Articles by deBanked Staff
Shopify Capital Originated $416.4M in MCAs and Loans in Q2
July 27, 2022
Shopify Capital originated $416.4M in funding to small businesses in Q2, the company announced. That was spread across the US, Canada, and the UK. The figure represented a large increase over the $346.7M in Q1.
Although its funding business grew, the overall parent company announced that it was laying off 10% of its employees. The CEO explained that this was a correction to its expectations that pandemic-driven e-commerce sales would continue to soar for a long time, but that they have instead slowed.
DailyFunder Marks 10 Year Anniversary
July 26, 2022
The DailyFunder.com domain was registered ten years and 1 month ago. Formed two years after the debut of deBanked, DailyFunder went on to become the most active small business finance community in North America. The forum has generated more than 160,000 posts and has more than 12,000 members. It has regularly surpassed two million page views per year.
“There is no doubt that the DF has impacted the trajectory of the industry over the last decade,” said Sean Murray, who founded it. “The site receives thousands of visitors per day. In the early years it ushered in an era of broker commission transparency.”
Murray recalled a time when sales agents were not always aware that there were even commissions being paid at all.
“There were reps who thought that they had to charge merchants a separate fee in order to earn anything at all,” Murray said. “And their bosses were taking 50% of that. When I would bring up commissions, they’d be like ‘wait, the funders are paying my boss for these deals too?’ and I’d be like ‘how do you not know this?’ Widespread communication via the forum eliminated a lot of the secrets.”
One of the most popular categories on the forum in more recent times has been the Deal Bin, where brokers try to find placement for deals. It’s recorded more than 41,000 posts.
“Ten years is a lifetime as far as I’m concerned,” Murray said. “Love it or hate it, everybody knows the DF. If you’re a lender or funder, your brokers are lurking on there whether they admit it or not.”
Merchant Loses Whole EIDL After Attempting to Earn High Yield On It
July 25, 2022
It’s a tale of Covid EIDL relief gone wrong. A small business owner in Colorado Springs, CO is begging for his funds back after taking the entire lump sum of his EIDL funds ($525,000) and depositing them with a high-yield non-FDIC insured cryptocurrency tech company. The tech company, Celsius, declared bankruptcy less than two months later, yanking the merchant’s EIDL funds with it. Celsius was not a bank, the arrangement not a true deposit account, and the funds not FDIC-insured.
In a letter submitted by the merchant to the bankruptcy court, he says that he deposited the funds there to “earn an APY to help pay back the 3.9% on the loan…” He further added that he believed his account to be safe because of the site’s Terms of Use.
“The funds in my Celsius Custodial account are not mine, they are the US Governments and I my entire business is secured and backed by these funds,” he wrote. “If they are not returned, my business would go bankrupt, my 15 employees would be let go, and 14 years of my life’s work lost and at the age of 49 years old, I would have to start over with nothing.”
Prior to the bankruptcy, Alex Mashinsky, Celsius’ CEO, oft touted the phrase: “banks are not your friend.”
DoorDash Expands its Cash Advance Program to the Dashers Themselves
July 21, 2022
First it was restaurants. Now it’s the Dashers. DoorDash recently launched a limited trial of a new program, cash advances to delivery people. It’s a bit altruistic, however, because it is technically an interest-free 30-day loan with no fees at all.
According to the website, loans are paid back either through a percentage of future Dasher earnings or by placing a debit card on file. Loan amounts are determined by a Dasher’s revenue history. Credit is not a factor.
“Dashers who receive an email or see details in app about this pilot are qualified to participate in this pilot,” the site says. Preliminary reviews online by Dashers that have purportedly tried it, claim loan amounts can go as low as $50.
Eligibility is discoverable through the app. “Check your Dasher app to apply for a cash advance,” the site says. “Select how much cash you want and choose your repayment method.” Payments begin 7 days after funding.
DoorDash launched its other program, its merchant cash advance program via DoorDash Capital, late last year.
