Articles by deBanked Staff
PayPal Reiterates Tightening of Business Lending Originations
February 8, 2024
After announcing a sudden pullback on business loans and MCAs in Q3 due to higher than expected charge-offs, PayPal maintained that the belt was still tightened in Q4.
“We have taken a prudent and active approach to managing our overall credit risk, tightening originations within our PayPal business loans portfolio,” said PayPal CFO Jamie Miller on the quarterly earnings call. “We are carrying lower credit receivables after tightening originations last year.”
Tightened originations has led to the company being dethroned as the top online unsecured small business lender. PayPal at the very least held that notable distinction in 2019 and 2020 but they’ve since been overtaken by Square Loans and Enova.
Covid EIDL Charge-Offs Explode, Increase By $52 Billion in FY 2023
February 4, 2024The SBA charged off an extraordinary amount of Covid-era EIDL loans in its FY 2023, hitting $52 billion! That was up from the $220 million charged-off collectively in FY 2021 and 2022. $52 billion equates to 17.2% of the unpaid principal balance, an astonishing percentage considering that most of these loans still have approximately 28 years left on their term. Many borrowers did not even have to start making payments until 2023, thanks to an initial 30-month deferment program followed by an additional 6 month deferment assistance option. The SBA’s FY ended on September 30, 2023 so this does not reflect any loans charged off for the last 3 months of the year.
Per the SBA, “Loans are charged off if SBA determines no additional principal and interest from the borrower will be recovered via the agency.”
The remaining unpaid principal balance on Covid-era EIDL loans is $302 billion. Given that the unpaid principal balance was $358 billion last year, the reduction is almost entirely due to charge-offs rather than borrowers paying down the principal.
PPP loan charge-offs were also up, hitting $10.6 billion in FY 2023, up from $4.8 billion in FY 2022.
The SBA published this data as part of its regular FY reporting on February 2.
Tech Founder Takes Online Business Loan, Grows Massively
February 2, 2024The founder of Testimonial.to took to X to share his story about using a revenue based business loan from Stripe Capital. It worked very well for him. His posts about it are below:
Everyone in the comments missing the point picking on the interest amount. Dude deployed cash to grow his business by $300k ARR.
— Preetam Nath (@hipreetam93) July 27, 2023
Not really to build a business from scratch, but to scale a business that already proved the PMF
— Damon Chen (@damengchen) July 26, 2023
Some marketing expenses and hiring
— Damon Chen (@damengchen) July 26, 2023
I can take $187,300 from Stripe without giving away a single share of my company. The modern-day "VC"! pic.twitter.com/1wiTQsa7KF
— Damon Chen (@damengchen) February 2, 2024
Stripe Capital works similar to how other platforms work in that their product is a loan with MCA-esque features. For example, merchants apply a fixed percentage of their credit card sales toward their loan balance up until the loan is paid in full.
FCC Closes the Lead Generator Loophole, Are You Compliant?
February 1, 2024Coming soon to a lead provider near you, new regulations that require “one-to-one” consent. The loophole that deBanked warned about last November is now officially scheduled to close on March 26. To revisit the heart of what’s changing, we republish the following:
“Lead-generated communications are a large percentage of unwanted calls and texts and often rely on flimsy claims of consent to bombard consumers with unwanted robocalls and robotexts,” the FCC said. As such they’re now requiring one-to-one consent.
First, the one-to-one consent must come after a clear and conspicuous disclosure to the consenting consumer that they will get robotexts and/or robocalls from the seller. “Clear and conspicuous” means notice that would be apparent to a reasonable consumer. In addition, if compliance with the federal Electronic Signatures in Global and National Commerce Act (the E-Sign Act) is required for the consumer’s signature, then all the elements of ESign must be present.”
Second, we adopt our proposal that robotexts and robocalls that result from consumer consent obtained on comparison shopping websites must be logically and topically related to that website. Thus, for example, a consumer giving consent on a car loan comparison shopping website does not consent to get robotexts or robocalls about loan consolidation.
Fortunately, the FCC spells out an example of what might be acceptable as one-to-one consent for a lead generator.
