of Leto | Bassuk’s conference room, figuring out strategies, technology, and credit models; as well as making key hires and developing their product. In fact, it wasn’t until January of 2018 that Idea made their first loan. Initially backed with $20 million by Warsaw-based Idea Bank, which specializes in servicing small businesses, Idea Financial has since secured another $70 million from the fintech bank, Cross River Bank, and has funded $50 million to nearly six hundred businesses.
Now at 35 employees and with a new office beyond the walls of the old conference room, Leto asserts business is going well despite the odds having been stacked against them. “Some would have called [Idea Bank] crazy because they gave two people who were from outside the space this kind of money to build a business and lend money without any strict covenants. So, Larry and I were left to make our own rules.”
And looking forward, Bassuk is confident of their future, lauding much of the company’s strength to the diversity of their workforce, with recruits from Montenegro, Russia, Colombia, and Venezuela, and their unique backgrounds. “We’re all about recruiting top talent, all about diversity of thought.”
“We’re not from the finance space, we’re not from the alternative lending space either, we came at this opportunity with a different approach.”
Only 24% of small business owners say that Hillary Clinton is the presidential candidate that has their best interest at heart, according to a survey conducted by Capify, a business financing company based in New York. 53% selected Donald Trump.
And whatever your opinions about Trump, his proposed moratorium on new financial regulations could entice both small businesses and alternative financial companies to consider a Trump presidency.
“Under my plan, no American company will pay more than 15% of their business income in taxes,” Trump said in Detroit on August 8th.
A report published by the National Federation of Independent Business (NFIB) last month found that 20% of business owners ranked taxes as the single most important problem facing their business. Only 2% reported that financing was their top business problem.
Message received? It appears not
In states like Illinois, some legislators are focusing their efforts on finding ways to make it harder for small businesses to obtain financing, convinced that questionable lending practices are the source of their problems, not taxes. But in a call with Bryan Schneider, secretary of the Illinois Department of Financial and Professional Regulation, he told deBanked that no one has complained of any small-business lending problems in Illinois to state regulators.
Regulators should not indulge in creating solutions in search of problems, Sec. Schneider cautioned. “When you’re a hammer, the world looks like a nail,” he said, suggesting that regulators sometimes base their actions on anecdotal isolated incidents instead of reserving action to correct widespread problems.
And that’s why a moratorium on financial regulations (albeit on the federal level) might also resonate with small businesses. Lawmakers don’t appear to be addressing their grievances and ironically, passing new laws that make it harder to obtain financing could potentially even exacerbate the problems they’re already vocalizing.
Small businesses seemed to have become aware of the government-as-obstructionist role however since 22% of them surveyed in the NFIB study, said that government requirements and red tape were the single most important problem they faced, more than anything else.
The Finance Side
A timeout is not a sure-fire way to woo Wall Street however, since a moratorium on federal regulations could actually serve as a hindrance for some financial companies hoping to reach some legal framework consensus down the road. Last year, Bizfi founder Stephen Sheinbaum, said that a 50-state patchwork of laws would make operating companies like his more challenging. “Personally, I’d be glad to see it on the federal level, we won’t have to deal with 50 individual states, which is more unruly,” Sheinbaum said in regards to potential regulation.
But a timeout on making any moves might indeed be in order anyway, given the questions that are being asked by some federal legislators. Last month during a hearing, Rep. David Scott asked what made business loans different from consumer loans. Parris Sanz, the Chief Legal Officer of CAN Capital, who was there testifying on behalf of the Electronic Transactions Association (ETA), gave his answer.
But there is a fear, just by those questions, that some legislators are still having trouble understanding the fundamentals. And that may be why a dozen trade associations and lobbying groups have formed in the last year to provide educational resources about alternative financing.
In states like Illinois, Scott Talbott, SVP of government affairs for the ETA, said they are encouraging legislators to adopt a “go-slow approach” that affords enough time to understand how the industry operates and what proposed laws or regulations would do to change that.
Keep it Simple?
With Trump, despite all his quirks, it’s possible that his ideas about a moratorium, could be a deciding factor in how small business owners and those employed by alternative financial companies vote. Lower taxes, timeout on regulations, has the potential to resonate far and wide.