Trial of Brendan Ross Postponed Again
July 17, 2022The criminal trial of Brendan Ross, the former alternative lending hedge fund operator accused of wire fraud, has been postponed to October 11, 2022. It had previously been set for July 26. Both sides agreed to the delay. Ross has been out on bond. He has pled not guilty.
Fintech and Transparency in Small Business Lending
July 13, 2022
“Increasing the flow of capital to American small businesses is one of this committee’s foundational goals,” said US Rep Dean Philips (D), chairman of the House Small Business Committee, on Wednesday. Phillips was presiding over a hearing on fintech and transparency in small business lending
Witnesses invited to testify on the subject included:
- Sean Salas, CEO, Camino Financial
- Joyce Klein, Senior Director, Aspen Institute
- Diane Patterson, Regional Director, Twin Cities Small Business Development Center
- John Griffin, Chair in Finance, McCombs School of Business, University of Texas
Both members of the Committee and the witnesses shared varying opinions on how to accomplish transparency. Although this is the not the first congressional hearing of its kind, the timing indicates that federal interest is piggy-backing off of similar conversations playing out in several state capitols. The hour-long video is below:
Fintech Lender Signals That Capital Markets Are Worried
July 11, 2022
Concern about the economy is real. Upstart, the publicly traded online consumer lending marketplace, is noticing such a shift that it felt compelled to publish a sneak peek of its Q2 earnings. And it’s not good.
“Inflation and recession fears have driven interest rates up and put banks and capital markets on cautious footing,” said Dave Girouard, co-founder and CEO of Upstart. Girouard followed that by saying that its marketplace is “funding constrained,” a challenge “largely driven by concerns about the macroeconomy among lenders and capital market participants.”
Originations in Q2 were down as a result.
Though the company is still optimistic that its risk models will perform, the economic headwinds come just as it was beginning to roll out its new small business lending product.
In May, Girouard said that their small business loan pricing model would include more than 500 variables about both the applicant and business.
“It will also feature our loan month modeling framework, which is one of the most impactful innovations added to our personal loan product a few years back,” Girouard said. “Our initial testing suggests that version 1 of our SMB model will deliver higher accuracy, as measured by Area Under the Curve, or AUC, than peer models that have been in the market for years.”
Upstart plans to publish its official Q2 earnings on August 8th. The price of its stock is down 93% since its all time high reached last October.
Virginia Disclosure Law Quietly Goes Into Effect
July 6, 2022
On July 1st, Virginia’s “sales-based financing” disclosure law quietly went into effect. The Delegate from Virginia that introduced it in the first place, Kathy Tran, marked the occasion by retweeting a caucus announcement that it was live. Elsewhere, it was hardly mentioned. It was even absent from the Official Code of Virginia where it was supposed to be ceremoniously entered on July 1st. The State insists that its omission is just a glitch.
“There have been significant technical difficulties during the 2022 code upload process,” reads a notice on the Virginia State Law Portal. “Due to these difficulties, the portal does not currently reflect the changes to enacted law. The Division of Legislative Automated Systems and the publisher are working diligently to resolve these issues as quickly as possible. Once the data is obtained from the publisher in the correct format, the standard quality check of the entire body of law that went into effect July 1 will be conducted.”
The law focuses primarily on disclosures. Sounds simple enough, but in the preceding weeks the draft disclosure form was met with some resistance by potentially covered parties because of how little time there was to integrate it into their systems and processes. Regardless, at least one small business funding company told deBanked off the record that ambiguous language and terms in the law had led to the decision to cease doing business in the State of Virginia, at least for now. Their focus is shifting toward compliance with the upcoming California and New York disclosure laws where the population pools are larger and the soon-to-be enacted requirements are seemingly more complex. Utah too will soon implement its own version of a disclosure law.
For commercial finance brokers, the defining elements of the Virginia law are that commissions earned will have to be disclosed to customers and that they’ll have to register their businesses with the State to even continue doing business there.
