Articles by deBanked Staff
Merchant Cash Advance Facebook Group Hits 1,000 Members
March 26, 2021
The Merchant Cash Advance facebook group, a community created and administered by deBanked, has reached 1,000 members. The social media group is a popular place for those in the non-bank business finance community to engage with each other online.
“We’re seeing an uptick in collaborative business development, especially among smaller brokerage organizations and those who work independently on their own,” deBanked President Sean Murray said. “A lot of ideas, motivation, referrals, and deal-making is being conducted online, more-so than before because of the 2020 lockdowns where in-person collaboration slowed to a crawl.”
Separately, deBanked shares common ownership with DailyFunder, the largest b2b finance community on the web.
“We actually witnessed a very insightful trend on DailyFunder,” Murray said. “Approximately 7.5% of the active membership that existed on March of 2020, had left their jobs or closed their business by March of 2021. It sounds troublesome on its face except that we added more members than we lost in that timeframe. More people came in than left, a net increase. I think the data is pointing to the future being very strong!”
NY Court Says MCA Agreement is a Factoring Agreement, Not a Loan
March 22, 2021
A New York Supreme Court judge that was presiding over a breach of contract claim (653596/2018) in a merchant cash advance agreement, said he was bound to follow the decision issued in Champion Auto Sales, the landmark appellate ruling in 2018.
In Principis Capital LLC v Team Van Eyk, Inc. et al, Principis sued the defendants over a breach of contract. Defendants “did not deny the facts underlying the motion or the the amount due,” the judge said, “but asserted instead that the Agreement is not an agreement for the purchase of future receivables; but is instead, a criminally usurious loan, and is therefore void as a matter of public policy.”
This defense actually led to victory for the plaintiff.
The Appellate Division, First Department, in Champion Auto Sales, LLC v Pearl Beta Funding, LLC (159 AD3d 507, 507 [1st Dept], lv denied 31 NY3d 910 [2018]) has considered this issue, involving a merchant agreement substantially similar to the agreement in this matter, and has held that the type of agreement involved in this case is a factoring agreement rather than a usurious loan. This court is bound to follow Champion and, therefore finds that the Agreement is a factoring agreement and not, as defendants assert, a usurious loan. There are, therefore, no genuine triable issues of fact, and plaintiff is entitled to summary judgment on its complaint.
Case closed.
Prosper Marketplace Posts $18.5M Profit for 2020
March 15, 2021
Prosper Marketplace reported a $18.5M profit for 2020, up from a net loss of $13.7M in 2019, marking yet another online lender that successfully weathered Covid.
In 2020, Prosper originated $1.5B in loans, $1.4B of which were originated through their Whole Loan Channel.
Like Lending Club, the company has long retreated from its peer-to-peer lending roots, but still operates a platform where individual retail investors can buy notes, whereas Lending Club terminated theirs completely.
Prosper generated $100 million in revenue in 2020 and had 353 full-time employees at year-end.
Prosper is not publicly traded but is required to file regular financial statements with the SEC because it sells notes to retail investors.
LendingClub Talks Earnings Post Radius-Bank Acquisition
March 11, 2021
“It’s really hard to imagine a better time to be launching a digital bank,” said LendingClub CEO Scott Sanborn on the company’s Q4 earnings call. “First up, we’ll be building on Radius’ multi-award winning online and mobile deposit offering to make it very easy for our customers to manage their lending, spending and savings in a holistic fashion.”
The company reported a Q4 net loss of $26.7M on $75.9M in revenue and originated $912M in loans. Their status of being a bank, however, is only just beginning. CFO Tom Casey explained the following:
In addition to lowering our funding cost of deposits, our new marketplace bank will capture significant financial benefits from being a bank and having a marketplace. [….]For every $100 million of loans we originate, we generate about $4 million through an origination and servicing fee when we sell the loans in the marketplace. The vast majority of this fee-based revenue is realized immediately and without requiring a significant amount of capital. However, it is highly dependent on origination volume.
[…]
We can now bolster this revenue stream with bank revenue generated by loans held for investment on our balance sheet. As you can see on the left side of the page, every $100 million of loans we hold on the balance sheet should generate additional marginal profitability of approximately $12 million. And when you compare that to the $4 million in the marketplace, that’s 3 times more. And this recurring revenue is not dependent on originations in any given quarter.
LendingClub experienced unique success during the pandemic, stating that loan performance exceeded their expectations.
“Coming out of the pandemic,” Sanborn said, “the strength of our underwriting has now also been cycle-tested. Losses on loans issued pre-COVID are in line with our pre-pandemic expectations, and loans issued since the pandemic are some of our best-performing loans in recent years.”
Was That Loan Forgiven? The Tax Man Cometh
March 10, 2021
With tax season upon us, the events of 2020 will soon be reviewed and evaluated by everyone’s best friend, the IRS. Lenders that offered debt forgiveness might have done a favor to distressed borrowers in 2020, but a consequence of that courtesy is that the borrowers’ forgiven debt might be taxable.
