Articles by deBanked Staff
A Fun QSR Chain or “Big Sandwich”?
November 27, 2023
As the small business financing space contemplates competition from merchant-integrated platforms like Square, Shopify, and Intuit, one behemoth is taking over the franchises themselves. The company is Roark Capital, an Atlanta-based PE firm with $37B in assets under management, and they taste delicious.
Roark Capital already owns Arby’s, Auntie Anne’s, Baskin-Robbins, Buffalo Wild Wings, Carvel, Cinnabon, Carl’s Jr., Hardees, Culver’s, Dunkin Donuts, Jamba, McAlister’s, Moe’s Southwest Grill, Schlotzky’s, Seattle’s Best Coffee, Jimmy John’s, SONIC, Jim’n Nick’s Bar-B-Q, Miller’s Ale House, North Italia, Nothing Bundt Cakes, and the Cheesecake Factory. Three of those are among the top fast-food sandwich chains in America (Arby’s, Jimmy John’s, and McAlister’s Deli). Roark is also presently in the process of acquiring Subway, the leading company in that category by nationwide sales. The deal was announced in August.
But now the FTC is saying not so fast on the basis that it might create a monopoly. According to Politico, “the government is focused in part on whether the addition of Subway gives Roark too much control of a lucrative segment of the fast food industry.”
“We don’t need another private equity deal that could lead to higher food prices for consumers,” railed Senator Elizabeth Warren on social media. “The FTC is right to investigate whether the purchase of Subway by the same firm that owns Jimmy Johns and McAlister’s Deli creates a sandwich shop monopoly.”
While many comments on social media made fun of this regulatory effort, perhaps such consolidation is a wakeup call for the small business finance industry. Once upon a time the textbook definition of a non-bank funding merchant was a restaurant or QSR sandwich shop. Although the target customer has broadened considerably since then, it may be worth keeping in mind that a large diversified portfolio of QSR funding customers might not be so diversified at all. Behind the scenes, it may actually all be a single counterparty. A small business might not be so small. You could be dealing with Big Sandwich.
Hiring in the B2B Finance Industry Still Challenging
November 21, 2023
“To say that hiring is a difficult process is an understatement and I think that it’s a direct reflection of the labor market and the volatility in America’s labor market right now,” said Manny Yosipov, CEO at Advanced Recovery Group. Yosipov’s company does collections in the MCA and business lending space, where like many other industries, persistently low unemployment coupled with a workforce tuned into lifestyle accommodations has made the hiring environment challenging.
“You have quality talent now that want remote work and a lot of flexibility,” said Yosipov. “I think that it’s hardest for companies that have started pre-covid, survived covid, and are now trying to grow and scale in the post covid market.”
Daniel Hye, ISO Relations Manager at Zahav Asset Management, said that if remote work wasn’t in such high demand, the open positions would have likely been filled by now. Zahav is currently looking to fill an underwiting and collections role.
“We could have already had someone, but we really don’t want remote because it makes a huge difference with the way things work,” Hye said. “Especially in our industry, everything’s about speed. You want to walk over to the underwriter or you want to turn around to the underwriter and say, ‘Hey, this deal, the ISO just called me, can we get this done? Or this was a mistake? Can you do this?’ Once it’s remote it changes the whole dynamics of how everything works.”
“I mean, remote is very preferred by a lot of people,” said Carli Bova-Chezem, Director of Human Resources at Capital Gurus, “but it’s kind of funny I talked to so many people all the time and it really isn’t for everybody. I get handfuls of people that are like, ‘I’ve been remote for the last month but I really want that camaraderie of an office and I miss being around people.’”
Capital Gurus has used a variety of sources to recruit but they’re now using an end-to-end hiring system called Breezy. Bova-Chezem said that it’s increased their application rate while streamlining the process.
“There’s a plethora of places that these applicants are coming from,” said Bova-Chezem. “Up until I’d say about a month ago, it was primarily LinkedIn, which is obviously a great resource, but we’ve gotten a lot more outreach using this new system, which has been great.”
Hye of Zahav, meanwhile, says they’ve also tried a variety of systems but that it comes down to finding job applicants with proper experience. “I think the biggest issue is being able to find someone who fits the criteria and is happy to get involved,” Hye said.
deBanked Thanksgiving Memes 2023
November 21, 2023It’s Thanksgiving again so you know what that means? Memes! This tradition (which we’ve kept up with as often as possible) started on deBanked in 2012. We hope you have a wonderful holiday and strong end-of-year.
And now, the memes:
See previous year memes:
2022 Thanksgiving Day Memes
2021 Thanksgiving Day Memes
2020 Thanksgiving Day Memes
2019 Thanksgiving Day Memes
2018
2017
2016
2012
Plus, don’t forget to register for deBanked CONNECT MIAMI taking place on January 11 in Miami Beach. This year’s event will feature the first ever Broker Battle!
Attend deBanked CONNECT MIAMI for Broker Brilliance
November 20, 2023
Before the Broker Battle at deBanked CONNECT MIAMI, come join the Broker Brilliance session!
