Brendan Garrett was a Reporter at deBanked.
Articles by Brendan Garrett
Views from the Small Business Finance Industry, March 27
March 27, 2020
As the coronavirus pandemic continues to disrupt the economy and affect small businesses as well as funders, deBanked will keep up with how various figures from the alternative finance sector are managing under the stresses of covid-19. Ranging from funders, to brokers, to those figures on the periphery of the industry, this series aims to highlight a variety of voices and we encourage you to reach out to deBanked to discuss how your business is doing.
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One such voice this week was Shawn Smith, CEO of Dedicated Commercial Recovery. Specializing in debt recovery and legal enforcement, Smith told deBanked that his business has already seen a jump in demand, but that he reckons, for now, most demand will be for modifications on existing deals. According to Smith, many of his clients have explained to him that merchants have been requesting changes to the terms of the financing, either by tweaking the rates or length of repayment.
“Just in two weeks we can see an uptick, but by and large, it hasn’t majorly spiked. I think it’s spiking with the funders or the creditors right now. And we’ll be next on that … a major thing I’m hearing is a dramatic increase in inbound calls to our clients for modifications.”
In Smith’s view, this back and forth between merchants and funders is a better scenario than the alternative, making clear that honest communication is necessary in a crisis like this.
“Hopefully everybody’s working together through this, which does seem to be the case right now. I honestly think we’re past the point of some people calling this a hoax, or it’s not to be taken seriously. And I’m seeing a lot of rallying around the idea of ‘we’re in this together even though we can’t stand next to each other.’ A kind of American spirit of we’re going to beat this, we’re going to get through it.”
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For Idea Financial, the idea of working together has manifested, just as it has for many companies across the world, digitally. CEO Justin Leto and President Larry Bassuk explained to deBanked that since their entire company is working remotely, the communication app Slack has stepped in for continual conversation between employees and Zoom is being used to check in with the team multiple times throughout the day.
“In many ways, our teams interact more now than they did when they were in the office together. We hold competitions, share personal stories, and really support one another. At Idea, the sentiment that we feel is that everyone appreciated each other more now than before, and we all look forward to seeing each other again in person soon.”
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On Thursday, industry leaders took part in a webinar hosted by LendIt Co-Founder and Chairman Peter Renton. Various subjects relating to Covid-19 were up for discussion by Lendio’s Brock Blake, Kabbage’s Kathryn Petralia, and Luz Urrutia of Opportunity Fund, with the $2 trillion government bill being foremost among them.
Blake, who had been in touch with Senators Romney and Rubio, explained that most small businesses will be eligible for a loan out of the $350 billion fund that would be allotted to the SBA under the $2 trillion bill, saying that “a tsunami of loan applications is coming because almost all small business owners in America will qualify for this product.” The Lendio CEO also noted that business can expect to pay an interest rate of 3.75% on these loans, only a portion of each individual loan may be forgivable, and the max amount loaned out will be two and a half times the business’s monthly payroll, rent, and utilities combined.
Beyond the specifics of the 7(a) loan program, Blake expressed concern over the SBA’s bandwidth, saying that he was unsure whether or not the organization and the banks that it will partner with to deliver these loans will have the capacity to process them, a point echoed by Urrutia. “We’re talking about businesses that are going to need a ton of support,” the Opportunity Fund CEO said. “With these programs, the money doesn’t really get down to the bottom of the pyramid.”
Collectively, the group hoped that the SBA would open up their channels and allow non-bank lenders to use some of the $350 billion to fund small businesses, citing that neither government agencies nor banks have the technology nor processes to hastily deal with the amount of applications that will come. In other words, the SBA is working with “dinosaur technology,” as Blake called it.
One point of concern that continually arose during the conversation was the situation lenders will find themselves in as the pandemic continues. With Blake saying that an estimated 50% of non-bank lenders on his platform have hit the pause button on new loans, each of the other participants expressed worry about lenders being wiped off the map during and in the aftermath of this crisis.
As well as this, Petralia explained that funders can expect to encounter increased rates of fraud during this time: “In times like this, the bad guys come out in force … criminals are very creative and smart, so I promise you they’ll come up with new ways to fraud the system.” Discussing how they are dealing with this, the group mentioned that they were incorporating additional revenue and cash balance checks, as well as social media checks to see whether the business announced that it had closed due to the coronavirus.
Altogether, the conversation was one of uncertainty, but also one of hope to keep the wheels of the industry turning as more and more small business owners look for financing to keep their payroll flowing. As Renton said closing the session, “This is our time to shine, this is fintech’s time to show what it’s been working on for the last decade.”
