Kevin Travers was a Reporter at deBanked.
Articles by Kevin Travers
Lufax, a Chinese Online Lending Marketplace, to IPO on NYSE Next Month
October 27, 2020
Lufax, an online lending marketplace and one of China’s largest fintech companies, plans on going public by the end of the month on the New York Stock Exchange. Lufax is one of the multiple Chinese fintech companies grappling for a public offering amidst increasing tension between U.S. and Chinese markets.
Offering an online shopping mall for financial products, Lufax connects borrowers to various lending products supplied by traditional and alternative investors alike. Lufax was one of the largest, if not the largest P2P lender in China just two years ago before a major crackdown on the P2P industry forced the company to revamp completely.
Lufax plans to issue 175 million shares that will be priced from $11.5 to $13.5 each, according to a prospectus with the U.S. Securities and Exchange Commission last week. This would net the company around $2.36 billion.
The IPO would give the company around a $30 billion in valuation, lower than the $39.4 billion valuation it received in 2019 from a major backer Ping An Insurance Group.
Lufax reported more than $1 billion of profit in the six months up to June 30th, according to the filing. Last year, the firm’s assets dropped by 6.1% after a 30% reduction in transaction volumes. This was a cut of nearly all P2P transactions, in compliance with regulation from the Chinese government.
After the P2P industry grew unchecked for a decade, fraud concerns bloomed into outrage as hundreds of platforms covering hundreds of billions of dollars defaulted. According to Mckinsey, from 2013 to 2015, fintech firms offering P2P products exploded from 800 to more than 2,500 companies. More than 1,000 of these firms began to default on their debt, ballooning to an outstanding loan value of $218 billion in 2018.
In response to protests, outrage, and stadiums of helpless borrowers trying to gain their funds back from Ponzi schemes, the Chinese government cracked down hard on fraudulent firms. According to Reuters, regulators placed every P2P firm on death row, stating in 2019 that the industry had two years to switch to “small loans.” The shutdowns have cost Chinese investors $115 billion, according to Guo Shuquing, China Banking Regulatory Commission.
Pivoting away from these shutdowns, Lufax and many firms like Alibaba funded Ant Group are switching to lending marketplaces. Lufax works with 50 lending providers that hold $53 billion in assets as of June. Lufax believes that there are trillions of dollars in the untapped alternative finance market in China.
Franklin Capital Group Has Been Acquired
October 23, 2020
This month, Franklin Capital Group was acquired by Wing Lake Capital Partners with the help of Rocky Mountain Bank. Franklin Capital will change its name and add funding capability- but the entire team will stay on. CEO Shaya Baum was happy to announce the deal, explaining that the firm would use acquisition funds to create more deals and continue to grow.
“It gives us the ability to fund many deals that are outside of our box previously,” Baum said. “We’re going to be launching a couple of sister funds alongside what we currently have and scale the business.”
Franklin Capital was founded in 2012 as an equity fund for companies in financial trouble during, before, or post-bankruptcy. The firm discovered a market for refinancing MCA advances, finding companies that should have never obtained cash advances in the first place. Franklin Capital began offering a product to refinance cash advances through traditional loans.
“We buy out the cash advance deals,” Baum said. “In fact, most if not all of our deals come from brokers in the cash advance industry saying ‘Hey can you get us out of these deals?'”
Baum said that his firm had seen a continually growing demand for capital this year.
“I know the cash advance companies have gotten killed, but we’ve actually had the opposite problem,” Baum said. “We don’t do one-off restaurant [advances.] We’re dealing with companies that are larger, more established: they’ve all pivoted into industries that have grown during this period of time.”
Greenbox Capital on Official Panel to Aid Section 1071’s Rollout
October 21, 2020
This week, Greenbox Capital, the Miami-based alternative finance company known for its MCA and SMB financing, announced they are serving as a Small Entity Representative (SER) to the Consumer Financial Protection Bureau (CFPB) as the organization proceeds with the rollout of Section 1071 of the Dodd-Frank Act.
