NORWALK, CT – North Mill Equipment Finance LLC (“North Mill”), a leading independent commercial equipment lessor providing small-ticket financing through its network of referral agents, announced today that it has restructured its working capital solution to make it more competitive with other, less cost-effective options on the market.
The financing arrangement, called “Cash Out,” allows a customer to borrow the equity of paid-up business equipment and channel the proceeds back into the company. Although similar in concept to a sale leaseback, Cash Out is structured as a loan. It delivers a well-deserved reprieve for borrowers looking for a less expensive alternative to finance day-to-day operating expenses.
“There are many ways a company can obtain working capital,” explained Paul Cheslock, VP of Customer Relations, North Mill. “Some of the more common include a merchant cash advance (MCA), a revolving line of credit and accounts receivable factoring. And while they all fill the same need, they are not created equal. Cash Out in particular offers a long list of customer benefits including better rates, monthly vs. weekly payments, and terms up to 60 months. It’s a powerful tool for our referral agent partners looking to grow their customer base.”
According to Cheslock, the product’s loan-to-value ratio was restructured to enable customers to borrow a larger percentage of equity from an unencumbered asset. One of the most significant advantages of Cash Out is that it includes an early pay-off feature. Customers can pay off the loan without premium or penalty after 18 consecutive, on-time payments — a benefit that other products simply do not offer.
“The product is simple and straightforward. There are no fees tied to accounts receivable, invoices, or credit card sales,” said Cheslock. “What’s more, the equipment that’s used for the loan stays put on site, so business operations remain uninterrupted. And if that were not enough, the borrower retains title.”
For more on Cash Out and other financial solutions from North Mill, register for the company’s upcoming webinar “Meet North Mill and Its Financial Solutions” on Tuesday, April 27, 2021 at 3:00 pm EST.
About North Mill Equipment Finance
Headquartered in Norwalk, Connecticut, North Mill Equipment Finance originates and services small-ticket equipment leases and loans, ranging from $15,000 to $300,000 in value. A broker-centric private lender, the company handles A – C credit qualities and finances transactions for numerous asset categories including, but not limited to, construction, transportation, vocational, healthcare, manufacturing, printing, franchise opportunities and material handling equipment. North Mill is majority owned by an affiliate of Wafra Capital Partners, Inc. (WCP). For more information, visit NMEF.com.
CONTACT: Don Cosenza, SVP, Chief Marketing Officer
PHONE: (203) 354-1710
NORWALK, CT – North Mill Equipment Finance LLC (“North Mill”), a leading independent commercial equipment lessor providing small-ticket financing through its network of referral agents, announced today that the company reached an all-time high in monthly loan and lease originations in March. Funded volume surged to more than $24 million, a growth rate of 53% from last March and an increase of 22% from the company’s previous high-water mark last December.
“We’re firing on all cylinders,” said David C. Lee, Chairman and CEO, North Mill. “We reported a record breaking year in 2020 and I anticipate that we’ll continue to see an upward trajectory as the economy opens up. First quarter volume topped $54 million, an increase of more than 18% from Q1 of last year while our weighted average FICO climbed an additional 9 points to 717.” Average deal size also hit a record for March, according to Lee, as it reached nearly $90k per transaction.
A strategic initiative that has had a resounding impact on North Mill’s success is its continued commitment to financing assets across an array of industries. Transportation, which made up nearly 100% of the firm’s asset portfolio a few years ago, now accounts for about 40% of funded volume. The company has expanded into many types of equipment including, but not limited to, construction, health care, franchise opportunities and livery.
As referral agents continue to turn to North Mill to obtain financing for their customers, the capital markets have also demonstrated confidence in the company. Last month, North Mill closed NMEF Funding 2021-A, its fourth commercial equipment backed securitization (ABS), its largest ever. The $236,588,000 ABS issuance was well received by institutional investors as evidenced by strong oversubscription levels across all tranches of notes. Capital was raised from a total of 23 investors, more than double the number from the company’s previous issuance (NMEF 2019-A).
About North Mill Equipment Finance
Headquartered in Norwalk, Connecticut, North Mill Equipment Finance originates and services small-ticket equipment leases and loans, ranging from $15,000 to $300,000 in value. A broker-centric private lender, the company handles A – C credit qualities and finances transactions for numerous asset categories including, but not limited to, construction, transportation, vocational, healthcare, manufacturing, printing, franchise opportunities and material handling equipment. North Mill is majority owned by an affiliate of Wafra Capital Partners, Inc. (WCP). For more information, visit www.nmef.com.
We’re at Able Lending in Austin, Texas, a financial technology company occupying three floors deep in the heart of the Seaholm power plant overlooking Lady Bird Lake. The fortress-like building anchors an inner-city complex of offices and residences, chic restaurants, boutique shops, and a Trader Joe’s.
Once the main source of electricity for Texas’s capital city, the natural gas-fired boilers have given way to a warren of glassed-in offices and meeting rooms connected by angular metallic stairways and a carpeted mezzanine.
It is here, in a tiny conference room, that Will Davis, a slim man of 35 and an alumnus of Harvard Business School, is drawing a bell curve on a whiteboard. Dressed for the balmy Texas weather in tan Bermuda shorts, a black tee-shirt and Nike running shoes, the company’s chief executive and co-founder is explaining how Able’s friends-and-family lending formula “widens” the risk curve.
“We all compete here in this box on price,” Davis says, drawing a square at the topmost point of the bell curve, indicating where the near-prime borrowers abide and where lenders are crowded in pursuit. But when loans from friends and family form 10%-15% of the total loan, he says, drawing squiggly lines just to the left of the box, a cohort with less-than-stellar credits now becomes credit-worthy.
Because of the “peer pressure” and “behavioral change” exerted by the involvement of family and friends, the formula produces a “positive-selection effect on the loan portfolio” Davis says, declaring: “We can serve more of the market.”
It all sounds very business-schoolish. But here’s the bottom line: Able’s lending model sharply reduces both risk and borrowing costs, allowing it to go head-to-head with national rivals like Funding Circle, Bond Street, OnDeck and StreetShares. Thanks in large part to its reduced risk, asserts Able’s director of development, 30-year-old Matt Irving, the Austin fintech can lend twice as much money as its competitors at half the interest rate.
Since opening its doors and firing up its computers in the fourth quarter of 2014, Able’s average loan size has climbed to $231,200 from $100,000. Of that, an average of 3.2 “backers” have accounted for $40,691, or 17.6% of the average total loan amount. The average “blended” annual percentage rate is 16.41%.
Meanwhile, Able, which has made some $48 million in loans to entrepreneurs through the end of April, 2017, reports CEO Davis, is itself on sound financial footing. According to the data-services firm Crunchbase, Able has raised $12.5 million in three rounds of venture capital financing from 21 investors. Principal equity financiers are Peter Thiel’s Founders Fund, Peterson Ventures, RPM Ventures, and Blumberg Capital. On Sept. 27, 2016, moreover, Able added another $100 million to its arsenal in debt financing from Community Investment Management, a San Francisco investment firm. Borrowers include owners of food trucks and apparel shops; professionals including doctors, dentists, veterinarians, and accountants; “creatives” like public relations and advertising firms; and construction companies. Since its inception, Davis says, just one borrower has defaulted, resulting in an $85,000 charge-off.
So far in 2017, the company has lent out nearly $15 million in the first quarter, but it’s on track to make $80 million this year. “We’re ramping up,” Davis declares.
Welcome to fintech in the Lone Star State. While everything may be bigger in Texas, as the saying goes, that’s not quite true of financial technology. The geographic contours of fintech operations are roughly 60% in California (especially Silicon Valley/San Francisco), 30% New York, and 10% scattered about the rest of the country, says 40-year-old Mihir Korke, the San Francisco-based chief marketing officer at Able.
Nonetheless, Texas offers fertile ground for the burgeoning fintech industry. The vaunted Texas business climate promises a relaxed regulatory regime, the absence of either a personal or corporate income tax, and a lower cost of living. All of which were cited by Able Lending, as well as an additional pair of fintech companies that specialize in factoring and merchant cash advances: Jet Capital, located in North Richland Hills in the Dallas-Fort Worth “metroplex”; and Ironwood Finance in Corpus Christi, a port city on the Gulf of Mexico.
“What’s interesting about fintech companies is that they can choose to locate where they want to do business,” says Erin Fonte, an attorney at Dykema Cox Smith in Austin whose legal practice includes mobile payments, mobile wallets and financial technology. “They don’t necessarily get a regulatory advantage because much of what they do is based on their customers’ location,” says Fonte, who is currently serving as a member of the Federal Reserve’s Faster Payments Taskforce. “That said,” she adds, “some companies have chosen to locate in Texas because of the labor and talent pool, because it’s a good source of venture capital, and it’s more affordable.”
Jet Capital’s 42-year-old chief executive, Kenneth Wardle, confirms many of Fonte’s observations. “So far, Texas has been friendly to MCA companies,” he says, using the initials for “merchant cash advance.” Especially favorable to his industry is the fact that “Texas regulators do not define an MCA as a loan,” he adds.