$2 Trillion Senate Relief Bill to Pass Vote, Includes Small Business Funds
March 26, 2020
Senate leaders Mitch McConnell and Chuck Schumer have come to an agreement over a stimulus package that would inject $2 trillion into the US economy. With senators debating the bill at the time of writing, it is expected to pass. Said to be the largest and most robust rescue package in American history, the bill would see $300 billion go to the SBA for its 7A loan program.
“At last we have a deal,” McConnell said after negotiations wrapped up at 1:30am on Wednesday morning. McConnell later described the bill as “a war-time level of investment into our nation.”
According to Stephen Denis, Executive Director of the SBFA, who was closely engaged with the language being placed into the bill, certain small businesses who receive SBA loans may have their loan converted to a grant, depending upon how they aim to spend the financing. As well as this, Denis made clear that small businesses will be able to use these funds to pay any charges linked to an online small business loan or MCA.
“There’s different things that you can use the SBA money for,” Denis explained in a call. “Payroll support, obviously, including paid sick leave, medical, or family leave; costs related to health care; employees salaries; mortgage payments; rent payments; utilities. And then this is another thing that we got inserted into the bill, we wanted to make sure that businesses had the flexibility to use this funding to pay existing debt obligations that were incurred before the covered period. What this means is that if a business had taken out an MCA or a loan, that they could use this money to pay off the obligations.”
As well as allotting funds for the SBA, the bill provides for cash payments of up to $1,200 to be made available directly to individuals, $2,400 for married couples, and an additional $500 per child, which will be reduced if the individual makes more than $75,000 annually or if the couple makes over $150,000. $350 billion will also be made available to help small businesses mitigate layoffs and support payroll.
The most recent example of something akin to this bill is the Troubled Asset Relief Program (TARP) that was established to help financial institutions in the aftermath of the ’08 financial crisis. And with there being some surprise in retrospect to how TARP’s funds were ultimately used, there is concern about supervision of these funds.
When asked on Monday who would provide oversight for the program to fund businesses, President Trump replied with, “I’ll be the oversight.” However, since then White House officials have agreed in closed-door negotiations that an independent inspector general as well as an oversight committee will be instated to supervise the loans.
Despite stalling in the Senate several times throughout Wednesday, Denis is confident that the bill will be voted through the Senate, and following this, through the House.
“Never make a guarantee in Washington. That’s something I’ve learned in my career. But I think this is something that both sides, both Democrats and Republicans, recognize needs to get done right now. And I can’t imagine anymore political games after the agreement this morning.”
As well as this, Denis was eager to highlight that many funders and broker shops fall under the classification of a small business, and would be eligible for some of the funds promised by this $2 trillion bill; and that if you are wondering how you might access some of the relief package upon its passing through government, to reach out to him.
European Challenger Bank Revolut Launches in US
March 25, 2020
Yesterday Revolut, the London-based digital-only bank, announced the public launch of its app in the United States. The news came as a surprise to the thousands of potential American customers who signed up to the company’s waiting list with no details of when exactly to expect the bank’s arrival.
Founded in 2015 and valued at $5.5 billion, Revolut offers customers a debit card and a bank account controlled solely through its app; no brick-and-mortar branches being all the more timely during the coronavirus pandemic. The challenger bank joins its competitors, Monzo, N26, and Chime, in offering more sleeker and streamlined experiences compared to legacy banks.
While the European version of the app allows users to invest in stocks, trade cryptocurrencies, and buy insurance, the US edition will launch with limited capabilities, instead planning to roll out such features when they are available. The reason for this likely being that Revolut has yet to agree to deals with third parties to provide these features through partnerships. However, American Revolut users will be able to receive their salary two days in advance if they share their Revolut bank details with their employer, an ability that has yet to be launched in Europe. As well as this, the US version still offers the expense management, payment alerts, and currency exchange features that are in the European app.
Much like other fintechs who dabble in American banking, Revolut has circumvented the issue of acquiring a banking charter by instead partnering with a domestic bank, such as the New York-based Metropolitan Commercial Bank in this case. As such, accounts are FDIC-insured for up to $250,000.
“As the cost of living increases disproportionately to people’s take-home salaries, now more than ever, people need to know exactly what is coming in and out of their account. They should have the tools to help them manage their money more conveniently and accurately,” Revolut Founder and CEO Nik Storonsky said in a statement. “When spending or transferring money overseas, most people are unaware of the hidden fees that banks are charging them. The world is becoming more connected, and financial services should be supporting this notion, not hindering it.”