“I am representing, and Greenbox Capital is essentially representing, the industry,” CEO Jordan Fein said. “There are some banks, there’s Funding Circle, but other than that, it’s Greenbox Capital serving in the industry.”
Fein, who founded Greenbox in 2012 and has since facilitated MCAs and business loans across America, Puerto Rico, and Canada, wrote in a press release that it was an honor to be selected to provide feedback on Section 1071.
“Over 2 million businesses across the U.S. are either women or minority-owned,” Fein wrote. “It is vital they can secure funding as easily as non-minority-owned businesses.”
Congress passed the Dodd-Frank Act in 2010 in response to the Great Recession. To further protect consumers, the CFPB was born. Section 1071, an amendment to the 1974 Equal Credit Opportunity Act, mandates financial institutions report demographic information to the CFPB. But much was left undefined about how to go about doing that and who would technically be subject to it.
Ultimately, the intent behind the law was to measure potential disparities among factors like the race and gender of applicants. Ten years later, the rollout is finally moving along.
As part of this, the CFPB created a board of firms representing the affected industry, on which Greenbox sits, to ensure the law works with the industry, not against it. The first panel was on October 15, in compliance with the 1996 Small Business Regulatory Enforcement Fairness Act (SBREFA.)
“They’re going through the SBREFA process, which is a structured process where they have a panel of industry representatives, and they share what they’re planning to do,” Fein said. “They run it by companies like us and we give our opinion and talk about how we think companies will be impacted.”
According to an invitation letter the firms received, they will have until November 9 to respond.
Fein said Greenbox would ensure any suggestions it made would positively impact the industry. Especially during a pandemic, Fein said it is essential to create regulation with firms in mind.
Drama, Health Challenges Revealed in CircleUp’s CEO Switch-Up
October 19, 2020
CircleUp, a fintech company that’s raised more than $250M between debt and equity, saw a change in leadership last week, with more than a fair share of transition drama. Co-founder and CEO Ryan Caldbeck stepped down, giving way to President Nick Talwar.
After stepping down, Caldback took to Twitter and Medium, opening up in a 41 tweet story about why he chose to leave. A scathing private letter from Caldbeck to an unknown investor and chair of the board at CircleUp also circulated social media.
“I made many mistakes during this time, thinking I could just grit it out alone,” Caldbeck wrote. “I thought keeping everything to myself would allow me to handle the professional challenges more effectively. My approach was wrong.”
CircleUp is a tech-driven entrepreneurial investment company, known for supplying funding to consumer firms like Halo Top Ice cream. Caldbeck founded the firm in 2012 with Roy Eakin, as a platform to connect entrepreneurs to investors.
On Twitter, Caldbeck shared his internal hardships during the C Series pivot. Facing immense stress at work while his company pivoted, fertility troubles at home, and cancer diagnoses beginning around 2017 and continuing into the present, Caldbeck went from burnout to drawn-out depression.
“There’s no doubt my mental health was suffering during that period,” Caldbeck wrote. “Some think they have no choice but to ‘tough it out’ in front of the teams, customers or investors, despite what’s going on inside their heads because doubt isn’t respected in venture.”
Caldbeck said that the “normal level” of CEO exhaustion was something he thrived on, including catching sleep in the restroom in the spare minutes he had before board meetings. But when his fertility testing found cancer, and his stress brought headaches that were feared to be brain cancer, Caldbeck said even a papercut would set him off.
Simultaneously, a board member at CircleUp was acting so disruptive that Caldbeck later complained that he was throwing the entire team off. Just this past week, Caldbeck sent an email that got shared all over the internet to that board member as advice, and in part retribution for how the investor acted.
According to Caldbeck’s letter, the disrupter invested their way onto the team and treated the rest of the board with disrespect. They talked down clients, disrupted meetings, projected insecurity and paranoia, and forced the sales team to market their stake when they wanted out.