Prior to co-founding Jet Capital with chief operating officer Allan Thompson, 49, Wardle served as a portfolio manager at Exeter Finance Corp, a $3 billion company in nearby Irving which specializes in subprime auto financing. Wardle has also held leadership positions at AmeriCredit Corp., now GM Financial, and Drive Financial, now Santander Consumer USA.
His 20-year background has included the gritty work of repossessing cars when owners fell into arrears on their auto loans. “Most of my career in auto finance was in risk management and I’ve driven a repo truck,” he says. “You take off with the car right away and then chain it down after you’ve gone a couple of blocks so you don’t lose it out on the highway.”
Backed by more than $5 million in equity financing from a family office in Puerto Rico, Jet Capital makes cash advances of $25,000-$30,000, on average, for working capital.
The sweet spot for Jet’s financings are retail establishments, trucking companies, hair-and-nail spas, and medical doctors. Doctors in particular are prime candidates for a Jet cash advance. “They have a pretty good gap between when they perform services and when they get paid by insurance companies” during which they have to cover payroll expenses and overhead, Wardle notes. Prospecting for customers is done largely through independent sales offices, direct mail, and pay-per-click services offered by Google, among additional online channels.
“Our defaults are relatively in line with expectations” and were largely confined to the first year of business, Wardle says. “We made some underwriting and verification changes last September and October,” he adds, “and we changed our minimum credit scores. Since then we’ve seen defaults migrate in the right direction.”
Since Wardle and Thompson took occupancy of an empty office outside Fort Worth in October, 2015, Jet has grown to 12 employees who today have “a variety of roles” says Thompson, citing sales, underwriting, customer service, collections, analytics, and information technology. “They wear a lot of hats and there’s a lot of cross pollination,” he says.
Looking ahead, Wardle foresees Jet expanding its product line beyond merchant cash advances to offer lines of credit and installment loans. “Our goal is to be a one-stop, nonbank financing solution,” Wardle says.
Kevin Donahue, 37, owner of Ironwood bootstrapped the South Texas company, which opened in 2013 using personal savings of $1.5 million remaining from the sale of mobile home parks in South Dakota and Texas. He also plowed earnings into Ironwood from a subsequent job as a commercial loan broker.
Donahue, who grew up in a family of fishermen on the Oregon and California coasts and is a 2006 graduate of California Polytechnic State University at San Luis Obispo, says that he turn up in Corpus Christi somewhat by accident. While operating the mobile home park in nearby Kingsville, he got married, started a family, and put down roots.
With 20 employees, Ironwood focuses on providing merchants cash advances in the $5,000 – $50,000 range, Donahue says, “but we can go up to $1 million.” The average cash advance – usually $10,000-$15,000 – is put to use as working capital by what he dubs “Main Street” businesses: restaurants, boutiques, trucking and transportation companies, professionals, and contractors. Ironwood charges clients factoring fees that are collected via ACH.
“Many times (these businesses) don’t qualify for bank loans,” Donahue says. And even when they do qualify, he notes, “banks take forever – up to three months – while we’re using our own money and can do it in three days. We’re very low on requiring a lot of documents.”
For his part, Donahue wants to see a customer’s bank statements, a photo I.D., voided checks, and a financial report. But, he says: “Cash flow is much more important than financials.”
Clients typically find their way to Ironwood through the website, although they often arrive through referrals from brokers and real estate agents, attorneys, accountants and “anyone doing commercial lending,” he says. Donahue says he closed down a call center. “The way to get leads is more through relationships than marketing,” he says.
Trucking companies are important customers. “They work on thinner margins, the barriers to entry are lower, sometimes their customers don’t pay their bills,” Donahue says of the industry’s economics. “They have huge expenses for fuel, payroll, insurance – and they might not get paid (by their customers) for 30 days or more.”
Ironwood’s advance for a million dollars, cited earlier, was made to a trucking company in Midland, Texas, which hauled both general freight and oilfield equipment. The money was put to use both to smooth out cash flow and as growth capital. The trucking concern “used part of that for expansion, making down-payments with Volvo or Peterbilt,” Donahue recalls.
Backstopped by the titles for 18 trucks valued at roughly $1.5 million, the deal was structured as a three-year, sale-leaseback agreement with “no interest” but rather a fee, Donahue says. Payments were $32,000 monthly, he says, amounting to $152,000 above the advance.
Donahue has no trouble justifying the steep fee schedules. Not only does he release money quickly but in many instances Ironwood has stepped in to bail out businesses that could have gone belly-up. He cites a trucker in the Midwest who had a “very lucrative” business hauling Boeing jet engines worth $30 million to Seattle where they could be worked on and returned to the planes for installment. In order to fulfill the contracts – which earned the hauler $25,000 monthly — the trucking company’s owner needed to purchase pricey insurance.
The owner, however, “had horrible credit,” Donahue says, largely the result of cash flow problems after investing in a special trailer for the jet engines, compounded by a messy divorce. To secure the $10,000 for the special insurance, the trucker sold Ironwood $14,000 of their future receivables. “For his investment of $4,000 he’s making $25,000-a-month forever,” Donahue explains.
Back in Austin, Able is gearing up for another round of capital-raising to bulk up staff and, according to Korke, win licensing to do business in California. At the same time, its friends-and-family credit structure is winning kudos for reaching what researcher David O’Connell calls “the unloaned.”
A senior analyst at Aite Group, a Boston-based consulting firm, O’Connell recently completed a study disclosing that 35% of small and medium-sized businesses in the U.S were unable to obtain credit over a recent two-year period. Able’s lending model is “a good example of using covenants to structure a deal that brings down borrowing risk,” the Bostonian says. “It’s terrific.”
Able’s staff doesn’t have to travel far to witness the fruits of their efforts. On Congress Avenue, in the heart of downtown Austin, is Jae Kim’s food truck offering Korean barbecue thanks to a $100,000-plus loan from the fintech lender. Kim, the founder and chief executive at food vendor Chi’lantro, enlisted his mother to pitch in $10,000. All told, family and friends ponied up 30% of the total loan.
In the three years since he hooked up with Able, Kim has gone on to bigger things, including a television appearance last November on Shark Tank that netted him $600,000 from celebrity investor Barbara Corcoran.
Chi’lantro is now operating five restaurants and four food trucks and as Kim disclosed on Shark Tank, annual sales topped $4.7 million last year.
In an interview, he told deBanked that he counts himself fortunate to have gotten the Able “micro-loan.” It played a key role in generating the cash flow that qualified his company for a $200,000 bank loan backed by the Small Business Administration. “It was one of many opportunities, and now we have good relationships with banks,” he says.
And then, a little farther south, there’s Stephanie Beard’s “esby apparel,” a women’s clothing boutique named for her initials. Beard, 35, came to Austin in 2013 after a decade in New York designing men’s clothing at Tommy Hilfiger and Converse. Originally from North Carolina and a graduate of Appalachian State University, she had zero connections in Texas and only a little money.
But she had a big vision: She would open a store and design and sell top-quality, flattering clothes for women that had “a menswear mentality.” Men, she had discovered, buy fewer clothes than women. But men tend to buy clothes that are durable, clothes that they can wear again-and-again over many years. After she sold $65,000 worth of her casual clothing line on the website Kickstarter, Beard developed a fan base and was put in touch with Able. “Actually, they contacted me,” she says.
To qualify as an Able borrower, Beard assembled $20,000 from friends and family, she reports, including $2,500 from her future mother-in-law, another $2,500 from the proprietor of a dress shop that “wholesaled” her collection, and the rest from aficionados of her wares. Once that money was gathered, Able lent her $100,000 at a 10% APR in October, 2014, which enabled her to open her shop. The combined interest rate was 9.8%. Monthly payments have automatically been withdrawn from her business’s checking account.
She’s scheduled to repay both Able and her backers in full by this October. Total sales for the shop have cleared $1 million and Beard expects annual revenues for 2017 to hit $900,000. “A lawyer friend who helped me out with the paperwork pro bono told me that Able was practically giving money away,” she says. “I definitely was lucky.”
The Canadian Lenders Association released its 2021 Leaders in Lending awards. The association is the voice of Canada’s lending ecosystem and represents more than 100 companies in commercial and consumer lending.
All CLA members are vetted and accredited based on their corporate standards
and values. Their role is to support the highest level of lending in Canada,
servicing a wide spectrum of business and consumer borrowers’ growth requirements.