Canadian Lenders Association Announces Creation of Covid-19 Working Group
March 20, 2020
The Canadian Lenders Association has announced its establishment of a covid-19 working group to support its members’ response against the coronavirus. The group will act as an advisory committee and resource for CLA members, while also serving as a lobbyist group to various government entities.
“We presently are in an unprecedented period in Canadian business,” CLA President Gary Schwartz said in a statement. “In the weeks and months ahead, CLA members will have an important role to play in supporting small business and in providing much needed credit to consumers across Canada. The goal of this initiative is to engage with and advocate on behalf of all stakeholders across the innovative lending ecosystem to help mitigate the disruption that covid-19 create in Canada.”
The working group will engage Canadian policy makers on key issues relating to small business lenders and small businesses. In a call, CLA Board Member and Merchant Growth Partner CEO David Gens said that “there’s a lot that governments can do to bridge businesses through this, so that once this virus is over, life resembles, as much as possible, what it looked like pre-virus … I don’t think we have seen enough yet in terms of the government response as it relates specifically to mom and pop small businesses … And I think that those businesses, those local storefronts really do make up the fabric of communities.”
BFS Capital Hires Peter Ng as CRO
March 20, 2020
Last week BFS Capital announced that it has appointed Peter Ng as Chief Revenue Officer. Coming from BlackBerry, where he served as Senior Director of Global Alliances and Business Development, Ng will be responsible for leading all revenue-related functions as well as overseeing the development of partnerships.
“I’ve had the privilege of working with Peter over the past few years and have always been impressed with his unique ability to drive business growth through new, innovative and diverse channels,” CEO Mark Ruddock said. “BFS continues to develop our executive talent pool as we pursue our mission of reimagining small business financial services, and we are particularly thrilled to have him join our leadership team.”
At BlackBerry, Ng lead the company’s global Independent Software Vendor partnerships program. Here Ng oversaw the creation of new partnerships and revenue streams with the launch of BlackBerry’s ISV Affiliate program as well as the addition of over 120 partners in less than three years. Ng was also instrumental in starting up the BlackBerry World mobile app store. He joined BlackBerry after the Canadian multinational acquired Viigo, where Ng was Vice President of Sales and Services.
“I’m excited to accept the role as Chief Revenue Officer,” Ng said in a statement. “This will be the third opportunity I’ve had to work with Mark Ruddock, who is truly a transformational leader. Having built an app ecosystem from scratch, I see a similar opportunity to create one for the small business owner. I’m looking forward to bringing my extensive global partnership experience and passion for startups to BFS Capital to help grow and diversify sales channels. The BFS Capital platform, combined with a robust partner ecosystem, will unlock exciting new financial products and services for underserved small businesses and drive an unparalleled customer experience.”
How Small Business Funders Are Reacting to the Coronavirus
March 17, 2020
In the past week and a half it appears as if six months of panic, reaction, and preparation have taken place. With the coronavirus having transformed from a subconscious worry at the back of our minds to a global pandemic that is leading industries and nations to be reshaped, uncertainty and a lack of information may lead to further confusion and anxiety.
As such, deBanked reached out to a number of funders within the alternative finance space to gauge how they’re feeling on the pandemic and understand what measures they are taking at this time.
One such company was BFS Capital. With its headquarters in Florida, CEO Mark Ruddock explained that he and his employees are used to preparing for crises. “It’s prime hurricane land. So we have a capability to operate without a single human head in the office. We have 100% capability for all of our team to work remotely regardless of whether they have work laptops or not.”
Communication is at the heart of this ability, with offices in Toronto, Omaha, New York, Chelmsford in the UK, and outsource partners in Guatemala, BFS relies on software like Microsoft Teams and Zoom to ensure smooth contact is maintained between its employees across the world.
And this mindset has recently been further enforced with regards to company-customer relations, Ruddock explained, noting that in that wake of the coronavirus, BFS has amped up its outreach to existing customers.
“Instead of just waiting for active inbound communication from our merchants, we actually now have an active outbound calling program. We’re trying to reach out to many of our merchants and understand how their businesses are doing, understand what sort of support and help they’re looking for. We’re trying to draw from this not only information about the specific merchant, but also information about that merchant’s geography, sector, and so on. And all of that is being fed back into a real-time dashboard internally.”
