Sean Murray

Articles by Sean Murray

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Reliant Funding Shifts Gears

February 3, 2023
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Reliant FundingReliant Funding has begun a sale of its portfolio, deBanked has learned, a move complemented by some material adjustments internally. For example, posts on social media have revealed that numerous members of Reliant’s staff are suddenly seeking new employment.

A source familiar with events taking place inside the company confirmed that Reliant is indeed right-sizing its team and that funding on balance sheet has paused. Due to its ability to get deals funded off balance sheet, however, January was actually the company’s strongest month ever for originations.

Market conditions and the rapid rise of interest rates may be related to the sudden shift at Reliant, which has been in operation since late 2008. At the time the Federal Funds Rate had dropped to 0% and it had remained exceptionally low until recently.

Regulators Seek to Shore Up Potential Hole in Commercial Financing Disclosure Rules

January 25, 2023
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lawyer going to the courthouseAfter a trade association sued the Commissioner of the California Department of Financial Protection and Innovation over its allegedly unlawful disclosure rules, regulators appear to be scrambling to cover their bases. In particular the SBFA, as plaintiff, has argued that California’s prescribed APR formulas are actually preempted by the federal Truth in Lending Act (TILA) and thus irrelevant.

Within 24 hours of the lawsuit becoming public, a federal agency, the CFPB, coincidentally asked the public to comment on whether or not the disclosure law of a separate state (New York) should be preempted by TILA.

“The CFPB is requesting comment on whether it should finalize its preliminary determination that the New York law – as well as potentially similar laws in California, Utah, and Virginia – are not preempted,” the agency said.

It is of the CFPB’s opinion that such state laws are not preempted and it has proposed to codify such in an official ruling. On January 20th the Attorney General for the State of California praised the CFPB for this initiative.

“…if TILA were to preempt the CFDL’s commercial financing disclosures, there would be no required disclosures at all for commercial credit in California, undermining TILA’s purpose in promoting uniform information and eliminating protections for small businesses and entrepreneurs in California,” said AG Rob Bonta.

The disclosure rules in California went into effect on January 1st despite the lawsuit being filed in December. The SBFA did not attempt to obtain a temporary injunction so there was no anticipation of a delay. The only thing that has happened in the case thus far is that California has asked for an extension to answer the lawsuit. The State now has until February 21st to submit it. In the meantime, the comment period for the CFPB’s proposed rule ended on January 20th, which now potentially puts the agency on course to quickly invent a rule to head off the challenge in California and other states.

Marcus Ceases Its Lending Business, Admits They Tried to Do Too Much Too Quickly

January 23, 2023
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It’s the end of an era. Marcus, an online consumer lending venture launched in 2016 by Goldman Sachs, is winding down its lending business. Rumors of the shift circulated around the media last month but last week Goldman Sachs made it official.

“We started a process to cease offering new loans on the Marcus platform,” said Goldman CEO David Solomon. “We will likely allow the book to roll down naturally, although we are considering other alternatives.”

Solomon attributed the move to the firm reorganizing itself but elaborated further when pressed.

“…we tried to do too much too quickly,” Solomon said. “And of course, in the environment that we are in, it’s hard to go back when we started in that strategy 6 years ago. We obviously built the deposit business, the loan business, and we talked about a much broader platform and I think we came to the conclusion that there were some changes.”

Solomon added that in trying to do too much, it was affecting their execution and he conceded that they didn’t have “all the talent we had needed to execute the way we wanted.”

Left unsaid about Goldman’s original motivations was a desire to compete with LendingClub, who had blazed a massive trail with peer-to-peer lending and showed the world a market of potential untapped opportunity. The two firms went head-to-head against each other for consumers and LendingClub eventually ditched peers as a source of financing and later became a bank itself. The final destination for both companies brings closure to the twenty-teens where growth of an online lending business at any cost was all the rage.

Coincidentally, The Federal Reserve is now investigating Goldman Sachs’ use of appropriate safeguards in its Marcus lending division, according to the WSJ.

The Marcus online savings account product is reportedly remaining active.

New Info On The End of LoanMe

January 16, 2023
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loanmeIt was originally communicated as “market conditions.” That’s what NextPoint Financial, LoanMe’s parent company, announced in June 2022 as the reason that it was winding down LoanMe’s business. The news shocked the world because LoanMe had just been acquired by NextPoint for a price of more than $100M.