2021 Award Winners:
Lending Woman of the Year
|Tiffany Kaminsky | Co-Founder of Symend
Tiffany Kaminsky is the co-founder of Symend, a fintech that uses analytics and behavioural science to create individualized debt recovery programs. The startup, which has offices in Calgary, Toronto and Denver, received USD $52 million in funding earlier this year and plans to hire up to 200 more roles in 2021.
|Nicole Benson | CEO of Valeyo
Nicole Benson is the President & CEO of Valeyo, a business solutions provider to financial institutions in Canada. Nicole drives every facet of business forward, with a focus on growing, evolving, and innovating Valeyo’s suite of solutions to meet the changing needs of its clients and the financial services industry.
|Andrea Fiederer | CMO of goeasy
Andrea Fiederer is EVP & CMO of goeasy, a leader in non-prime financial services with over 2000 employees. Andrea is responsible for goeasy’s overall marketing and brand strategy for both the easyhome and easyfinancial business units.
|Elena Ionenko | Co-Founder of Turnkey Lender
Elena Ionenko is the Co-Founder of Turnkey Lender, a loan origination platform. Under Elena’s leadership, the company has entered 50+ local markets, raised over $3.5 million in venture capital and launched regional offices all over the globe.
|Minal Shankar | CEO of Easly
Minal is the CEO of Easly, a SR&ED financing firm. This year Minal has doubled Easly’s capital under management & customer base. Prior to leading Easly, Minal was an investment manager for the VC firm Northgate Capital and an associate in the Technology Investment Banking group at J.P. Morgan Chase. Minal holds an MBA from the NYU Stern School of Business.
Fintech Innovator the Year
Flinks is a data company that empowers businesses to connect their users with the financial services they want.
REPAY is a leading provider of vertically-integrated payment solutions.
VoPay seamlessly connects you to the banking ecosystem enabling anyone to offer efficient and simple bank account payment processing.
FundMore.ai is an automated underwriting system that uses machine learning to streamline the Pre-Funding process for loans.
Provenir offers a suite of risk analytics tools for lenders to make adjudication faster and simpler.
Executive of the Year
|Jason Mullins | CEO of goeasy
Jason Mullins is the President & CEO of goeasy, a leader in non-prime financial services with over 2000 employees. Since joining goeasy in 2010, Jason has helped the company scale to $1 billion in market capitalization with compound earnings growth of 28%. Jason is a recipient of Canada’s Top 40 Under 40 Award.
|Wayne Pommen | CEO of PayBright
Wayne Pommen is the CEO and Founder of PayBright, a Canadian leader in the BNPL space. His firm has partnered with 7,000 domestic and international retailers, and has approved over $1 billion in consumer credit. This year PayBright was acquired by Affirm in a $340 million transaction.
|Lawrence Krimker | CEO of Simply Group
At just 33 years of age, Lawrence Krimker has built Simply Group into a category leader in home equipment financing. This year his firm acquired competitors Dealnet & SNAP Financial in transactions that totalled over $750 million and brought his firm to $1.45 billion in assets under management.
|Andrew Graham | CEO of Borrowell
Andrew Graham is the CEO and Co-Founder of Borrowell, Canada’s first fintech to provide free credit monitoring. This year Andrew launched Borrowell Boost to help the 53% of Canadians living paycheck to paycheck meet their bill payments.
|Maria Soklis | President of Cox Automotive
In the 6 years that Maria Soklis has led Cox Automotive Canada, the company has become a category leader in software and financing solutions for consumers and dealers across the country. Maria has also left her mark with initiatives that promote diverse and inclusive workplaces, and this year signed the BlackNorth Initiative CEO Pledge.
Emerging Lending Platform of the Year
Moselle is a digital platform that simplifies the importing workflow for small medium business owners.
Moves is a financial services platform for independent “gig” workers.
VendorLender is Canada’s first POS lender for dealers in the equipment finance space.
Lendle is Canada’s first interest free credit provider.
goPeer helps everyday Canadians to achieve financial freedom through Peer-to-Peer Lending
Small Business Lending Platform of the Year
Merchant Growth is a leading Canadian financial technology company that specializes in small business financing. Over the past decade, Merchant Growth has supported Canadian businesses with hundreds of millions of dollars in growth financing.
Launched this year, Loop builds credit & payment products specifically for online merchants. The company is operated by the LendingLoop team that popularized P2P lending in Canada.
Thinking Capital is one of Canada’s best known fintech lenders to the small business sector. This year the firm has forged relationships with multiple Credit Unions and hit $1 billion in loans deployed.
Since its launch in 2015, OnDeck Canada has
Canadian based Clearbanc is the world’s largest e-commerce funder. Their data-driven approach takes the bias out of decision making. Clearbanc has funded 8x more female founders than traditional VC.
Consumer Lending Platform of the Year
Flexiti is a leader in point of sale financing for retailers and has been named one of Canada’s fastest growing companies two years straight.
CHICC is one of the country’s leading rental & homeimprovement financing companies.
Marble uses fintech to empower Canadians to improve their credit score, manage debt, and budget to achieve financial goals.
PayBright is one of Canada’s leading buy now, pay later providers. This year the firm was acquired by BNPL giant, Affirm for $340 million.
Canada’s leading alternative financial services provider servicing non-prime Canadians through its easyhome and easyfinancial divisions.
Auto Lending Platform of the Year
GoTo Loans is a fintech lender focused on helping consumers access the equity from their vehicle and the leading provider in Canada for automotive repair loans.
|Auto Capital Canada
AutoCapital Canada is a national auto finance company that works with dealer partners to help clients finance the purchase of new and used vehicles. This year the firm acquired competitor Rifco.
The Western Canada based lender is a leader in non-prime lending to the auto sector.
Canada Drives is a leader in fintech auto lending. This year the firm hit over 400 employees and 1 million transactions, servicing consumers across Canada, the US, and the UK.
Clutch aims to bring speed and convenience to used car sales by taking the experience completely online. The fintech raised a $7 million round this year from Real Ventures.
Technology Lending Platform of the Year
Launched only five years ago, BDC’s Tech Group has become a leader in lending to Canadian technology entrepreneurs.
TIMIA is a specialty finance company that provides growth capital to technology companies in exchange for payments based on monthly revenue.
Flow Capital Corp. is a diversified alternative asset investor, specializing in providing minimally dilutive capital to high-growth businesses.
Venbridge is a Canadian finance company offering non-dilutive venture debt, SR&ED financing, and tax credit consulting services.
SVB has lead the technology lending movement for 35 years. The firm opened their first Canadian office last year.
One gauge of the commercial excitement over legal weed, medical marijuana and cannabis’s byproducts could be witnessed at the Las Vegas Convention Center in early December where the Marijuana Business Conference & Expo was overflowing with 31,523 attendees.
Appealing to that audience—roughly the population of Juneau, Alaska—were more than 1,300 exhibitors who hailed from 79 different countries and touted products and services as varied as advancements in crop cultivation, medicinal breakthroughs, and innovative consumer products like marijuana-laden pastry.
That’s some 30% more than the 1,000 vendors who packed into the Central Hall in 2018 and about double the 678 who were showing off their wares in the smaller North Hall two years ago, reports Chris Day, vice president for external relations at Denver-based Marijuana Business Daily, which follows the cannabis industry and sponsored the Las Vegas trade show.
“In December, 2019,” Day declares, “we did not have to turn people away because we expanded. We had enough room for exhibitors but we needed both halls.” Unable to resist a boast, he adds: “We’ve been the fastest-growing trade show in the country three years running.”
One face in the December crowd was seasoned financial broker Scott Jordan, the Denver-based managing director of the Alternative Finance Network. He was occupying a booth accompanied by two attractive female models in fetching T-shirts emblazoned with the message: “How much would you borrow at zero percent?”
The young ladies’ arresting appearance and the message worked to the extent that “it got people talking,” Jordan says. As for the zero-interest rate, it’s not exactly free money. “I’ve got a product that puts together a line of credit,” he explains, “and after they receive the line of credit, it charges them a fee.”
As a broker, Jordan does the spade work of poring through a cannabis business’s financial statements and business model before he tees up a deal—typically between $250,000 and $750,000—to “a cadre” of 35 lenders in 10 states. He’ll ascertain whether the best funding option should be structured as equipment leasing, a working-capital loan, a revolving line of credit, project financing, or a real estate loan.
One recent cannabis deal that Jordan midwifed involved a “post-revenue, pre-profitability” manufacturing and processing company headquartered in Colorado. The financing, which closed in April, 2019, involved a pair of four-year term loans: one for $400,000 to refinance existing machinery, and a second for an additional $500,000 to acquire new laboratory equipment. Both credits carried interest rates in the “mid-teens,” he says, and were secured by the equipment.
Once the debt financing was in place, the manufacturing operation was “fully functioning,” Jordan reports, paving the way for the company to raise $30 million in venture capital financing. Jordan argues that “even if they pay a 10-20 percent interest rate, it’s better to preserve equity and finance through a normal type of loan. If you need an extraction machine or packaging equipment,” he adds, “why give up equity if you can finance it through debt?”
Jordan’s reasoning appears to sit well with clients and funders alike. Since 2014, he has brokered 85 transactions worth $33 million. He reckons that two out of three deals that he takes to funders meet with success. “My best year was 2015 because there were only a few competitors and I was the only guy on the block,” he says.
As the country steadily decriminalizes and legalizes pot, however, early market entrants like Jordan no longer have the cannabis business all to themselves. Thirteen states have legalized recreational marijuana for adults. These include California, Colorado, Oregon, Washington and Nevada in the West; Illinois and Michigan in the Midwest; and Massachusetts, Vermont and Maine in the East. Hawaii and Alaska permit it and, if you’re over 21, you can legally grow, smoke or ingest weed in the District of Columbia, but it cannot be sold commercially.