Beyond BFS, merchant outreach was a trend amongst the companies deBanked talked to. With funders reporting that they have teams trained to discuss future funding options with businesses if their finances suffer from a decrease in customers.
At the same time, some funders have decided to focus their efforts on tightening underwriting and funding channels, applying a conservative approach to which industries and locations will be served.
Velocity Group USA shared an internal memo to its ISOs with deBanked which detailed some instructions to brokers. Among these was the prompt for “our ISO’s to place more focus on essential businesses.” Non-essential businesses being categorized as community and recreation centers; gyms, including yoga, spin, and barre facilities; hair and nail salons and spas; casinos, concert venues, and theaters; bars and liquor stores; sports facilities and golf courses; most retail facilities, including shopping malls.
Placing a limitation upon funding like this has been a hot topic amongst the alternative finance community within recent days. A thread on the online discussion forum DailyFunder featured speculation and arguments over who is and isn’t funding anymore.
With so much of this being hearsay and rumor, deBanked found that asking funders directly whether or not they were funding currently to be the best remedy to this uncertainty. As of the time of publication, deBanked found that LoanMe had suspended funding until April 1 and that 1st Merchant Funding suspended further funding temporarily, with Vice President of Credit Risk Dylan Edwards saying that it would be “completely irresponsible” to continue funding.
In regards to how funders have been dealing with the coronavirus in their immediate surroundings, many, such as RDM’s CEO Reuven Mirlis, have noted that their employees have been offered the option of working from home, while others have made it a mandate to work from home. BlueVine’s CCO Brad Brodigan explained that this decision was part of their Business Continuity Plan and that prior to this they took extra measures so that their office was thoroughly disinfected and that social distancing was practiced within meetings of 5+ people.
Meanwhile Velocity Group USA has brought in Pat Gugliotta, the Commissioner of the business’s local fire department, to help establish contagion prevention protocols, based upon the screening processes practiced in JFK Airport. Explaining that this includes daily interviews with every staff member in the morning which look for trends relating to where they’ve been, who they’ve been in contact with, and how they’re feeling. As well as this, employee vitals are documented, with infrared thermometers being employed to monitor temperatures. “I’m trying to mirror our program to that program because I know the program works,” Gugliotta mentioned in a call.
While this may sound extreme, it must be remembered that this is an unprecedented crisis, meaning most strategies are untested and many funders are open to exploring novel precautions and solutions.
“This is an unprecedented event, which in its own right means you have to look at it differently,” BFS’s Ruddock explained. “I think it’s the sheer scope and speed that we have to cope with here. Scope meaning that this isn’t a hurricane which hits a region for a period of time and causes economic distress, which requires rebuilding, this is something that is international. This is not something that, like a recession, creeps at you over months and weeks and sometimes even signals orders. This is something that is happening with alarming speed. So in that way, these are unprecedented times now.”
This article will continue to be updated with funders who announce and disclose to us changes in their services, so check back to stay updated. Please do reach out if you would like to discuss the status of your company and how the coronavirus is affecting your business.
OnDeck NASCAR Partnership
March 13, 2020
This week OnDeck announced a new partnership with JR Motorsports, sponsoring their no. 8 Chevrolet team. The deal will see OnDeck’s colors brandished on the car driven by Daniel Hemric for two races during the 2020 NASCAR Xfinity Series season. The first of these races will be in Atlanta this weekend, with the second being in Chicago this June.
“It’s awesome to see a new company like OnDeck come into the world of NASCAR and I couldn’t be happier that they have allowed me to be the one that gets to represent them at both Atlanta and lat this year in Chicago with our JR Motorsports Camaro,” Hemric said in a statement. “It’s great to see them using a platform like NASCAR to help get their messaging across. Hopefully they’ll have a great time and we can come away with a couple of victories.”
“We are always looking for innovative ways to engage and connect with small business owners all across the US and Canada, and NASCAR is clearly just a huge and growing phenomenon in the US,” OnDeck’s Sr. Vice President of Marketing Shannon Smith told deBanked in a call. “NASCAR fans are 13% more likely than the national average to be small business owners. So given that, this is just a great way to align our brand investment with something that clearly small business owners are really interested in.”
The news comes as OnDeck had an unfortunate week in the stock market, with its value having plummeted by over 40% due to market turbulence.
“Panic Induces Panic”: David Goldin on Small Business Funding and the Coronavirus
March 12, 2020With companies in Australia, Britain, and the United States, David Goldin has weathered storms of various sizes and seriousness over the past two decades. Whether it was the recent wildfires that saw state-sized infernos engulf the Australian countryside, the regulatory upheaval that is Brexit, or the unprecedented shockwaves sent by the 2008 financial crisis, the CEO has seen his fair share of global disruption.