This is as good a time as ever to review a report prepared by Grassi Advisors & Accountants whether you are a lender that forgave debt or a borrower that had debt forgiven.
“This issue was noticed early last year,” said deBanked President Sean Murray, “but at the time everyone was so focused on PPP forgiveness, the EIDL program, and government stimulus, that I think the potential consequences of lenders forgiving non-PPP debt for their borrowers were lost in the shuffle. Imagine you’re a borrower that had $100,000 of non-PPP debt forgiven last year and you’re only now about to learn that the IRS may classify that as income. Or worse yet, you don’t even realize it and are told that later on during an audit.”
In May 2020, deBanked labelled this as a hidden tax time bomb that was set to detonate in 2021. And now here we are.
Methodical Ponders if The Roaring Twenties Are Around The Corner
March 9, 2021
When we last spoke with Gunes Kulaligil, a co-founder of Methodical Management, a valuation and advisory firm, several securitizations in the non-bank finance space had just hit early amortization triggers. That was in late June 2020.
Now that time has passed and the world stabilized, a publication put out by the firm on March 3rd ponders if we are on the verge of repeating the Roaring Twenties of a century ago.
“We have repeated a pandemic, and a hundred years ago the Roaring Twenties was a decade of economic growth and widespread prosperity, driven by recovery from wartime devastation and deferred spending… and we now see a tsunami of deferred spending waiting to be deployed,” the company wrote.
Although spreads for the majority of sectors are currently at the tight end of multi-year trading ranges, there are notable exceptions such as retail/hotel heavy CMBS, aircraft, private student loan subs, rental car and some franchise bonds. One thing to note is that even though spreads in most sectors have held up in the face of deteriorating performance due to the COVID freeze, most structural protections have worked as designed to insulate investors from losses.
“A positive perhaps unexpected consequence of COVID has been the higher savings rates seen than before the pandemic,” the report says. “To be clear, it is a K-shaped recovery and there continues to be distress especially for lower income borrowers, but nowhere near the projected levels pontificated after April 2020’s unemployment number of 14.8% was released. There may continue to be unintended consequences down the road but for now FICOs are up, savings are up, delinquencies are down and this trend is likely to continue as new stimulus packages that are in the works get rolled out.”
Andrew Smith Recalls Era as FTC Director
February 27, 2021Andrew Smith, who became Director of the FTC’s Bureau of Consumer Protection (BCP) in 2018, ended his time with the agency on January 29, 2021. In a LinkedIn post recapping his tenure there, he said:
Despite a month-long government shutdown and a once-in-a-century pandemic, BCP brought more than 200 enforcement actions against companies great and small, including many household names, obtaining strong injunctions and billions of dollars in civil penalties and consumer redress.
BCP also had several firsts, including the first cases holding technology platforms liable in connection with user-generated content; the first small business financing cases; the first cases against VoIP service providers and finance companies for assisting and facilitating fraud; the first cases involving fake reviews, fake rankings and consumer review gag provisions; the first fair lending case at the FTC in more than a decade; the first paperless redress program; and the first CBD cases.
The FTC has been going through some changes with the introduction of a new administration. FTC Commissioner Rohit Chopra, for example, will be the next head of the CFPB, pending his confirmation.
Kabbage To Be “Relaunched” by Amex End of Q1 Into Q2
February 25, 2021
American Express was fairly vague about details related to its recently acquired small business lending platform, Kabbage, in its Q4 earnings disclosed last month, but analysts were curious and asked executives for more information on the call.
“As far as Kabbage goes,” said Stephen Squeri, Amex’s CEO, “I think the thing that we’re really excited about is Kabbage is it gives us a platform that we can interact with our small businesses. And so, to be able to go to one platform to not only get a working capital loan, to get a term loan, to have now a business checking account, to be able to have your card product, to do cash flow analysis on the platform, it gives us sort of an all-in-one platform to serve the needs of small businesses, which is why we did that and what we’ve been shooting for over the last couple of years, it was just a very fortuitous time and a very fortuitous acquisition for us. And we’ll be rolling that out end of Q1 into Q2 and continuing to make enhancements on Kabbage. So we’re really excited about it and the opportunities that it brings from a small business perspective.”
Earlier in the call Squeri said that work was already underway “to integrate and relaunch Kabbage’s suite of products.”
In 2019, Kabbage had been among the top 3 online small business lenders in the country. Covid-related stress likely played a factor in their being acquired by Amex in 2020.
Following that, Kabbage co-founder Kathryn Petralia told deBanked: “American Express shares our vision to be an essential partner to small businesses, and we couldn’t be more excited at the opportunity to continue the important work of providing solutions and innovative capabilities that address a range of small business cash flow needs alongside AmEx.”