Now, after many delays, NextPoint has finally filed its 2021 financial statements, and with that more information about what happened with LoanMe.

Around the time it was being acquired (In Q1 2021), LoanMe transferred the majority of its loan portfolio to sub-servicers to “secure expected financial and operational efficiencies,” the report states, but “transition challenges negatively impacted loan performance and servicing costs.” The problems were allegedly so bad that in March 2022 they had to move the loan portfolio to yet another sub-servicer.

“LoanMe’s management’s attention was diverted from loan production to sub-servicer oversight,” the report states. This, when combined with lower than expected originations due to a competitive lending environment made for a challenging situation.

On May 9, 2022 LoanMe filed a lawsuit against loan servicer Amerifirst Home Improvement Finance LLC in Delaware Superior Court over alleged failures to live up to its loan servicing contract. Amerifirst filed counterclaims against LoanMe on November 3rd. The case is pending.

The tide of events had already overcome the company, however. On June 21, NextPoint announced that LoanMe would cease loan originations but would continue to service outstanding loans. LoanMe’s report attributes this final decision to an “elevated rate of charge-offs” and “a significant shortfall of cash being generated versus the amount required to fund the operations.”

Three months later, NextPoint decided to unwind LoanMe from its business altogether.

LoanMe originated both consumer and business loans. Its business loans ranged from 2-10 years. Business loan customers had an average FICO score of 692.

From Zero to $28 Million

January 12, 2023
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rapid growthBack in June 2022, Eddie DeAngelis was getting ready to launch QualiFi in a Philadelphia suburb. After having started in the industry as President and partner with Bizlender in 2013 and then founder and CEO of Amerifi, LLC in 2017 (later acquired by Nav Technologies Inc.), success for DeAngelis’ newest startup was bound to draw heavily on the experience he had gained throughout his career. But, times had changed a little.

“In my opinion, this is probably the hardest and most competitive over the last 10 years this business has ever been,” he told deBanked. “Every deal shopping around, they’re working with multiple brokers…”

QualiFi connects businesses with funding sources. Real estate loans, AR financing, PO financing, equipment financing, and term loans are among their core products. It’s not a revolutionary business model in that of itself. The key is in execution, which by any measure the company seems to be accomplishing quite well so far. In August alone, QualiFi closed 33 deals for a total of $2.4M in financing and continued the streak until November when it eclipsed $11.3M in just one month split across 57 deals.

In roughly less than seven months since launch, DeAngelis said they’ve surpassed $28M in closed deals. To be sure, DeAngelis doesn’t take all the credit for the impressive start. Jason Maury, a QualiFi partner and VP of Sales, has been instrumental in executing the company’s strategy, DeAngelis said. Part of that strategy he shared.

“99% of all our traffic is from inbound leads,” DeAngelis said. The company runs a variety of marketing campaigns that includes social media but nearly half is attributable to referral partners.

“We have banks, a couple of credit unions, and CPAs that we work with that send us some of their clients that are either maxed out on their line of credit or just simply can’t get approved from the bank,” he said.

The company doesn’t take any of those relationships for granted, which means QualiFi reps need to be qualified to take on their tasks.

“We have an approximate five week on-boarding process for all new hires,” DeAngelis explained, adding that it’s one of the most intensive sales trainings out there. New people to the business must go through it before they get on the phone with potential customers. All of that training is on-site at the company’s office, not something that is offered remotely. Doing this business in person is something QualiFi puts a high value on as the team is expected to be in the office Monday-Thursday. Fridays are allowed to be remote.

There’s a little more to it. DeAngelis said that “culture and the environment is another piece” and that leadership is about supporting everyone and keeping a team mentality.

“Even after they’re done their five week training, Jason and myself are always all over the floor,” DeAngelis said. “We’re very involved in the trenches day-to-day. We do ongoing support training once a week…”

All told, even with the current state of the economy, QualiFi anticipates an opportunity to help more business owners when they will probably need it most.

“We’re remaining pretty optimistic,” DeAngelis said. “As we’re going into an even more volatile economy in the new year, I think the banks are really going to be squeezing and not really looking to put too much money out there and take any risk at all. So I think that a lot of that business is going to come our way potentially. That’s what we’re hopeful for.”