So when deBanked got in touch with Goldin about his perspective on the coronavirus pandemic, how it compares to what he’s seen before, and what funders should do to combat contagion, he was happy to discuss the insights he’s garnered from twenty years in business.
The following Q&A has been lightly edited for clarity and succinctness:
deBanked: Generally speaking, how bad do you think the coronavirus pandemic is going to get?
“I don’t think anyone knows the outcome. I think what you’re going to see is the industry completely change over the next few days. In the last 48 hours you went from mild cancellations to, today alone, the NBA, NHL, and MLB. And Cuomo just announced in New York that there can be no more than 500 people at events, colleges are shutting down left and right, and schools as well. Basically, we’re heading in the direction of shutting down the entire country at some point.
So I think funders have two issues. One is their existing customers, right? And how do you lend in this market? There’s the obvious and the not so obvious, because, for example, a deal that may have been great a few days ago, let’s say there’s a college bar near SUNY Albany, and they just announced this shutting down of schools, that bar may not see any business for who knows how long.
I’m not the CDC, I’m not the WHO, I’m not a medical expert, but I know in life, people are always afraid of the unknown and panic induces panic, but this is just my opinion. So I think once people start getting this virus, which is inevitable, and they recover from it, I think that’s going to offset some of the panic.
I think you’re going to have a couple of more shock factors. I would not be surprised if we learn in the next few weeks that the President of the United States has it.”
And what about our industry specifically?
“I think right now, lenders will say, ‘Well, if I [tighten up], typically what happens in our industry is if a company runs into trouble, it’s usually just that company,’ right? So if they start tightening up, they lose the business.
The entire playing field will be level by Monday or Tuesday of next week, by the latest. I think some of the playbook will be that some funders may take the position to stop funding for the next couple of weeks and look to see what happens because no one knows how bad this is going to get.”
Do you have any advice for funders?
“I think you have to price the risk because I think everyone is foolish to think that the bolts are not going to go off. So you’re either going to have to increase the pricing to the customer or raise the rates to the broker and limit the amount they could charge the customer temporarily for the increased risk your portfolio is now going to take.
I think you need to shorten the term. During the 2008 recession, the industry was at a 1.35 to a 1.37 factor rate, averaging six or seven months. There weren’t too many providers back then going past a year, there really was no such things as a second or third position.
This is a much different world we live in. So I think, unfortunately, some of the platforms that tend to be longer-term players which do one year, two years, three years, even four years, I think they’re going to be in a lot of trouble. Their ships are too far out to sea and I think they’re really going to have to focus on portfolio management and collections.
There’s going to be opportunities in the marketplace for those that don’t take a prudent approach, but I think in the short term people have to shorten their terms, potentially raise pricing for risk, and decrease the amount of capital that they’re taking out of a customer’s gross sales.”
What lessons do you think can be learned from this?
“I think as a platform you have to look at redundancy of capital, and that the time to raise money is when you don’t need it. So I think this could be a lesson for all to perhaps have more than one funding source.
I think brokers are going to really have to diversify. There’s good and bad, I think the approval rates at companies are going to fall through the floor, but I think you’ll get a lot of borrowers over the next few weeks that can typically go to a bank that won’t be able to go to a bank. But you’re going to see a lot of watching and waiting right now. And you’re going to see the industry revert back to where it was a while ago: shorter term deals, pricing in the risk, lower gross sales taken.”
How does this compare to previous crises?
“So I think this one’s a little bit different. It’s affecting everything and your playbook is going to change literally daily. This will be affecting the majority of the major cities. When you’re shutting down things like the MLB, the NBA, the NHL, shutting down colleges and universities, I don’t think this country or the world has ever experienced anything like this for this extended period of time.
Now that doesn’t mean everyone’s going to go out of business, there’ll be a redistribution. For example, if it was a restaurant in midtown Manhattan that relied a lot on people going from work, and these people are now working from home, perhaps their local restaurants or supermarket may see an uptick in business.
I think you’re going to see decisions slowing down and really digging a lot deeper into the underwriting, understanding what the business actually does, how it’s potentially affected.”
What should funders be doing to combat contagion?
“They should be testing a disaster recovery plan to work remotely.
But most importantly it’s really about everyone being healthy, helping their families and their employees. That’s first and foremost.”