“The data suggests that venting doesn’t actually help mental health- it hurts,” Caldbeck said. “I’m not writing this to vent, I am writing this because I am hopeful it will help future entrepreneurs you invest in.”
While Caldbeck was facing cancer, the board member was reportedly putting down the entire company. Caldbeck said he should have seen a red flag that he didn’t even meet the investor before they were sitting on the board and that many other executives share his negative opinion.
“Your involvement was incredibly difficult for all of CircleUp and our board,” Caldbeck said. “My hope is that over time you can process some of this information below and make the necessary changes if you decide to stay in venture.”
Luckily, his brain scans came back negative, and his cancer was removed by operation, and Caldbeck and his wife had a secound child. However, the 12 to 18 month period of exhaustion had taken its toll. Caldbeck had reached the end of his rope, signified when his five-year-old daughter said, “Daddy, you always look sad.”
In 2019, Caldbeck sent a letter to his board explaining his intent to step down, after serving as CEO since founding in 2012.
After a long transitionary period waiting for a replacement, Caldbeck finally shared his story, hoping to inspire other leaders to be open about their struggles and feel less alone. Nick Talwar, a 20-year industry vet, was hired as president of CircleUp in July. Caldbeck wrote that he is excited for the CircleUp team despite his time of struggle as he becomes the Executive Chairman.
“I feel immensely proud of what we have built at CircleUp,” Caldbeck wrote. “The team is truly extraordinary, and I think the technology (Helio) will transform consumer and private investing. We’ve helped hundreds of entrepreneurs to thrive, and we will help thousands more.”
Steve Denis Talks About SBFA Study: APR is a Bad Metric For SMB Loan Transparency
October 19, 2020
In response to regulatory bills in California and New York that will enforce APR disclosures on small business capital providers, the Small Business Finance Association (SBFA) funded a study by Kingsley-Kleimann to find out if APR is a good metric to use for business loans.
Steve Denis, the Executive director of the SBFA, said his group supported the study because the states should test concepts with actual small business owners before passing regulation. In the NY disclosure bill awaiting signature, Denis said there was no concept testing. Some of the companies that support the bill might not have even read what it stipulates.
“You have a group of companies that are pushing these types of disclosures, for no reason other than their own self-interest,” Denis said. “We’re fine with disclosure, we are all for transparency, but it needs to be done in a way that we believe is meaningful to small business owners.”
In qualitative testing of 24 small business owners and executives who have experience taking commercial loans, the study concluded participants did not understand what APR was. The study found that the total cost of financing model was a better way to understand and compare options for their use.
“As one participant, when asked to define APR, answered: ‘I feel like you are asking a kid, why is the sky blue?’ (Participant 3, NY).” The study concluded, “In other words, [APR] is ever-present yet also inscrutable.”
Kingsley-Kleimann is a research-based organization that studies communication and disclosure for government agencies like the FTC and private or public business. Participants were selected from Califonia and NY.
Denis said that the findings show what SMB lending companies have already known- Anual Percentage Rate is not a useful metric for short term loans. Many do not know that APR represents the annualized cost of funds for the loan term, with the fees and additional costs included.
“People don’t know what APR is; it confuses them,” Denis said. “They know it’s a metric they should use, but they don’t know why. The APR is such a marketing tool now, it’s not a valuable tool.”
The study showed most respondents thought APR was the same as an interest rate. It’s not.
Denis said using an annualized rate for shorter-term loans or SMB loans that have no ending date worsens the problems. In those cases, firms estimate an APR, and it is inaccurate.
“When you have a merchant cash advance, there’s no term,” Denis said. “So you have to estimate a term, and I mean that is just a recipe for fraud.”
Denis said that the firms supporting California SB1235 and the New York S 5470/A 10118-A disclosure bill and taking credit for writing the laws are the same companies that will suffer under the strict tolerance of an APR rule.