For instance, the website may offer a consumer a check box list that allows the consumer to specifically choose each individual seller that they wish to hear from. Alternatively, the comparison shopping website may offer the consumer a clickthrough link to a specific business so that the business itself may gather express written consent from the consumer directly. Our rule does not prohibit comparison shopping websites from obtaining leads through valid consent and provides multiple opportunities for responsible comparison shopping websites to obtain leads for potential callers.”
The FCC has since published the new rules in the Federal Register. There are two components of it that have a delayed effective date, one being July 24, 2024 and the other being January 27, 2025. The rest goes into effect this March 26, however.
For questions about whether or not this will affect you, please consult with an attorney.
Enova Has Record Quarter for SMB Lending
January 31, 2024Enova logged its biggest quarter ever for small business loan originations, hitting $930M in Q4.
“Strong demand and solid credit performance enabled us to be more aggressive with our marketing, particularly in our SMB business,” said Enova CEO David Fisher during the earnings call. The company’s net charge-off ratio was also down, dropping from 5.5% in Q3 to 4.8% in Q4.
Enova has consistently considered itself to be in a league of its own on the small business lending front, citing most recently that it continues to benefit from a “strong brand presence” and “low levels of competition.”
“Our results are driven by the strength of our talented team, diversified product offerings and world-class machine learning, analytics and technology,” said Fisher during the call. “A combination of these strengths has enabled us to successfully manage the uncertain macroeconomic environment we faced in 2023, growing originations while managing credit to acceptable levels that generate unit economics above our targets. Our unwavering commitment to this balanced approach to growth has allowed us to take share from our competitors in both our consumer and SMB business while effectively managing risk.”
AMEX: ‘We’re not seeing small businesses spend more’
January 28, 2024
“We’re not seeing existing small businesses spend more than they spent the year before,” said Stephen Squeri, CEO of American Express, “And that’s not an American Express phenomenon, that is an industry phenomenon.”
Squeri, who was speaking on the company’s Q4 earnings call, was answering questions about what they’re seeing with small business customers. Although spending in particular is not increasing, they still want loans and cards. “As far as card acquisition within small businesses, that still remains strong,” he said. “As far as small businesses, looking at our platform, and looking at our loans, and so forth, that remains strong. And the credit quality remains strong.”
The trend is not concerning to American Express, who explained that write-off and delinquency levels were actually lower now than they were before the pandemic, despite ticking up just a little bit higher.
Debanked on SNL
January 28, 2024Saturday Night Live ran an awkward segment last night about debanked. Make sure you watch it until the end.
As a good refresher, the word debanking was ranked one of the top 10 most significant words of 2023 and debank is in the dictionary.
Financial Service Associations Urge Legislation on IRS Income Verification
January 25, 2024
The IRS doesn’t want financial service companies to be able to verify the income of customers, at least not through official channels like the Income Verification Express Services (IVES) system. On January 2 and 3, the IRS announced it would only allow IVES transcripts to be made available “to mortgage lending firms for the sole purpose of obtaining a mortgage on residential or commercial real property (land and buildings).” Government agencies will also not be allowed to use IVES.
“The IRS is implementing the provisions of the Taxpayer First Act (P. Law 116-25) with increased privacy and security requirements for access to confidential tax information,” it announced. “If tax transcript information is required by your firm for other than securing a mortgage, we recommend requesting it directly from the taxpayer.”
But relying on getting the information directly from the taxpayer defeats the whole purpose in more ways than one, many financial service trade associations say. On Wednesday, a letter jointly signed by the American Bankers Association, America’s Credit Unions, American Fintech Council, Consumer Data Industry Association, Electronic Transactions Association, Financial Technology Association, Innovative Lending Platform Association, Independent Community Bankers Association, Mortgage Bankers Association, Responsible Business Lending Coalition, and Small Business Finance Association urged senior ranking members of Congress to pass H.R. 3335. Dubbed the IRS eIVES Modernization and Anti-Fraud Act, it would “ensure the IRS follows the original intent of Congress to modernize the system and prevent disruptions to the consumer and commercial lending industries.”