An additional 24 states have approved medical marijuana. While research on cannabis’s medicinal properties remains thin—largely because of objections by federal law enforcement—it is being prescribed for a range of maladies, including cancer, glaucoma, epilepsy, Crohn’s Disease, multiple sclerosis, nausea, and pain. [“The marijuana plant contains more than 100 different chemicals called cannabinoids,” according to WebMD. “Each one has a different effect on the body. Delta-9- tetrahydrocannabinol (THC) and cannabidiol (CBD) are the main chemicals used in medicine. THC also produces the ‘high’ people feel when they smoke marijuana or eat foods containing it.”]
Industry data assembled by MJBizDaily reflects both the broad acceptance of legal cannabis use and its increasing commercial popularity. U.S. revenues from legal weed and its byproducts are expected to clear $16.4 billion this year, a 40% growth rate over the $11.75 billion in estimated revenues for 2019. The legal cannabis industry now employs about 200,000 persons in the U.S., about the same number as flight attendants (120,000) and veterinarians (80,00) combined.
For more evidence that the cannabis market is hot look no further than the state of Illinois, where recreational marijuana went on sale Jan. 1, 2020. The Prairie State’s governor also pardoned some 11,000 citizens with criminal records for possession and the sale of low levels of marijuana.
“We’re showing that sales were close to $3.2 million on the first day of 2020,” says MJBiz’s Day. “Illinois is the big story right now,” he adds. “Anytime a new state opens up in the market, you’re seeing enormous pent-up demand and enthusiasm.”
Even as the cannabis industry takes giant strides toward public acceptance, the plant continues to face hostility from the U.S. federal government, which has criminalized its use for 80 years. Marijuana remains classified by the Drug Enforcement Agency as a Schedule 1 drug, keeping company with heroin, LSD and Ecstasy.
That designation has also made it hard for the cannabis industry to engage in simple financial transactions, much less obtain financing. “Despite the majority of states’ having adopted cannabis regimes of some kind, federal law prevents banks from banking cannabis businesses,” Joanne Sherwood, president and chief executive at Citywide Banks, a $2.3 billion-asset bank headquartered in Denver, testified to Congress last summer. “The Controlled Substances Act,” added Sherwood, who is chair of the Colorado Bankers Association, “classifies cannabis as an illegal drug and prohibits its use for any purpose. For banks, that means that any person or business that derives revenue from a cannabis firm is violating federal law and consequently putting their own access to banking services at risk.”
And despite the herculean efforts by the cannabis industry to soften its image, obtaining financing from traditional sources like pension funds, insurance companies and university endowments remains a daunting proposition as well, says David Traylor, senior managing director at Golden Eagle Partners. His four-person, boutique investment fund, which makes equity investments in up-and-coming cannabis companies, relies on wealthy individuals and family offices for the bulk of its funds.
“Capital is hard to come by for this industry,” Traylor says. “From day one, most venture capitalists have been staying out of it. It’s still illegal in many states and their limited partners are endowments like Harvard and Yale, which see marijuana as the antithesis of education.”
Sarah Sanger, chief financial officer at Oak Investment Funds, a real estate investment firm based in Oakland, says: “There’s a great deal of economic activity in California but it’s stymied by the lack of financing and difficulty with changing regulations. It provides an opportunity for really expensive debt from private investors willing to do due diligence.”
That absence of establishment financing has opened up a plethora of opportunities for alternative funders, and not just in agriculture and plant cultivation. While agriculture represents the bedrock of the industry there is no downstream product, of course, without the cannabis leaf— growing and harvesting cannabis is just one stage of the industry’s life cycle.
MJBiz’s Day notes, for example, that that the legal cannabis industry is regulated for safety, so growers must show that “the flower has no molds or contaminants.” That means that crops are subject to rigorous testing and decontamination, which requires both materials and expertise. To process the leaf and develop “infused products” by extracting cannabis-based oils entails the purchase and deployment of costly technology. Packaging and labeling along with tracking systems that, Day says, “are stricter than in other places” are also key components of the farm-to-market supply chain.
Meanwhile, in an ongoing effort to appeal to a fresh cohort of customers, Jordan notes, the cannabis industry continues to develop innovative uses for the plant. “There are so many applications and new products that keep appearing, like ice cream with marijuana, vaporizers, inhalers, and syrup,” he says. “Now, there are mints—something I hadn’t seen before—and different ways to ingest the product and get high and not look like a druggie.”
Jordan Fein, chief executive at Greenbox Capital in Miami, says his firm prefers to fund downstream companies selling cannabis products. “We do agricultural lending but it’s less attractive and harder to qualify the business. It’s not as tangible as a retail business which will have a website and product reviews. The same goes for edibles.”
Recent Greenbox Capital deals in 2019, Fein says, included one with merchant cash advances of $80,000 and $60,000 in growth capital to a Colorado dispensary. The operation put the money to work adding two retail outlets during the year, he says, bringing to four its total number of storefronts. In addition to cannabis flower, the dispensary sells “edibles, tinctures, lotions, and wax concentrates,” Fein reports. Both short term cash advances require regular ACH payments.
Greenbox Capital also made a $135,000 cash advance to a cannabis-testing laboratory in Southern California in August, 2019 for the purchase of sophisticated equipment. The company, he says, is doing $140,000-a-month in revenue and cashflow is strong and on the rise.
“Greenbox is always interested in higher risk deals,” Fein says, noting that banking services remain off limits to legal cannabis firms. “But we fund them for the same reason we fund lawyers and auto sales—things that most others will not do. There’s nothing wrong with risk,” he adds, “as long as you clearly assign a proper value to the deal and price to it.”
Steve Sheinbaum, a New York broker and chief executive at Circadian Funding, has unabashedly climbed aboard the cannabis bandwagon. “The market is exploding and it’s attractive to lenders because it’s a product people can put their hands on,” he says. “If I’m dealing with a grower, I can leverage real estate and usually there’s equipment. If they’re producing, there’s inventory and I can look at the income statement to see what kind of cash flow the business is generating.”
He recently brokered a $10 million loan for a licensed grower and distributor of medicinal marijuana in New England with monthly revenues of $3-$4 million. The credit bore a 17% annual percentage rate and a six-year maturity, he says. The deal was brought to Circadian by a private equity investor who was looking to grow the enterprise tenfold. The deal, which was interest-only, was secured by a second position on real estate and a lien on the borrower’s license. “The lender was comfortable with the interest-only loan,” Sheinbaum explains. “They can refinance in six years.”
In another recent deal, Circadian arranged an unsecured merchant cash advance for $300,000 to a Pacific Northwest technology company developing specialty, point-of-sale software for the cannabis industry. The firm showed monthly revenues of $300,000.
“It’s not federally permitted for cannabis firms to take payments from Visa, Mastercard or American Express,” Sheinbaum explains. “But this technology company is using debit or credit cards to pay for cryptocurrency which is stored on a prepaid card which customers can then use to purchase cannabis.”
The tech company had been struggling to find money and Sheinbaum took satisfaction in a deal announcement that went out in an e-mail to the industry. “Funding complicated deals is what gets our blood flowing,” Sheinbaum wrote. “Anyone can get a restaurant or dentist funded. No one needs help with that.”
Manny Columbie, a Miami-based senior funding manager at H&J Capital Group, an Orlando firm, reports funding agricultural and dispensary businesses in California, Colorado and Washington State. In the Evergreen State, he says, he recently provided funding to a woman who owned a marijuana-themed café connected to a cannabis dispensary. The deal went through after examining her recent bank statements and two years of federal tax returns.
“The best thing about lending to people in this industry is their ability to repay,” Columbie says. “They’re never lacking in funds.”
He provided more detail on a deal currently in the works involving a physician in Irvine, California, with an 800-plus credit score from the rating agency Experian and personal tax returns showing $2 million in annual income. The doctor, Columbie says, has been making transdermal patches infused with THC in addition to his medical practice and needs specialized equipment to lower his manufacturing costs to 55 cents per patch. The patches sell for $40-$60 apiece, Columbie says, depending on the THC content.
If the deal goes through and is approved by H&J’s credit committee, the physician would likely be extended a $350,000 loan with a 10-year maturity secured by the Chinese-manufactured equipment. Factoring in the doctor’s excellent credit and other positives, the interest rate on the credit could be as low as 5%-7%.
While the environment for legal cannabis seems to grow more favorable by the day, market participants urge funders to remain circumspect. One remaining fly in the legal cannabis ointment has been the persistence of an illegal black market. Estimates are that as much as 60% to 80% of the marijuana market in California is illicit, says Craig Behnke, an equity analyst at MJBiz.
Law-abiding businesses must also contend with overbearing regulators and high taxation. The California Department of Fee and Tax Administration recently jacked up its excise tax on cannabis to 80%, effective on Jan. 1, 2020.