60% of small business owners think that the outcome of the presidential election will have a severe impact on small businesses, according to the Capify survey. 29% said it possibly will have a severe impact. With taxes and government red tape at the top of their list of grievances, there might just be a pump for trump on both sides of the alternative finance aisle.
Starting a financial company couldn’t have come at a more inauspicious time for two friends that have known each other since college. Jared Feldman and Dan Smith started Fora Financial in June 2008 and today their company has provided $450 million to over 9,500 small businesses. It recently launched PRISM, a proprietary scoring and decisioning framework and secured a credit facility. Founders Smith and Feldman spoke to deBanked about working with Palladium, recent industry news and did some crystal ball gazing. Below is an excerpt from the interview
What does the industry look like to you, with its myriad of players and the recently surfaced problems?
JF: There are a lot of players but I don’t know how much business they are originating. It might sound greater than it actually is. While there is no doubt that competition exists, it is still from the usual cast of characters who have been around for quite some time. However the competition is driving up acquisition costs, possibly some irrational buying from some companies which then trickles down and causes some ISOs and brokers to fail.
DS: Our competitors and we have felt things change in the market in terms of regulation and capital. The influx of capital that came in with the new players is starting to contract a little bit and the lending companies like ourselves are controlling the amount they lend. There has been a lot of artificial growth in the industry – a lot of companies trying the test and learn strategy to see how deep they can buy into the market but they struggle to maintain profits.
And what will be the aftermath of these changes we see in the next six to twelve months?
DS: The reality is starting to kick in and companies will have to be disciplined about their underwriting models and be wise about where they spend their money in order to to grow and sustain profits.
What then should be the top priority for lenders now?
JF: Two top priorities that lenders should focus on is A) To build out a compliance framework and B) securing a long-term credit facility apart from the already mentioned disciplined underwriting making risk, analytics and data capabilities strong.
You started working with private equity firm Palladium last year. Tell us more about where you are with that?
DS: We got into this great partnership and a fund of theirs gave us the capital to grow our business and it aligned with everything we had in our 100 day plan – we wanted to build our regulatory compliance framework, close on a credit facility and bring some key people onboard — all of which we have accomplished. Working with Palladium teaches us how to run a disciplined company and we have already been entertaining M&A opportunities.
What do you think of the hybrid model approach that some lenders take ?
DS: Hybrid model is a great idea in theory and there are concerns with every approach — of holding everything on balance sheet and then buyers buying the loans. There is a lot that goes into capital raising and we have done what we know well and have continued to organically grow our balance sheet. It’s not to say that we have not considered other options but for now, we are focused on getting the right cost structure.
JF: If you have the credit facility with the right cost structure, that is a cheaper cost of capital than what the marketplace is selling these loans for but we are considering options for diversifying our capital sources and we would like to add some kind of market element but that might be in the future. Maybe in the first quarter of 2017.
The Dual Aura of Fora – How Two College Friends Built Fora Financial and Became the “Marketplace” of Marketplace LendingFebruary 16, 2016
A recent Bloomberg article documented the hard-partying lifestyle of two young entrepreneurs who struck it rich when they sold their alternative funding business. The story of their beer-soaked early retirement in a Puerto Rico tax haven came complete with photos of the duo astride horses on the beach and perched atop a circular bed.
But two other members of the alternative-finance community have chosen a different path despite somewhat similar circumstances. Jared Feldman and Dan B. Smith, the founders of New York-based Fora Financial, are about the same age as the pair in that Bloomberg article and they, too, recently sold an equity stake in their company. Yet Smith and Feldman have no intention of cutting back on the hours they dedicate to their business or the time they devote to their families.
They retained a share of Fora Financial that they characterized as “significant” and will remain at the head of the company after selling part of it to Palladium Equity Partners LLC in October for an undisclosed sum. Palladium bought into a company that has placed more than $400 million in funding through 14,000 deals with 8,500 small businesses. It expects revenue and staff size to grow by 25 percent to 35 percent this year.
The deal marks Palladium’s first foray into alternative finance, although it has invested in the specialty-finance industry since 2007, said Justin R. Green, a principal at the firm. His company is appointing two members to the Fora Financial board.
Palladium, which describes itself as a middle-market investment firm, decided to make the deal partly because it was impressed by Smith and Feldman, according to Green. “Jared and Dan have a passion for supporting small businesses and built the company from the ground up with that mission,” he said. “We place great importance on the company’s management team.”