“The companies pushing this, the trade associations pushing it, they like to take credit for writing the bill in California and writing the bill in New York: I don’t even think they’ve read it,” Denis said. “It’s going to subject their own members to potentially millions if not hundreds of millions of dollars in potential liability [fines.]”
The SBFA is not against disclosure by any means, Denis said, but supported other avenues. The trade group believes knowing the total cost of a loan and the cost and timeline of payments will help protect and inform borrowers better than APR. Firms that support the disclosure bill are banking off the positive press, hoping to be seen as pro-consumer protections but forcing APR will make it harder to compare the actual value of loans, Denis said.
Denis is still optimistic that regulators will work with businesses affected by the incoming legislation. He said the NY legislature and governor’s office, as well as the California Department of Business Oversight, understand the problems of using APR.
“They’re receptive to these arguments, and they know what they’re doing,” Denis said. “The last thing they want to do is pass a bill that’s going to further confuse businesses, especially during a pandemic when businesses are relying on this capital to stay afloat.”
SBA Simple $50k Forgiveness- Due Next Year
October 15, 2020
On Oct 2nd, the SBA finally released a simple forgiveness process for PPP loans under $50,000. Though many borrowers wanted forgiveness for all loans below $150,000, the under $50k bracket can fill out a one-page, front and back form.
The SBA recently clarified in a FAQ section that borrowers do not need to submit the forms before the “expiration date” of 10/31/2020 that appears at the upper right corner.
According to the SBA, that expiration date was merely put there to comply with the 1980 Paperwork Reduction Act, which was intended to limit the amount of paperwork that government agencies can send to the public, and that as such it has no actual bearing on anything related to loan forgiveness.
To clarify, the SBA stated that borrowers can submit a forgiveness form at any time before the maturation of the loan, which is anywhere from two to five years from origination. But, loan payments will begin ten months after the borrowers “loan forgiveness covered period.”
Loans Canada Survey Shows Areas to Improve Online Lending
October 14, 2020
As part of the mission to find the best loan options, Loans Canada, a loan matching service, surveyed 1,477 people who have borrowed from online payday lenders. The goal was to look at the average person’s experience that gets an online or payday loan, and the respondents reported problems with the unregulated nature of payday lending.
The sample was composed of “credit-constrained” individuals, with 76.2% reporting they had been rejected for a loan in the past year, and 61.5% reporting that they had a low credit score. The data shows that borrowers with poor credit will have to rely on alternative lenders, the survey outlined.
Of those surveyed, more than a fourth reported unfair, problematic lending and debt collecting practices. 33% of respondents said they accepted unfair loan terms because the lender used confusing language and 27% said they took a loan product or service they did not need, convinced by aggressive sales tactics.
Undisclosed and hidden fees were also reported as a problem. 22.4% of respondents said they were charged undisclosed fees while 32.8% were charged fees that “were hidden in the fine print.” 28% of respondents said they were charged without consent at all.
Borrowers faced issues with pre-authorized debits, an agreement where the borrower gives their bank permission to send money to the lender. 33.6% of respondents complained their lender debited their bank when asked not to do so, while 32.5% of respondents had to place a “stop payment” order on the lender.
When it came to paying on time, only 21.9% of borrowers did not miss any payments. Of those who did, over a fourth experienced aggressive behavior from a lender.
Finally, 32.9% of people who took out an online or payday loan had their debt sold to a collection agency. The paper argues that Canada’s debt collection businesses have to follow different regulations in different provinces. Sometimes, debt collectors can rely on Canadians not knowing their local rights by using unethical intimidation techniques.
Of those that had their debt sent to agencies, 62.1% reported the agency misrepresented themselves when they contacted the borrower, sometimes as law enforcement or as a law office. 52.7% of respondents sent to collections received calls from an agency masked to hide their true identity.