And the state’s constabulary isn’t helping matters either, notes Sanger of Oak Funds. “There are going to be a lot of operators that end up being losers because of the regulatory environment,” she says. “Law enforcement is using all of its resources to make sure legitimate businesses are following the rules instead of clamping down on black market activity. That makes it harder for legitimate retailers to make money because people are still shopping in the black market.”
The recent collapse of the shares of publicly traded Canadian cannabis companies, which some blame in part on the illicit competition from the black market, also stands as a cautionary sign. Last August, the Motley Fool listed ten “Pot Stocks”—including Canopy Growth and Aurora Cannabis, both of which are listed on the New York Stock Exchange—that together lost a stunning $20 billion in market capitalization.
The drubbing that heedless investors have taken in the Canadian stocks reminds analyst Behnke of the debacle in dotcom stocks back in 2001-2002, but with a big difference. “The dotcoms were a brand-new invention and people had no idea how big the Internet companies would be,” he told deBanked. “But cannabis has been around for a thousand years. I feel like it was a shame on investors and the companies. This shouldn’t have happened.”
“The Mountains Are Calling” is the motto of Gatlinburg, an East Tennessee town of roughly 4,000 citizens known for its spectacular views of the Smoky Mountains and as a jumping-off spot for hikers, campers and winter skiers. The town also offers attractions such as Ripley’s Aquarium and arts-and-crafts festivals.
To get around, 800,000 tourists and locals alike hop aboard the 20-odd trolley buses operated by Gatlinburg Trolley, the private transit system. Few riders marveling at the picturesque scenery and enjoying the sprightly vehicles, which recall San Francisco’s cable cars, know that they’re riding a custom-made trolley-bus built by Hometown Trolley of Crandon, Wisconsin.
And even fewer would know that the chief executive and president of that company is Kristina Pence-Dunow, making it the only female-owned manufacturer of transit vehicles in the US. Bolstering the manufacturing enterprise—which Pence-Dunow acquired in 1997 from her ex-husband, who wanted to “liquidate” it, she says—have been multiple bank loans backed by the Small Business Administration.
The most crucial SBA loan came in 2005, she says, just as she was nearly driven out of business in a price war. “We had to be innovative” to survive the cutthroat competition, Pence-Dunow told deBanked in a telephone interview.
Using a $350,000, five-year SBA credit issued by River Valley Bank (now Incredible Bank of Wausau, Wis.), the transit company developed the prototype for a “lowfloor entry vehicle.” The design feature made her trolleys accessible to riders with walkers and wheelchairs and enabled the company to beat out its competitor for a key contract with Hampton Roads (Va.) Transit. That deal, in turn, generated sales to transit authorities in Miami Beach, Laguna Beach, and the University of Oklahoma.
Subsequent SBA loans, Pence-Dunow says, enabled the company to create its own dealer network and develop battery-powered, clean-energy vehicles. The financings also allowed her to buy out, in 2016, the rival trolley company that had tried to run her buses off the road.
Her grit and determination—for many years Pence-Dunow ran the company as a single mother raising two children—have also paid dividends for her Wisconsin community. With annual sales of $20 million and 65 employees receiving health and life insurance as well as pension benefits, Hometown Trolley has brought good-paying jobs to successive generations of families in the Northwoods.
In 2018, she earned the SBA’s “Small Business Person of the Year” award for the state of Wisconsin.
Hometown Trolley, meanwhile, is just one of 30 million small businesses that make up the backbone of the US economy. Small businesses—a small business is broadly defined as a commercial or professional enterprise with fewer than 500 employees—accounted for the employment of 58.9 million people in 2015, according to the US Census Bureau’s most recent figures. That’s just shy of 50% of the country’s total workforce. And it seems that the smaller the better: In 2018, firms employing fewer than 20 employees added 1.1 million net jobs to the US economy, the largest gains among the small business cohort.
By contrast, large manufacturing companies only employ about 11% of the total workforce, notes Karen G. Mills, former SBA administrator and member of President Barack Obama’s cabinet. The bottom line is that the contribution to the economy made by both small business and the SBA “is under-appreciated,” says Mills, now a senior fellow at Harvard Business School and author of Fintech, Small Business & the American Dream. “It’s a much more powerful job-creator than the manufacturing component of the US economy,” she adds.
During the Great Recession, which coincided with her tenure at the SBA, Mills reports that 60% of the country’s job losses were in the small business sector. As many as 1.8 million jobs disappeared in a single quarter in 2009. Mills credits the SBA’s lending as playing a key role in buffering the US economy against even more severe ravages.
To help reverse the economic free-fall, the SBA eliminated all SBA fees and temporarily upped the 75% government credit guarantee to 90%. The agency also persuaded a thousand commercial banks that had not issued an SBA-backed credit since 2000 to turn on the spigots. “Banks are the primary source of financing for small businesses,” she notes. “They (small businesses) can’t go to the credit markets like big business does.”
S.R. Rosati, Inc., an Italian ice manufacturer based in Clifton Heights, Pa., is one of those small businesses that nearly went belly-up. Headed by Richard Trotter, a West Point graduate, former US Army captain and company president, the Italian ice business is thriving today. It has just under 30 employees and reports annual sales of $10 million. But ten years ago it was in desperate straits. “Even though we’re a 100-year-old company,” Trotter says, “we could have been like a ton of businesses that went out of business every week. The SBA helped us get through tough economic times in 2007-2008 when a lot of businesses took a hit.”
The SBA’s flagship product is the 7(a) loan, which range up to $5 million. Almost 2,000 US banks, as well as a number of nonbanks, participate in the program. The loans are currently backed by a 75% government guarantee and are targeted to those entrepreneurs who, the SBA states, “otherwise would not have access to capital to start, grow, or expand their small businesses.”
An SBA loan, former Administrator Mills explains, “is designed to fill a market gap— to make loans to creditworthy borrowers that the market feels are too risky to make without some support.”
Currently bearing an interest rate of 7.75%-9%, according to financial technology firm Fundera, 7(a) loans are affordable and the terms are fairly generous: typically, the borrower has 10 years to repay the loan. The loans can be used for multiple purposes: as working capital, to purchase equipment and inventory, make a business acquisition, meet payroll, hire new employees, and (in some cases) refinance crushing debt.
If a borrower is eligible and able to secure a 7(a) loan, “it’s the gold standard,” remarks Levi King, chief executive and co-founder of Utah-based Nav, an online, credit-data aggregator and financial matchmaker for small businesses.
William McSweeney, chief operating officer in the business banking section at Citizens Bank in Boston, says that insufficient collateral is most often the reason that a small business fails to qualify for a conventional business loan. With an SBA loan, he says, the government guarantee serves as a bulwark “to cover the weakness of a collateral position.”
He cites the case of a dentist who’s attempting to acquire an existing dental practice for $1 million. Unless the practice owns a building, McSweeney says, there’s probably not enough collateral to support a $1 million borrowing. Yet the deal is attractive: Dentistry is a reliable industry (or “vertical” in lender jargon), the targeted practice has a solid client base, there’s strong cashflow, and the practice boasts a fully equipped armamentarium. “An SBA loan will guarantee the $1 million loan for 75 percent,” McSweeney says. “Now I can ask, ‘Is there $250,000 in collateral.’ That’s the way I look at it.”
Adds Kirk Jacobson, an SBA lender at Northwest Bank branch in Independence, Ohio: “In my experience, the preponderance of SBA loans have a collateral shortfall. Even lending to hotels or something tangible can be risky. The collateral (the hotel) can lose value quickly. The challenge for banks like ours is to use the SBA as the tool where conventional lending doesn’t work.”
By at least one yardstick SBA lending appears to be at a crossroads. The SBA reports that the number of small businesses taking advantage of the 7(a) program fell by 13% in the most recent fiscal year, which ended September 30, 2019. The 52,000 small businesses securing 7(a) credits in 2019 was more than 8,000 fewer than the previous year. The dollar amount of credits acquired also dropped; the $23.7 billion in lending was a 6.5% drop.
This is being taken as a good sign by the agency. “A strong economy is powering America’s 30 million small businesses, and the SBA’s numbers bear that out,” Chris Pilkerton SBA’s acting administrator and general counsel, said in a recent statement. “When the economy is doing well, 7(a) lenders are more willing to provide capital without the need for a federal loan guarantee.”
But even small businesses that are outwardly healthy and experiencing growth often face hardship. Consider the case of Kyle McClelland, owner of Have Lights Will Travel, a Reno-based contractor that handles illumination for office buildings, stores, parking lots, and warehouses across northern Nevada. He got in over his head this year when he subcontracted lighting work for Macy’s and Target parking lots in a string of northern California cities.
There was no money advanced by the main contractor for materials, wages or expenses, he says. As a subcontractor, McClelland doesn’t get paid until the job is done. Yet, almost overnight, he doubled his workforce to 70 employees, footed the bill for a platoon of workers to lighting equipment, all of which exhausted his $100,000 line of credit with a Reno bank. His situation looked dire and it was taking an emotional toll. “The company was on life support.” he says. ”I realized that I needed extra funds to make payroll. I honestly didn’t sleep for months. I was lucky to get three hours of sleep a night.”