Negotiations got underway after Raymond James & Associates, a St. Petersburg, Fla.-based investment banking advisor, approached Palladium on behalf of Fora Financial, Green said. RJ&A made the overture based on other Palladium investments, he said.
The potential partnership looked good from the other point of view, too. “We wanted to make sure it was the right partner,” Feldman said of the process. “We wanted someone who shared the same vision and knew how to maximize growth and shareholder value over time and help us execute on our plans.”
It took about a year to work out the details of the deal Feldman said. “It was a grueling process, to say the least,” he admitted, “but we wanted to make sure we were capitalized for the future.”
The Palladium deal marked a milestone in the development of Fora Financial, a company with roots that date back to when Smith and Feldman met while studying business management at Indiana University.
After graduation, Feldman landed a job in alternative funding in New York at Merchant Cash & Capital (today named Bizfi), and he recruited Smith to join him there. “That was basically our first job out of college,” Feldman said.
It struck Smith as a great place to start. “It was the easiest way for me to get to New York out of college,” he said. “I saw a lot of opportunity there.”
The pair stayed with the company a year and a half before striking out on their own to start a funding company in April 2008. “We were young and ambitious,” Feldman said. “We thought it was the right time in our lives to take that chance.”
They had enough confidence in the future of alternative funding that they didn’t worry unduly about the rocky state of the economy at the time. Still, the timing proved scary.
Lehman Brothers crashed just as Smith and Feldman were opening the doors to their business, and all around them they saw competitors losing their credit facilities, Smith said. It taught them frugality and the importance of being well-capitalized instead of boot-strapped.
Their first office, a 150-square-foot space in Midtown Manhattan, could have used a few more windows, but there was no shortage of heavy metal doors crisscrossed with ominous-looking interlocking steel bars. The space seemed cramped and sparse at the same time, with hand-me-down furniture, outdated landline phones and a dearth of computers. Job seekers wondered if they were applying to a real company.
“It was Dan and I sitting in a small room, pounding the phones,” Feldman recalled. “That’s how we started the business.”
At first, Smith and Feldman paid the rent and kept the lights on with their own money. Nearly every penny they earned went right back into the business, Feldman said. The company functioned as a brokerage, placing deals with other funders. From the beginning, they concentrated on building relationships in the industry, Smith said. “Those were the hands that fed us,” he noted.
By early 2009, Smith and Feldman started raising capital from friends and family members so that they could fund deals themselves. About that time, they developed a computer platform to track the payments they received from funding companies where they placed deals.
Smith and Feldman’s first credit facility came from Entrepreneur Growth Capital. The stake enabled them to begin handling deals on their own instead of passing them along to funders. At the same time, they expanded their computing platform to handle entire deals.
From there, Smith and Feldman expanded their computing capability to help with accounting, underwriting and other functions. A combination of staff and outside developers guided the platform’s evolution. Today, three full-time in-house tech people handle programming.
Smith and Feldman emphasize that they don’t consider Fora Financial a tech company, but Green said the company’s platform helped cinch the deal. “We view Fora Financial as a technology-enabled financial services company,” he maintained.
While building the platform and expanding the business, Fora Financial secured mezzanine financing from Hamilton Investment Partners LLC, a company that bases its investments on the strength of management teams. “I am industry-agnostic,” said Douglas Hamilton, managing partner and and cofounder. “Dan and Jared are one of the best young teams I have encountered in my 35 years of doing private investing.”
Meanwhile, Fora Financial moved six times to larger accommodations. The company’s 116 employees now occupy 26,000 square feet in Midtown, with half of the staff working in direct sales and the other half devoted to back office, underwriting, finance, IT, customer service, collections and legal duties.
Seventy percent of the company’s business flows from its inside sales staff and the rest comes from ISOs, brokers and strategic partners, Feldman said. “Most of the industry is the opposite,” he noted.
Finding salespeople presents a challenge in New York, where they’re in great demand. “We’ve invested a lot of money in finding the right salespeople,” Feldman said. “We also have to make sure that we’re right for them.” The sales staff includes recent graduates and experienced people from other sectors of financial-services or other businesses, Feldman noted.
“We don’t hire from within the industry,” Smith added. “From Day One, we’ve been training our staff our way and not bringing in tainted brokers.” That way, the company can make sure salespeople hew to the company’s ethical approach to business, he maintained. It’s part of creating a company culture, he said.
