Articles by deBanked Staff
Square Loans: Loss Rates Still Consistent With Historical Averages
August 2, 2024
Block’s business loan division, Square Loans, reported that loss rates in Q2 remained consistent with historical averages. This while origination volume continued to tick upward, coming in at $1.45B in Q2 over $1.32B in Q1. Block is likely the largest online business lender in the US. It originated $4.78B in 2023. The vast majority of Block’s business loans are sold off to to investors.
Because of Block’s overall company size, its business lending operation was mostly unmentioned during the earnings call. Its CEO Jack Dorsey emphasized that a key part of the company’s acquisition strategy going forward is “self-serve onboarding.”
“Product-led growth remains a core pillar of our go-to-market strategy because self-serve onboarding is still Square’s most important customer acquisition channel,” Dorsey said in the quarterly shareholder letter. “Self-serve onboarding is an important differentiator for Square and one of our super powers. Many of our competitors don’t even offer this as an option.”
Lightspeed: MCAs continue to grow with healthy margins
August 1, 2024
Lightspeed Commerce, a global e-commerce platform for merchants, once again talked about its MCA business in the latest quarterly earnings call despite it only accounting for 3% of the company’s overall revenue.
“[Lightspeed] Capital continues to grow with healthy margins,” said CFO Asha Bakshani. She added that it was very popular with customers but that it was still a nascent product offering for them. They’ve consistently said over the last couple years that they intend to grow this business cautiously, which they have done. The company currently holds $87.5M worth of MCAs on its balance sheet.
“Lightspeed capital offers fast access to capital and an automatic repayment method to Lightspeed Payments,” Bakshani said. “Merchants are leveraging this offering to finance inventory purchases, upgrade equipment, and expand their overall business.”
PayPal Business Loan/Working Capital Volume Down By Half Since Pullback
July 30, 2024
PayPal’s small business financing volume has been roughly reduced by half since the company officially announced a pullback in 2023.
For example, consider that PayPal purchased only $774M in merchant receivables through the first half of 2024 vs $1.4B purchased in the first half of 2022. Though these numbers are not originations per se they are proxy indicators that show just how much has changed.
Of the $774M purchased in the first half of 2024, only $355M of it was from the 2nd quarter. Meanwhile, one of its competitors originated $918M in the same quarter.
Back in early 2022, PayPal announced that it was then one of the top five lenders to small businesses in the United States. It claimed to be doing $4B a year in originations in 2019, at that time making it arguably the largest online business lender in the country. Today the leading online small business lenders are Block (Square Loans) and Enova (OnDeck & Headway Capital).
Enova Originated $918M in Small Business Loans in Q2
July 29, 2024
Enova remains optimistic about the economy and its borrowers, according to its latest quarterly earnings report.
“Recently, there’s been significant talk from both pundits and our competitors about an uncertain macro environment, but our Q2 performance as well as internal and external data confirmed that both our SMB and consumer customers remain on solid footing as our customers continue to benefit from job growth, low unemployment rates, easing inflation, and rising real wages,” said CEO David Fisher during the earnings call.
SMB loan originations of $918M were down slightly from Q1 but up 29% year-over-year.
“I think competitively, I would say there’s very little has changed,” Fisher said. “There haven’t been new entrants in the space. We haven’t seen any of our competitors get particularly more aggressive. There’s always a little bit of ebb and flows but certainly no trends. As I mentioned in my comments, certainly over the last couple of quarters, we’ve heard some lack of confidence I think from some of the other players in the space and it’s probably holding them back a bit when I think we’re seeing somewhat of the opposite. … And as we talked about, we think our customers are in a really, really good place. Job growth has remained good. Wages continue to rise. Inflation is coming down. Enova is a very beneficial place for both consumers and small businesses.”
Debt Settlement Attorney Sanctioned by Court
July 29, 2024A self-proclaimed merchant cash advance debt settlement attorney was sanctioned in the New York Supreme Court for frivolous conduct attributed to making an overtly false and/or misleading statement of fact.
The attorney is Dominick R. Dale, who is defending a merchant in an action brought by a revenue based financing company in Index No: EF000224-2024. According to court documents, Dale sought to move a case filed by plaintiff in Orange County, NY (which the contract specified as the forum) to either Kings County or New York County on the basis that defendant was not a resident of the State of New York, had no connection to the state, and that the forum selection clause in the agreement was invalid.