McClelland was bailed out in August when he secured a $350,000 line of credit through an SBA Express loan fronted by Five Star Bank, a Sacramento financial institution. SBA Express loans, which are part of the 7(a) program but carry only a 50% government guarantee, can be made in as few as 36 hours. But McClelland says that it took him four weeks to obtain the loan.
Trotter, the owner of the Italian ice company, says that his business too is in an expansion phase and that its financial situation was cramped. He had been saddled with a pricey, short-term note for $1.4 million that was weighing down business. With the intercession of Multifunding, a Philadelphia-area broker, Trotter took out a $2.5 million, 10-year loan with Celtic Bank in Utah at prime plus 2.75%, his third SBA loan in 20 years. The refinancing, which closed in late July, is saving him $30,000 in monthly cashflow, he says, more than $100,000 to date.
“Now we can play a little bit of offense,” he says. “We have the up-front money to go into convenience stores and supermarkets with our product.”
One common experience of the business-people who spoke to deBanked is that assembling the required documents and applying for SBA loans can be a daunting and often discouraging task. “The whole thing with these loans is making sure the I’s are dotted and the T’s are crossed,” says Domenic Rinaldi, managing partner at Sun Acquisitions, a Chicago-based firm specializing in lower middle-market, merger-and-acquisition deals using SBA loans. “The government is demanding,” he adds, “and if everything is not in order, you won’t get your money.”
To cut through the inordinate amount of red tape, many businesses turn to brokers like Multifunding and other financial midwives, who receive a commission from the bank. “The fastest I’ve done an SBA loan is two weeks and the longest is 18 months,” says Ami Kassar, founder and chief executive of Multifunding. He says that the firm’s SBA credit business constitutes 70% of his work and that he relies on a network of 10 banks. “The average time it takes for an SBA loan is probably 90 days,” he adds.
“Grueling” is how Daniel Shemtob of Los Angeles describes his experience obtaining an SBA loan. “I had gone to 30 banks,” he says, “and I did qualify for a loan but I didn’t like the deal.”
Shemtob is the chief executive and—thanks to securing an SBA backed financing for an acquisition—the sole owner of The Lime Truck, which has bragging rights to winning the Food Network’s “Great Truck Race.”
In addition to the truck, his Southern California business also includes a couple of brick-and-mortar restaurants and a catering company. The operation, which will do $5.5 million in sales this year, employs 40 full-time workers plus part-time catering help.
Shemtob finally scored an SBA loan with assistance from Kassar’s Multifunding, which he found through Entrepreneurs’ Organization, where he’s a board member of the L.A. chapter. He was able to take out a pair of 10-year loans totaling $1.8 million with IncredibleBank at prime plus 2.75%. Even with a broker, he says, it took him three months to get the loan, which closed earlier this year. “The ten-year loans give you stability and an affordable payment,” he says. “If I hit my sales targets,” he adds, “the loans will allow me to grow the business.”
But what if he hadn’t obtained SBA-backed financing? “I don’t know if the company would be around today,” Shemtob says.
SBA loans used for acquisitions play a major role in extending the life of enterprises that likely would have disappeared upon the retirement or death of an entrepreneur, the unwillingness of succeeding generations to take control of a family business, or the break-up of a partnership, notes Rinaldi, the Chicago M&A specialist.
To arrange SBA acquisition loans for purchasers of small businesses, Rinaldi deals mainly with 18 banks, including Busey Bank (Champaign, Ill.), U.S. Bancorp (Minneapolis), Byline Bank (Chicago) and Canadian Imperial Bank of Commerce (Toronto). “Banks may say, ‘Bring us all your manufacturing deals’ and two years later there’s a management change and they’ll only make loans to distribution and service companies,” Rinaldi says. “Part of my job is understanding which sectors are handled by which banks.”
Meanwhile, an emerging debate is brewing within banking circles about the best use of SBA 7(a) loans, which were capped at $28 billion in the last fiscal year. While the overall U.S. economy has continued to prosper since the Great Recession, and the official unemployment rate has dipped below 4%, the lowest in 50 years, the bounty is being shared unevenly. While most large US cities and suburbs are generally adding jobs and experiencing good times, many rural areas and Rust Belt communities are dealing with stagnant wages, job losses and population outflows.
The question is: Should more banking resources be directed to distressed communities through SBA loans? Or should the banking industry lend as it sees fit, largely focused on profitability and shareholder value, albeit within the SBA’s guidelines, perhaps with a nod to businesses owned by women, minorities and veterans? Many banks incorporate both philosophies. But this dichotomy in operational goals can sometimes be seen in sharp relief.
The stark difference in SBA lending practices between Live Oak Bank of Wilmington, N.C. and Northwest Bank of Warren, Pa. is a case in point.
With $4.6 billion in assets, Live Oak Banking Company, which was founded in 2007, is just a dozen years old but it’s already become the No. 1 SBA lender in the US. In the most recent fiscal year, from just one branch on North Carolina’s seacoast, it made 913 SBA loans totaling $1.347 billion, an average of nearly $1.5 million per loan. To comprehend the magnitude of that accomplishment: Live Oak nearly lapped Wells Fargo Bank, the No. 2 lender with $786.4 million in loan totals, despite the latter’s making triple the number of SBA loans. It also out-lent such worthies as J.P. Morgan Chase and Bank of America, both of which lagged well behind Live Oak in the SBA lending tables.
With its adroit use of technology and its meteoric rise to become an SBA powerhouse, Live Oak has emerged as a Wall Street darling. Thomas Brown, a founder and chief executive at Second Curve Capital, a hedge fund that invests exclusively in financial services companies and manages $150 million in assets, calls Live Oak “a freak of nature.”
“For their veterinarian-lending practice,” Brown observes, “they hire a vet as their lending officer. They do this with all their verticals, whether it’s chicken farming or funeral homes. And when they’re dealing with a client, they have all this incredible expertise.”
Steve Smits, chief credit officer at Live Oak, told deBanked that the bank now lends to 29 verticals across all 50 states. Its most recent additions were early childhood education centers and franchisees for aftermarket companies like Jiffy Lube and Meineke. Not only does Live Oak have experienced loan officers with deep knowledge of their sectors making the loans, but the bank is conscientious about keeping up with its clients. So much so that it maintains a stable of consultants, accountants and other professionals who are on call to add value.
For example, says Smits, a former associate administrator of the SBA’s office of capital access, one of Live Oak’s board members is Jerald Pullins, a former president of Service Corporation International, the Houston-based owner and operator of nearly 1,500 funeral homes and 481 cemeteries in the US and Canada.
For critics who say that an SBA lender should be modeled on George Bailey, the small-town banker immortalized in “It’s a Wonderful Life,” Smits says: “On a moral plane, we visit 100 percent of our small business owners face-to-face at a minimum of a two-year rotation. With 10-year loans, it would be easy to take a hands-off approach, but we’re very vigilant.”
Smits adds: “We’ve had our customers say to us, ‘You know what. You’ve traveled across the country to see me. And I’ve been banking with the branch down the street and they’ve never been in my office.’”
Founded in 1896 and headquartered in Warren, Pa., Northwest Bank’s service area looks like a jagged triangle traversing three states, running from Lancaster, Pa. to greater Cleveland to Buffalo, N.Y. and back. Inside the tri-state perimeter are a plethora of gritty old factory towns and Rust Belt communities.
“Our banks are located in all kinds of small cities,” Jacobson, the bank’s chief SBA lender, says. “I’m biased,” he adds, “but I believe in reinvesting in our communities. Our business model is to lend in our footprint. It’s where our branches are and where our clients are. Our strategy is not to lend around the US.”
One example of Northwest’s targeted SBA lending, Jacobson says, can be seen in Lorain, Ohio, a city of 64,000 on Lake Erie that is working to reinvent itself. Lorain was once the proud home of iconic heavy industries like the American Ship Building Company, a Ford Motor assembly plant, and U.S. Steel’s sprawling mill on the city’s south side. The economy was so dynamic that it “outshined Cleveland” says Kevin Nelson, the Lorain-based president of Northwest Bank’s Ohio region.
But in the 1980s deindustrialization began to take its toll and the city experienced high unemployment, rising poverty, and urban decay. Now, however, Lorain is hoping to rise like the mythical Phoenix from its ashes. And Northwest Bank is doing its part by marshaling resources in concert with the city’s government, the Black River Port Authority, the Chamber of Commerce, the Lorain Historical Society and other citizens groups to transform the waterfront and downtown into an entertainment center and destination for weddings, rock concerts, and other events.
Nelson is bullish on the just-completed Broadway Streetscape, in the heart of downtown, which has given Lorain a physical makeover. There are, Nelson says, “new sidewalks, lighting, archways, and parking areas.” Condominiums are being built and the marina is under new management, which could make the city a boating center. Black River Landing has become a magnet for celebrants with more than 200,000 people attending the “Rockin’ on the River” concerts over the summer. And the city is witnessing “new restaurants, coffee shops, bars, and other gathering places for people,” the banker says. “We’re seeing outside investment and we’re just beginning to see Lorain becoming a destination for millennials.”