The Fora Financial culture also includes strict compliance with state and federal regulation because until recently Smith and Feldman owned the entire company, Feldman said. “Regulatory compliance is a core value with us and has been for some time,” he noted, adding that it’s also resulted in conservatism and due diligence.
Those traits have not gone unnoticed, according to Robert Cook, a partner at Hudson Cook, LLC, a Hanover, Md.-based financial-services law firm that has worked extensively with the company. “Fora was one of the first clients in this small-business funding area that took compliance to heart,” Cook said. “As time has gone on, we’re seeing more and more companies make compliance part of their culture, but Fora was one of the early adapters in this area.”
Top management at alternative finance companies often talk about compliance, and the discussion too often ends there and doesn’t filter down through the ranks, Cook said. But that’s not the case at Fora Financial, he maintained. “It’s throughout the organization,” he said of the company Smith and Feldman founded. “From a compliance attorney’s standpoint, that’s always a great sign.”
Nurturing a penchant for compliance and dedicating a company legal and compliance department to pursuing it became a factor in Palladium’s decision to become involved with the company, Feldman said.
The focus on compliance also spread to the way Fora Financial brings brokers on board, Smith said. The company scrutinizes potential partners carefully before taking them on, he maintained.
“We probably missed out on some business as the industry grew because we were more cognizant of doing things the right way, but that paid off in the long run and some of our competitors have followed suit,” Smith said.
Compliance first became particularly important when Fora Financial added small-business loans to their initial business of providing merchant cash advances. They began making loans because lots of businesses don’t accept cards, which serve as the basis for cash advances.
On a cash basis, the current portfolio is 75 percent to 80 percent small-business loans. Loans started to surpass advances during the fourth quarter of 2014. The shift gained momentum after the company began funding through its bank sponsor, Bank of Lake Mills, in the third quarter of 2014.
Growth of loans will continue to outstrip growth of cash advances because manufacturers, construction companies and other businesses usually don’t accept cards, Smith said. If a customer qualifies for both, Fora Financial helps decide which makes the most sense in a specific case, Feldman added.
“We don’t sell our loans – we carry everything on the balance sheet and assume the risk,” Feldman said. “If it’s not good for the customer, it’s going to come back and hurt the performance of our portfolio over time,” he noted.
That thinking helped the company recognize the importance of adding loans to the mix. “We were one of the first companies (in the alternative-finance industry) to get our California lending license,” Feldman said. The company obtained the license in 2011 and got to work on lending. Offering loans required some retooling because the underwriting criteria differ so much from those in the cash advance business, Feldman said.
With the help of several law firms, they made sense of regulation from state to state and began offering the loans one state at a time, Smith said. “We wanted to make sure we rolled it out the right way,” Feldman noted.
As the company was changing, Smith and Feldman saw a need to rebrand. Initially, they called their company Paramount Merchant Funding to reflect their merchant cash advance offerings. When they added small-business loans to the mix, they used several additional names. Now, they’ve brought both functions and all of the names together under the Fora Financial brand. Fora means marketplace in Latin and seems broad enough to cover products the company might add in the future, Feldman said.
Smith and Feldman are contemplating what form those future products might take, but they declined to mention specifics. “We’re constantly getting feedback from customers on what they need that we’re not currently delivering,” Feldman said. “We have ideas in the pipeline.”
Despite changes in the business, Smith and Feldman have managed to remain true to timeless values in their personal lives. Smith grew up near Philadelphia in Fort Washington, Pa., and Feldman is a native of Roslyn, N.Y. Both now reside in Livingston, N.J. and occasionally ride the train together to work in New York. Smith is married and has two children, while Feldman and his wife recently had their first child.
“We’re at it everyday,” Feldman said of their work-oriented lifestyle. “When we’re out of the office, we’re traveling for work. So is the rest of the team. We’re only going to go as far as our people.”
And what about that other pair luxuriating in the Caribbean? As Feldman put it: “New Jersey is a long way from Puerto Rico.”
Learn more about Fora Financial at www.forafinancial.com
Idea Financial is a new site sponsor...
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idea financial. ondeck also offers one, and there's fundbox, but we've heard their options tend to be lower than competitors., , there's also asset-based credit lines that tie into factoring, there's a num...