Articles by deBanked Staff

Bill Introduced to Try and Block SBA’s Plans to Become a Direct Lender

In case you missed it, the White House has called for the SBA to get into the direct lending business to “address gaps in access to small dollar lending.” The SBA has previously defined “small dollar lending” as loans under $150,000. Now the Biden administration wants it to compete in this segment against the private sector.

But a new bill introduced by two republican senators, called the Protecting Access to Credit for Small Businesses Act, says not so fast.

It literally says that its purpose is to “To prohibit the Administrator of the Small Business Administration from directly making loans under the 7(a) loan program, and for other purposes.”

“Fraud and inefficiency characterize the Small Business Administration’s history in direct lending,” said Senator John Kennedy in a statement. “The government shouldn’t crowd out private lenders that are already doing a good job getting funds to the small businesses that need them. I’m proud to partner with Sen. [Tim] Scott to stop the SBA from replacing private lenders and those in our communities with Washington bureaucrats.”

“When acting as a direct lender, the SBA has a consistent history of failure and inefficiency when compared to the private sector,” said Senator Scott. “The administration’s proposal is just a vehicle for a big government overreach into nearly all aspects of American life and private institutions. There’s simply no reason to use the federal government to funnel tax dollars that will later be loaned back to small businesses.”

Government agencies at all levels seem to be creeping into the small business lending game. Not only has the SBA recently upgraded its Lender Match online loan marketplace but the City of New York also recently launched its own business loan marketplace.

What Big Publicly Traded Companies Say About Merchant Cash Advances

deBanked examined the public messaging from some of the largest publicly traded merchant cash advance facilitators in the US and this is what it found:

SHOPIFY

A merchant cash advance is a purchase of your future sales, also known as receivables. If your application for funding is accepted, then Shopify provides you a lump sum of money for a fixed fee. Under the Shopify capital agreement, this lump sum is known as the amount advanced, and the total to remit is the amount advanced plus the fixed fee. In return, you pay Shopify Capital a percentage of your daily sales until Shopify receives the total to remit. The percentage of your daily sales that you must remit to Shopify is known as the remittance rate. The amount advanced and the remittance rate depend on your risk profile.

For example, Shopify Capital might advance you 5,000 USD for 5,650 USD paid from your store’s future sales, with a remittance rate of 10%. The 5,000 USD amount that you receive is transferred to your business bank account specified in your admin, and Shopify Capital receives 10% of your store’s gross daily sales until the full 5,650 USD total to remit has been remitted. You have the option, at any time, to remit any outstanding balance in a single lump sum.

There is no deadline for remitting the total to Shopify Capital. The daily remittance amount in USD is determined by your store’s daily sales, because the remittance rate is a percentage of your store’s daily sales. The remittance amount is automatically debited from your business bank account.

DOORDASH

DoorDash Capital is a cash advance, not a loan. With a cash advance, the offer is based on your sales and account history, and includes a simple, transparent one-time fee that you’ll know before you decide to accept the offer. A loan operates using interest, which can compound over time, and often includes other fees in addition to the stated interest rate.

LIGHTSPEED

AMAZON

A [merchant cash advance is a] non-revolving sum of funding with flexible payment, no personal collateral required and no late fees. With flexible payment, no personal collateral required and no late fees, a merchant cash advance provides sellers funding to help run and grow their business. Unlike interest-bearing loans, the advance ties payment to a portion of a seller’s future sales for a fixed capital fee, there are no additional fees or interest charged.

NERDWALLET

Fixed withdrawals from a bank account
Merchant cash advance companies can also withdraw funds directly from your business bank account. In this case, fixed repayments are made daily or weekly from your account regardless of how much you earn in sales, and the fixed repayment amount is determined based on an estimate of your monthly revenue.

PAYPAL

A merchant cash advance is not a loan, but rather a type of financing that business owners pay back with a percentage of their future sales.

Nerdwallet Generated $101M in Revenue from SMB Products in 2023

Nerdwallet, a financial service shopping site, generated $101.2M in revenue across 2023 from SMB loans, business credit cards, and other financial products & services, according to the company’s latest earnings report. That was an increase of 11% over the previous year.

Nerdwallet said that it has been seeing “positive momentum” for SMB products.

“As we look to the rest of the year, we expect to return to double-digit revenue growth during the second half, given recent recovery in SMB products and insurance,” said Nerdwallet CEO Tim Chen.

Nerdwallet had 14 million registered users as of December 31, 2023, which creates a strong base to generate revenue.

“Critical to our aspiration of delivering consumers and SMBs with a trusted financial ecosystem is our ability to register and engage users – in turn allowing us to drive repeat visits, collect data and provide users with unique insights via nudges,” the company said. “We are focused on growing the traffic and engagement on our platform, as well as increasing our number of registered users, who have a lifetime revenue value five times greater than our non-registered users and more than twice the transactions and sessions, on average.”

FOR SALE: Funding Circle US?

Funding Circle has decided to focus just on its UK business. The company is open to selling off its US business, it revealed.

“Whilst the US business offers attractive long term growth, it also requires a significant amount of cash and capital to grow the SBA proposition and we don’t believe that this is the best course of action for the Group,” said Funding Circle CEO Lisa Jacobs. “We have received indications of interest for the US business and will update further in due course.”

The US segment originated $491M in 2023 while generating $40.4M in revenue and a $29M net loss. That loss was steeper than the $11.6M recorded in 2022.

Funding Circle had just recently secured an SBLC license after years of lobbying for the SBA to end the 40-year pause. When that happened, it was anticipated to be a big boon for them.

Compared to the competition in 2023, Funding Circle’s American origination volume was only 1/6th that of Enova’s.