Many of the trendy new establishments are being financed with SBA loans. “SBA lending has helped us support some of these new ventures coming in,” Nelson says. “They don’t make up for bad credit, lack of a business plan or cashflow,” he adds. “It has to be the right type of business. But SBA loans are a component.”
Who knows? Maybe Lorain will be home to the next Ben & Jerry’s or Calloway Golf, both of which commenced life as small business start-ups. A city can hope, can’t it?
Kabbage funded $600 million in the first quarter of the year, putting it on pace to potentially overtake OnDeck in originations for 2019. OnDeck reported $658 million in originations just a quarter earlier to finish 2018.
The two companies have been among the top three funders by origination volume on deBanked’s leaderboard since 2014. OnDeck has consistently been on top with Kabbage and Square solidly in the #2 and #3 slots.
In 2018, OnDeck funded $2.48 billion, while Kabbage CEO Robert Frohwein told deBanked that the company originated “north of $2 billion.”
Both companies are expanding.
“We solidified our position as the leading online lender to small businesses in the US, launched ODX, our platform-as-a-service business, and announced plans to scale our international operations and enter the equipment finance market,” said OnDeck CEO Noah Breslow in a 2018 Q4 report statement.
Meanwhile, Kabbage announced in January of this year that it will be powering a program that offers financing to U.S. customers of the Chinese e-commerce giant Alibaba.
“Financing at the point of sale requires a fully automated solution that can handle the immense volume of daily transactions that occur on Alibaba.com,” said Kabbage CEO Rob Frohwein. “We are incredibly impressed with the service and value that Alibaba.com delivers to American businesses and want to do all we can to support their important mission.”
|Company Name||2018 Originations||2017||2016||2015||2014|
deBanked’s leaderboard omits companies that have not disclosed their small business origination volumes.
Kabbage’s $700 million securitization that was announced today will be used to pay down a previous securitization.
When Ty Austin, who owns a florist shop in West Palm Beach, secured a $5,000 loan from National Funding last year, he was happy to have working capital and could build inventory for mini-gardens and landscaping,
The experience, moreover, was surprisingly pleasant. “The guy I worked with was really cool,” Austin says, referring to the sales representative at the San Diego-based financial technology firm. “It turned out that he was getting married and I ended up giving him and his fiancé advice on floral arrangements.”
The borrowing worked out so well that the Floridian, who is 46 and the sole proprietor of Austintatious Designs, re-upped for a second loan of $12,000 to help purchase a commercial van. The van will be used to transport flowers, plants and tools while doubling as a billboard-on-wheels. “It gives me more ‘street cred,’” he jokes.
To register his approval with National Funding, Austin went online to TrustPilot and posted a rave review of the sales rep: “James Johnson Rocks!”
Pam, a Texas wellness coach who provides clients with an array of holistic health therapies, needed extra money to buy an infrared sauna to add to her portfolio of services. But her credit rating was “poor,” she told deBanked in an e-mail interview, “from when I changed careers and lost my health and struggled to make my credit card and student loan payments on time.”
Like Austin, Pam — who asks to be identified by her first name —found National Funding through an online search. And she too secured $5,000, although her transaction was structured as a merchant cash advance, rather than a loan. The terms of the MCA require a daily debit from her bank account. She reckons that the total cost of the MCA to be roughly $1,500.
Pam pronounces herself satisfied with the deal and mightily impressed with the way National Funding treated her. The process took about three days — and would have gone even quicker if she’d located her professional licenses sooner. Best of all, she says, the agent at the company tailored the financing to suit her circumstances. “They were great as far as getting my questions answered, even listening to my past situation, which others may not have cared about,” she says.
“They really wanted to get me an option that they knew I’d be able to repay,” Pam adds. “They said they were in the business of helping small businesses grow rather than putting them in a hard financial situation.”
The positive experiences that Austin and Pam had with National Funding are not isolated instances. Rather, they are representative of clients’ dealings with the company. Witness its online reviews from business borrowers at TrustPilot which go back three years, run for 36 pages, and merit National Funding a 9.4 rating on a scale of 10. That’s a straight-A grade on any report card. Although there’s the occasional naysayer — four percent assert that their experience was “poor” or “bad” (and some negative comments can be blistering) — the weight of the reviews is almost embarrassingly positive.
Typical postings find that National Funding and its agents win kudos for, among other things, being “prompt and professional,” providing service that is “hassle free and about as friendly as you can be,” and even being “accommodating and gracious.” A man named Al McCullough spoke for many when he declared: “My experience was great. Professional and on time. Couldn’t ask for more.”
All of which helps account for why National Funding — its 230 employees working out of a sleek suburban office building guarded by a tall stand of palm trees in San Diego — is a rising star in the world of alternative business lending and financial technology. In 2017, the company raked in $94.5 million in revenues, a 24.8 percent bounce over the $75.7 million recorded a year earlier and nearly fourfold the $26.7 million posted in 2013.
In recognition of the company’s three-year growth rate of 142%, Inc. magazine included National Funding in its current list of the country’s 5,000 fastest-growing companies, the lender’s sixth straight appearance on the coveted roster. Since its inception in 1999, National Funding reports that it has originated more than $2 billion in loans to some 35,000 borrowers.
The company’s impressive performance has similarly merited accolades for David Gilbert, the 43-year-old chief executive who started the company on little more than a shoestring and whom employees regularly describe as “visionary.” Among Gilbert’s trophies: Accounting firm Ernst & Young recently presented him with its “Entrepreneur of the Year 2017 Award” for San Diego finance.
At first glance, the San Diego financier doesn’t look too much different from its cohorts. The company proffers unsecured loans of $5,000 to $500,000 to a mélange of small businesses in all 50 states and across multiple industries, including retail stores, auto repair shops, truckers, construction companies, heating-and plumbing contractors, spas and beauty salons, cafes and restaurants, waste management, medical and dental clinics, and insurance agencies.
To qualify for financing, a prospective borrower should have been in business for a year, have at least $100,000 in revenues, and boast a personal credit score of at least 500. While there’s no collateral required for loans, National Funding insists on a personal guarantee. The website reviewer NerdWallet cautions borrowers that this “puts your personal assets and credit at risk if you fail to repay the loan.”
Along with unsecured loans, National Funding offers equipment leasing – usually for heavy trucks and construction equipment – as well as merchant cash advances. The equipment lease is secured by the machinery. As in the case of Pam, the wellness coach cited above, MCAs are debited daily, the money automatically withdrawn from bank accounts.
There are a number of businesses that National Funding disdains, no matter how stellar their credit. “We won’t finance casinos, strip bars, tobacco, or firearms,” Gilbert says. “We’re not going to support industries like that.”
For CEO Gilbert, doing business ethically is a signature feature of the company. Among other things, National Funding presses its salespeople to steer clear of putting people into dodgy loans that are likely to default. “We’re lending capital,” Gilbert says, “and one of our core values is the way we support our customers. Are we placing people with the right product to meet their needs or are we being selfish? The best way to be customer oriented is to get a better understanding of what capital will do for them.”
That corporate ethos, coupled with the company’s remarkable performance, has raised its profile while earning it a measure of esteem among industry peers. “What I do know about National Funding,” says Douglas Rovello, senior managing partner at Fund Simple, a lender and broker in the Tampa area, “is that they have five or six different programs and set their rates high but competitively. They’re known for fitting their products to a client’s needs,” he adds. “And in a business that has its share of bad actors, they have a reputation as a company with a conscience.”
A company with a conscience. Customers come first. And yet National Funding turns heads with its sales production of roughly 1,000 financings a month and triple-digit growth rate. So how do they it? A good place to start is with Gilbert, whose leadership skills, business acumen, and second-to-none work ethic “set the tone,” says Kevin Bryla, the company’s 52-year-old chief marketing officer.
For his part, Gilbert credits his family background and an upbringing in which education and academic achievement were strongly encouraged. The fifth of six children, he’s the only one who opted for a business career. “There are three doctors, two lawyers – and me,” Gilbert says.
The son of a prominent physician, his mother a homemaker and volunteer docent at the nearby Nixon Library for the past 25 years, Gilbert grew up in Yorba Linda. He attributes his keen interest in business to observing how his father, a pathologist, operated his own laboratory, which employed 60 people. “It was the business side of medicine that fascinated me,” he asserts.
Even so, his two closest friends at the University of Southern California — fraternity brothers Marc Newburger and Sean Swerdlow– tell a somewhat different story. They remember Gilbert as someone who found his true calling, his métier, during his college years. Enrolled initially in pre-med courses, he was a diligent student but, his friends assert, manifestly unsuited for a career in medicine.
“Formative,” says Swerdlow, the older of the two fraternity brothers and now a management consultant based in Southern California, “would be a very good word” to characterize that period during which Gilbert abandoned medicine in favor of the world of commerce. In 1997, he earned a bachelor’s degree in business administration “with an emphasis in entrepreneurship.”
