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Funders Weigh in on the New Disclosure Law in Virginia

August 10, 2022
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Show Us Your Deals“I think there are pros and cons on this law,” said Boris Kalendarev, CEO at Specialty Capital, in regards to the recently enacted sales-based financing disclosure law in Virginia. “I’m on the pro side and I think first and foremost it allows the good funders and the good brokers in the space to operate in the right manner.”

The law technically went into effect on July 1st, shaking things up for funding providers and brokers alike, particularly through a set of uniform disclosures that are required every time a contract is put in front of a Virginia-based business.

“It holds a broker more responsible for the transaction that they’re going to complete,” said Sharmylla Siew, Senior Underwriter at Lending Valley. “It builds a deeper bond between the broker and the merchant. And it also creates a better bond between the broker and the funder.”

Echoing Siew’s perspective, Kalendarev also believes that being clear creates an honest business space for the broker, merchant, and funder.

“I think transparency is really the right way to run this business. Let’s try to make sure there’s even more transparency,” said Kalendarev.

One intent behind the law is to provide the business customer with all of the pertinent information in a digestible format. Notably, this includes the commission that a broker may be receiving from the funder.

contract“I do believe that it should be fully transparent on both sides to understand the transaction in full,” said Dylan J. Howell, CEO of Liquidibee. “The merchant should understand that the broker is getting compensated. And if he decides that the broker deserves an additional commission on top of what he’s getting paid from the funder, well, that’s an informed decision between the merchant and broker to come to an agreement with.”

Howell Suggested that some of what is required would be expected in other types of deals.

“If you would go out and buy a $500,000 house, you get to the closing table and you look at the bill, it says it’s $545,000, but the purchase price is 500,000, you would want a reconciliation page to show where that 45,000 of additional capital is going,” Howell said. “And it’s no different than in this transaction, in my opinion.”

Banks and credit unions were exempt from the law but some view targeted regulations like this one as a way to raise the bar and credibility of sales-based financing products in general.

“Merchants who wouldn’t have considered an MCA as a practical form of funding in the past may decide to explore this avenue knowing that the industry is being held to a higher standard of practice,” Howell said.

Siew, of Lending Valley, echoed same.

“I am actually very excited about the new regulations, and I feel that it would make a huge impact on the MCA industry,” she said.

The Real Small Business Funding Demand Has Yet to Kick In

May 26, 2022
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Now that small and medium sized businesses received crucial PPP and EIDL funding during the COVID-19 pandemic, they have become more familiar with other options to obtain capital.

“…they’re learning that they can borrow money based on their revenue, not based on their credit and assets,” stated Sean Feighan, Co-founder and President of Cash Buoy. Feighan explained that the exercise of obtaining capital during Covid to stay in business created or further developed an appetite for small businesses to borrow money in general.

As these businesses are still utilizing the remaining government aid, the real demand has not truly begun, according to Dylan J Howell, CEO of Liquidibee. “…we have yet to see the real big demand that’s about to kick in, in my opinion, over the next six to twelve months, I believe that a lot more demand will come in,” Howell said. “A lot of companies received a good injection of government stimulus. And they’ve enjoyed that over the last year, year and a half. And as that comes to an end, companies are always looking for additional capital, whether it be to grow or foster future growth of their company.”

“I think we’re beginning now to see a new phase within small business,” said Avi Wernick, VP of Partnerships at FinTap. Because of the money that’s still lingering from the stimulus efforts, he thinks that alternative finance companies will soon see more demand in the coming months. But at the same time, those finance companies will have to determine if they’re even a good fit for their products. “I think some businesses will be more adversely affected. I think it depends a lot on the nature of the business owners, you know there are better business owners out there that are able to manage [their] finances more responsibly, and there are others that are kind of just more reactive.”

Erez Stamler, CEO and Managing Director of Fresh Funding, echoed a similar sentiment. He said that increased risk factors of a business coming out of Covid can make it harder to get them approved. Besides, a business now predisposed to forgivable funding or ultra long terms at very low interest may not necessarily demand other products in the market.

“So you will see demand, but you might not see increased amount of views or volume of deals, because you can’t replace SBA loans with MCA,” Stamler said.

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