Among lenders themselves, threats to garnish wages, seizing assets, and arrest were in the toolbox for collecting delinquent payments
Loans Canada hopes the information shows problems with online payday lending but highlights credit lines are a two-way street. As lenders need to be held to standards that aim to fix unfair practices, borrowers need to uphold their side of the agreement. Overborrowing is a one-way street to missing payments, leaving lenders little choice.
The Roosevelt Hotel is Closing Permanently Due to Pandemic Losses
October 13, 2020
After nearly a century of quintessential Manhatten hospitality, the Roosevelt Hotel is closing by the end of the month, sources say. A relic of classic New York that survived the Great Depression, WWII, and Broker Fair 2019, the hotel is officially shutting down for good after suffering pandemic related losses, a spokesperson said.
“Due to the current, unprecedented environment and the continued uncertain impact from COVID-19, the owners of The Roosevelt Hotel have made the difficult decision to close the hotel, and the associates were notified this week,” the Spokesperson told CNN reporters Friday. “The iconic hotel, along with most of New York City, has experienced very low demand, and as a result, the hotel will cease operations before the end of the year. There are currently no plans for the building beyond the scheduled closing.”
The hotel will be added to the growing list of staple New York City businesses that have closed as a result of COVID. The Roosevelt was named and built to honor the United States’ 26th president and it opened its doors on September 22, 1924. Constructed during Prohibition, the building began the modern trend of featuring designer store windows on the street front.
Appearing as a backdrop for dozens of Hollywood blockbusters like Boiler Room, Malcolm X, and The Irishman, the hotel was iconic. The New Year’s Eve tradition of singing “Auld Lang Syne” was born at the Roosevelt in 1929 when Guy Lombardo and his orchestra broadcast the song live over the radio.
The building was purchased by the limited investment branch of Pakistan International Airlines (PIA) in 1999.
In July, government officials and PIA executives debated the hotel’s future, some hoping rumors that President Trump would purchase the property were true. The initial plan was to sell or renovate the city block to create office space, thought to be far more lucrative than the hotel business in 2019. Work-from-home orders threw a wrench into the cogs, and the hotel kept losing money: no one wanted the traditional New York experience during a pandemic.
Posting a loss during this year has become expected of the hospitality industry. According to the Bureau of Labor Statistics, hospitality lost 7.5 million jobs due to shutdowns and travel restrictions in April. CNN reported that only half as many jobs had been added back. In September, NYC hotels were below 40% occupancy.
The decision to ultimately close The Roosevelt might also come from trouble in PIA’s airline business. After the crash of PIA flight 8303 that killed 97 people in Havelian, Pakistan, European and US regulators banned flights from PIA for six months. After the crash, nearly one-third of airplane licenses in Pakistan were found to be fraudulent or forged, further straining the organization’s ability to recover.
Though this may have contributed to The Roosevelt’s closure, the pandemic sealed the deal. According to a study by the American Hotel & Lodging Association, New York has 2,336 hotels statewide that have lost 43,014 jobs this year.
Without further congressional aid, 1,565 hotels might close: the AHLA found that 74% of overall US hotels say more layoffs are coming if the industry doesn’t get additional federal assistance. But successful talks for more aid in the House and Senate are increasingly unlikely due to this election year’s heightened partisanship.
NYC is losing yet another historical business, as the way of life and all things we have come to expect from the big apple struggle to survive. As a destination venue, The Roosevelt was also dear to deBanked. It was the home of Broker Fair 2019, where Sean Murray spoke in the same ballroom that Michel Douglas (as Gorden Gekko) made the famous “Greed is Good” speech as part of the 1987 film Wall Street. Murray made a similar speech but rewrote it to fit the industry that had gathered. “Funding small business, for lack of a better phrase, is good,” he said on stage to an audience of 700 people.
Unfortunately, it was The Roosevelt that ultimately needed funding and didn’t get it.