- Enjoy a preview of the official SBFA broker certification led by the Executive Director of the SBFA and a Partner of top law firm Hudson Cook, LLP.
- Learn about pending legislation and regulations that could impact your career forever.
- Find out what licenses are required for brokers and broker shops so that you stay compliant.
- Hear about the extraordinary opportunity that comes with joining the official Broker Council.
- Don’t just sell for today, make sure you’re set up for longevity!
BUT, in order to experience all of it you MUST be registered for deBanked CONNECT MIAMI. Join the industry on January 11th!
Judges Announced for Broker Battle at deBanked CONNECT MIAMI
November 17, 2023The first ever Broker Battle™ taking place at deBanked CONNECT MIAMI on January 11th at the Miami Beach Convention Center has locked in 4 highly qualified judges.
The Battle will feature 5-8 brokers exhibiting their abilities while fielding questions from the judges in front of a LIVE audience. The winner of the championship round will receive a $5,000 grand prize. More than 30 brokers have already entered themselves in for consideration. The submission deadline is December 1. More information and the entry form can be viewed here.
deBanked CONNECT MIAMI will also have a full slate of additional content including a complete Broker info session called Broker Brilliance on top of networking.
BHG Financial Tightening Its Credit Box, Dealing With Tough Environment
November 13, 2023BHG Financial (formerly Bankers Healthcare Group) originated $1 billion in loans in Q3, according to recently filed disclosures about the company. That was down from $1.1B in Q2. BHG mainly provides business loans and unsecured loans to healthcare practitioners. Although the company considered it to be a stronger quarter than anticipated, it predicts that Q4 will not be as strong and that originations will actually drop significantly to between $600M to $800M.
“As we look to the fourth quarter, BHG believes origination volumes will likely be less than Q3 as they continue to shrink their credit box,” said Terry Turner, CEO of Pinnacle Financial Partners, which owns 49% of BHG.
While originations start to slow, loan loss reserves have also increased.
“The decrease in income from BHG during the three and nine months ended September 30, 2023 as compared to the same periods in the prior year is largely the result of increases in (i) the liability for estimated future inherent losses for the outstanding core portfolio of loans sold to banks through the auction platform that may be subject to future substitution due to payment default or prepayment and (ii) the allowance for loan losses for loans BHG has retained on its balance sheet due to the uncertain economic environment.”
BHG is also exiting its “merchant financing business,” according to Pinnacle CFO Harold Carpenter. Carpenter was referring to NaluPay, BHG’s Point of Sale financing division. NaluPay launched a little over a year ago to great fanfare, claiming it would enable merchants “to offer their customers large credit lines, a suite of promotional and non-promotional financing options, and instant credit decisions within seconds.”
Nevertheless, Pinnacle says that BHG is feeling good about the direction things are heading.”BHG is optimistic about credit at the end of the third quarter,” Turner said.
Conversion Rates on Upstart’s Consumer Loans
November 7, 2023
Upstart is having a tough time in the current interest rate environment.
“In the third quarter, rates were at an all-time high in our marketplace, higher than we expected them to be, reflecting both decades high interest rates and significantly elevated risk in the consumer economy,” said Upstart CEO David Girouard during the company’s Q3 earnings call. “This is not a path we would have chosen and is obviously not constructive to our growth, but it reflects the reality of operating responsibly in this environment.”
The company won’t offer loans above 36% APR which means if the risk models indicate a rate higher than that would be necessary to move forward, they just decline the loan altogether. Notably, this and other economic factors has had a negative impact on their conversion rates.
“I think our [conversion rate] for this quarter was around 8.5%,” said Upstart CFO Sanjay Datta. “So meaning, of all applicants to fill in an application and submit, about 8.5% of them become funded loans. I think at our peak, that number was closer to 24%.”
And of all loans that get approved, only 1/3rd of them fund.
It’s been a rough couple of years for Upstart. The stock is down 92% from its all time high in October 2021. At the time the company was planning to expand into the small business loan market, which it finally did in June 2022. In the subsequent quarter it originated $9M in small business loans. But earlier this year the company suspended it entirely. At the time Girouard said, “This was a necessary step to ensure we can adequately resource the rest of the roadmap. We look forward to the day when we can resume our pursuit of the world’s best AI-powered business loan.”
It has not resumed business lending though it continues to cite in its quarterly earnings presentations that the addressable small business loan market numbers $895B.
Square: Business Loan Originations, Loss Rates Steady in Q3
November 2, 2023Block’s Square Loan division chugged along in Q3, originating 120,000 loans for a total of $1.17B. The company’s origination figures in the first nine months of this year are basically on par with the origination figures of the last nine months of 2022. This suggests that Block is being cautious and conservative.
Block also said that loss rates on Square Loans “remained consistent with historical ranges.”
Square loan originations for the past six quarters:
Q2 2022: $1.01B
Q3 2022: $1.14B
Q4 2022: $1.16B
Q1 2023: $1.10B
Q2 2023: $1.10B
Q3 2023: $1.17B
Block did not talk about Square Loans on its earnings call except to say that it’s among a number of products it offers that serves as a retention tool and that in the future it will become more of an acquisition channel as well.