But it was fraternity life just as much as the classroom, his friends agree, that shaped him and foreshadowed his future. “It wasn’t ‘Animal House,’” Swerdlow says of Alpha Epsilon Pi. “We boasted the highest GPA (grade point average) on fraternity row.”
Nonetheless, Gilbert took to the social life and camaraderie that the fraternity offered with gusto, and his friendship with the colorful Newburger was especially fateful. A freewheeling entrepreneur today, Newburger takes a measure of credit — Gilbert’s disapproving parents might have preferred the word “blame” — for contributing to his fraternity brother’s metamorphosis. “Dave hated all of his pre-med classes,” Newburger insists. “He had zero stomach for it. He was so much like I was: a natural people person and a born entrepreneur.”
Newburger is the quintessential soldier of fortune. After college, he tried his hand as an actor, supporting himself by playing poker and getting paid to be a contestant on TV game shows including “The Dating Game,” “Card Sharks,” and “3’s A Crowd.” He’s now the co-president and co-inventor of Drop Stop, a patented device that “minds the gap” between a car’s front seat and the console and prevents coins, keys, glasses, and mobile phones from disappearing down that rabbit hole. (Drop Stop really took off after Newburger and his business partner appeared on the television show “Shark Tank” and scored a $300,000 capital injection from celebrity-investor Lori Greiner who took a 30% stake in the company and slapped her name on the brand.)
Back at the frat house, Newburger and Gilbert collaborated on business ventures. The pair once sold T-shirts sporting an off-color message about USC’s archrival, the University of California at Los Angeles. “The (anti-UCLA) message was pure hatred,” Newburger recalls. “But it was just for the day of the football game and it was all in fun.”
At first, sales at the stadium were lackluster. USC students kept trying to bid down the price or importune them to throw in an extra tee. As for the game itself, USC’s chances for victory looked equally unpromising. As time ran out, however, the Trojan quarterback completed a Hail Mary pass and USC won. The two fraternity brothers grabbed the bundle of shirts and sprang into action. “We got to the exit just in time and sold out in a matter of seconds,” Newburger recalls.
Newburger takes credit too for introducing his friend to Las Vegas’ gaming tables. Gilbert, his friend says, immediately demonstrated a knack for counting cards, handling money, and taking risks. “It was typically blackjack,” recalls Swerdlow, who sometimes accompanied them. “We didn’t have much money then. But there were moments when Dave would bet a big pile of chips. He’s willing to make a bet and live with the consequences.”
Sports are another of Gilbert’s enthusiasms. His friends say that, whether he’s returning serve at ping pong or standing over a putt — he plays to an 11 handicap at golf – he wants to win. Remarks Newburger: “He’s competitive to the point that — when he beats you — he wants the Goodyear blimp flying overhead to announce his victory.”
Gilbert, who is married with two children, is legendarily loyal to friends and family. While most members of a college fraternity might keep up with old companions after graduation by exchanging greeting cards and attending college reunions, Gilbert goes the extra mile.
He once footed the bill for Swerdlow to travel with the USC football team to an away game, arranging it so that his fraternity brother could view the action from field-level. After Newburger had a recent health scare (no worries, he’s O.K.), Gilbert rounded up a couple of dozen fraternity brothers and their wives (or companions), and put together a four-day bash in his buddy’s honor. The event was held at Cabo, the Mexican beach resort in Baja California, and Gilbert underwrote a fair amount of the cost. “He shares his success with his friends,” Newburger says, adding: “I don’t know anybody who works harder on friendships.”
Many of the personality traits described by friends and colleagues — tenacity and competitiveness, self confidence and leadership — played a key role in the development and success of National Funding, which Gilbert founded just two years out of college with $10,000 borrowed from his uncle, Howard Kaiman, of Omaha.
He’d worked a couple of quick jobs right after college, including a stint at small-business lender Balboa Capital, but he was always destined to be his own boss. Gilbert’s start-up was called Five Point Capital and, at first, it was located in the affluent Chatsworth section of Los Angeles and concentrated on equipment leasing.
“The first two years we were a cold-calling company and then we got into direct mail and saw some success and then we moved to San Diego and started to scale up the company,” Gilbert says. The decampment, he explains, was “for the quality of life, but we also felt we could hire from a better talent pool than L.A. We wanted to set ourselves apart.”
By 2007, Five Point was cranking up operations, revenues shot to $28 million and its headcount totaled 210 employees. “Then the Great Recession hit” in 2008-2009, Gilbert says. The company was forced to furlough 140 employees, two-thirds of its workforce. Yet even as it retrenched, the company managed to branch out. It began making merchant cash advances, Gilbert says, and, also in 2007, it linked up with CAN Capital to do broker financings. “We were pretty well known and they were looking for partners for factoring and leasing,” Gilbert explains.
It took time to recover after the financial crisis. But by 2013 – the year that Gilbert re-branded his company “National Funding” – the company was able to hire back as many as 15% of its laid-off employees (most had found other jobs, in many cases relocating to Silicon Valley, Gilbert reports). By then, the company had secured a $25 million credit facility from Wells Fargo Bank, which allowed it to move up the food chain to “become a balance-sheet lender,” Gilbert says, and offer a wider selection of financing options.
Key to driving the company’s phenomenal growth has been its flood-the-zone marketing and sales strategies. The company spends $16 million annually on marketing using a full panoply of channels and media, both online and offline. These include direct mail and targeted marketing, paid advertising, search-engine optimization or SEO, and sports sponsorships. “We try to build a whole range of marketing mechanisms,” explains marketing chief Bryla, “and when you get the mix right, they all help each other.”
Gilbert is a big believer in the benefits of sports marketing, the company’s website featuring the logos of the San Diego Padres (baseball), and Anaheim Ducks and Los Angeles Kings (hockey). Ever the faithful alumnus, Gilbert and his company back USC football as well. During the 2015 2016 college football season, the company paid for naming rights for what became, for one night, the “National Funding Holiday Bowl” at Qualcomm Stadium.
Janet Fink, department chair at the McCormack School of Sports Management located at the University of Massachusetts-Amherst, told deBanked that sponsorship programs can easily cost a million dollars or more. “It’s not cheap,” she says. “When a company sponsors a team, they get a number of benefits. One is that they get to put the team’s logo on their website. The idea is that fans are passionate or have an affinity for the team and that it will rub off on a sponsor.
“Sports enthusiasts,” Fink adds, “often make good customers. When you have enough disposable income to go to these sporting events, you’re probably a good prospect for a loan.”
The sponsorships — which include civic involvement such as offering Holiday Bowl tickets to members of San Diego’s large military contingent as well as to company employees — also build good will in the community and team spirit among the workforce. (National Funding also makes an effort to hire veterans, says Bryla.)
Gilbert believes in the old adage that you have to spend money to make money. The company spends $14 million rewarding its network of outside brokers. Inside the company, high-performing salespeople are compensated with commissions, bonuses and an assortment of rewards, including resort trips.
But sales representatives’ must conform to company guidelines. Justin Thompson, National Funding’s sales chief, explains that the “customer comes first” philosophy is not just a slogan but a core value. “We’re not a factory spitting out widgets,” Thompson says. “We’re here to build relationships and sell a repeatable product. We want that customer to come back to us. Every loan is customized. Six of ten customers who pay off their loans come back for a second financing. Whether your business is dog grooming or you’re an asphalt company,” he adds, “people will do business with people they like and trust.”
Using the software program “customer relationship management” (CRM), National Funding expends a lot of effort gathering data on its business customers and extrapolating the information for use in credit evaluations. But the use of technology only goes so far.
Gilbert reckons that the art of the deal involves about “70 percent algorithm and 30 percent people.” He adds, “You still need the people component to look at credit profiles. The algorithm spits out a recommendation but we still need the human element.”
If there’s a fly in the National Funding ointment, it’s that the company’s fees can be more expensive than a bank loan.
But borrowers who have been denied loans at a bank or other lender are likely to overlook those costs. Austin, the florist in West Palm Beach, for example, came to National Funding when his bank, North Carolina-based BB&T Bank, gave him the cold shoulder despite the $15,000 in deposits that he averages each month. “I’ve been with them for six years,” he fretted, “and they treated me shabbily.”
Even more grateful was Jimmy Frisco, of Annapolis, who is co-owner with his wife of Lisa’s Luncheonette, a business that includes a food trailer and several cafeterias located in the city’s office buildings. They employ about a dozen people.
Frisco had taken a nasty spill and was laid up for seven months. Health insurance covered the $18,000 in medical costs but he and Lisa fell behind in their bills and needed working capital to pay for food purchases and other business expenses. By the time a flyer from National Funding popped up in his mailbox, he and his wife “had been turned down by several other lenders, including banks,” he says, adding: “Things happen in life and we don’t have the best of credit.”
Getting that loan for $25,000 from National Funding took just three days. Frisco’s health is much improved and business is back to normal. He won’t discuss the terms of the financing, other than to say “it was reasonable.”
He adds: “There were no problems with National Funding, no hassle with the paperwork. They’re great people to work with.”
north mill equipment finance , - nfs leasing, - maxim cc, , just to name a few aside from the go to's (finpac, plc, 360)...