The irony is that the defendant did actually reside in Orange County, NY.
In the order granting plaintiff’s cross-motion for sanctions, the judge ruled that the defense attorney’s motion to transfer venue was “solely based on the distance between defense counsel’s office and the courthouse” because the 71 mile distance was apparently too far for him to want to travel.
The case is still ongoing.
Dale, who is listed under the name Law Office of Dominick Dale, Esq. in the action, also goes by the name “Merchant Cash Advances Law Firm” with an advertised focus on debt settlement.
What’s Challenging in the Broker World
July 24, 2024Are you a small business finance broker? Here are some of the most common challenges that they report to deBanked.
The lender I was working with was not a lender
This is a preventable mistake. Instead of falling for a cold call, check the appropriate state registries, ask for feedback from your peers online (or in person), and conduct extensive due diligence. If you’re not willing to conduct due diligence as a broker, you will inevitably be fooled.
The deal was intercepted by a third party
Whether it’s through backdooring, big data, or a customer lying about shopping around, brokers often report the sudden appearance of a mysterious competitor right as their deal was approaching the finish line. Since there seems to be virtually no remedy on the horizon for this, brokers should speak candidly with their clients upfront about what to expect and lock in their loyalty well in advance so that this mysterious competition is shut down.
The available lead quality in the public marketplace is low or good exclusive leads are non-existent
If the business was easy as buying the same leads as everyone else and using them to earn huge profits on the deals closed without much hassle, then every single person in the country would be a broker. Being a broker is hard work and a significant part of the gig is marketing. You’ll have to decide if you or someone you hire is up to the task of generating the deals for you or your closers to close. If you can’t figure out how to market, you will eventually fail.
I didn’t get paid on a funded deal
While relationships do count for a lot, broker agreements count for just as much. As much as smaller shops roll their eyes at the prospect of having to shell out funds for attorneys to review contracts, it is a necessary cost to operate. If a lending company believes it doesn’t have to pay you, it won’t. Don’t be surprised when it happens to you. Instead be ready with your agreement, the facts, and your attorney to remedy the issue. Brokers unable to afford legal representation are much more likely to be bullied by a lender than everyone else. So do all the boring but necessary due diligence before signing up and if they ultimately breach the agreement with you, be ready to stand up for yourself in a way they will have no choice but to respect.
Ponzi Schemer Continued to Run Ponzi Scheme From Prison Phone
July 22, 2024Don’t syndicate with New Beginning Global Funding LLC, New Beginning Capital Funding LLC, and Lion Heart Capital Group L.L.C.
That’s because these entities were just named in a federal plea agreement as belonging to Johanna Garcia, a now-convicted ponzi schemer currently serving time in Miami’s federal detention center. Readers might remember her as being the mastermind behind a fake MCA company known as MJ Capital Funding. Garcia raked in more than $190 million as part of a fake syndication/investment scheme from thousands of duped investors. The SEC shut the company down in 2021 and she was charged criminally last year.
She did not go down quietly. Apparently after the SEC shut down her entities she simply set up new entities and kept going. When she was finally arrested and jailed awaiting trial she continued the ponzi from the prison phone and email.
In a proffer signed by Garcia, it’s stated that “Garcia and her co-conspirators told investors that their money would be used to fund general contractors who worked on commercial and residential properties through merchant cash advance loans. In truth, bank records show that there was little to no merchant cash advance activity, and the money raised was used to pay off previous investors.”
Garcia, and those that participated in the scheme with her, used MCA as a cover for their scheme. She was not actually known to people in the industry nor actually worked in it.
Fake LOC Scam Results in Guilty Plea
July 17, 2024Yisroel (“Scott”) Heber pleaded guilty last month for his role in a fake business line of credit scam. In April, the US Attorney for the Southern District of NY and the US Secret Service alleged that Heber and a co-defendant posed as a lending company and induced victims to make payments related to loans that they promised they would get but never actually came through with. Heber pleaded guilty to Conspiracy to Commit Wire Fraud.
Prosecutors called it an “advance-fee merchant cash advance fraud scheme through which they agreed to defraud victims of a total of more than $1.5 million.”
The case against Heber’s co-defendant is still ongoing.