ERC And The Broker Relationship

January 11, 2023
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employee retention tax creditLike many business loan brokerage CEOs across the US, Jared Weitz is familiar with the Employee Retention Credit (ERC). His company, United Capital Source (UCS), which in 2021 surpassed $1B in small business financing volume, regularly speaks to thousands of small business owners. Weitz told deBanked that through his own experience most business owners have become sufficiently aware of the ERC as well. That in turn raises the question of what role a company like UCS can play in the ERC process.

“We have a few different referral partners that are lending against those credits,” Weitz said. “And that’s what we’re doing.”

In that regard, UCS is doing what it is already used to doing, connecting the business owner with a compatible source of funding. While other brokers may attempt to generate fees by assisting businesses with filing for the tax credits themselves, Weitz said he prefers to avoid the headache and/or potential liability that can come along with doing that.

“We’re able to get 100% of what a client is owed right up front,” Weitz said. “They can either have an interest-only program or a no-payments program for 12 months, and then after 12 months there would be a factor rate attached to the program that would be paid back weekly.”

UCS earns a commission when a deal goes through but ERC has not by any means become a primary driver of business, according to Weitz. Rather, it’s something that could come up during a customer consultation.

“When we’re peeling back the layers and chatting with the client on why they need funds, if they say ‘well, actually I’m falling short here and I also just filed for [the ERC] and I’m still waiting for that,’ it can be one of the options that we offer them […] and we’ll just see what they qualify for and if they’re interested in it.”

united capital sourceIt’s the waiting part that is creating a cottage industry around ERC. Weitz says he hasn’t heard of any business getting an ERC refund in less than 7 or 8 months and he is aware of at least one business that is still waiting for it 2 years later since filing. But just because most businesses are aware of the ERC doesn’t mean they’ve all actively pursued it. On this, UCS simply offers free helpful advice.

“What I would say to them is ‘hey, heads up, you should probably look into this with your local accountant and payroll company, make sure you get your tax attorney or your accounting firm’s attorney involved just to make sure you’re doing it the right way.'”

Putting business owners on that path of pursuit, informing them of its existence and advising them to seek out qualified counsel to assist with it, generates no revenue to UCS, but Weitz thinks it’s important to help business owners in any way possible.

“I think it does build a bridge of trust a bit more between you and your clients because you’re showing them that you’re not solely looking at products that are beneficial to you, and you shouldn’t be doing that anyway,” Weitz said. “But I think when you’re dealing with someone there’s always that thought in their head, right? And so this has helped solidify that you’re not.”

The Next Frontier: Financing the ERC

January 11, 2023
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Finance ERC“I have never sold a product that has no daily, no weekly, or no monthly payments,” said David Goldin. That is until now, he explained, because of the Employee Retention Credit from the IRS that’s sweeping the country. Goldin’s new company, Finance ERC, that he co-founded with Newtek co-founder Jeffrey Rubin, is buying the future ERC receivables of small businesses that have filed for it. A key feature? No payments.

“You basically drop off the money, they don’t pay you out of cash flow, we get paid when the checks arrive,” Goldin said. “It’s an amazing offering.”

Goldin is no stranger to the SMB finance game. He is one of the reasons that the MCA product exists today in the United States. A documentary about it was the second most watched in all of 2022, for example. And he’s still a busy guy. One of his other businesses, Capify, finances small businesses on two continents every day.

“I’m busy in the morning with the UK and I’m busy at night with Australia, but I had a lot of free time during the day,” he said about how he was able to pursue yet another venture. “I approached Jeff and we were seeing that there was a gap in the market that the checks don’t arrive.”

The ERC, a potentially generous tax credit available to eligible businesses, has recently enjoyed greater awareness since it was included in the March 2020 CARES Act. Businesses that qualify can amend previous returns to receive a refund. Folks in the small business finance industry, already in direct communication with businesses about their financial needs, have taken notice.

Finance ERC won’t do the filing itself for a business. They have to had filed already to seek out the funding, which can go up to $1 million at present. It’s the waiting game between filing and actually receiving the refund that leaves merchants in a crunch. Goldin said the wait time is “best case scenario three months, worst case scenario a year plus.” And there’s no guarantee that the claims will be paid. That’s a risk they bear.

The deals come in from a variety of sources, business loan brokers, MCA platforms, ERC filing companies and more. The funding amounts can be significantly larger than an MCA and with no payments to be made, is incredibly competitive. A number of other financial service providers are charging a fee just for helping the businesses file for the credit in the first place, which in itself can be lucrative, but Finance ERC sticks just to the funding.

“We work with the funding companies, we work with the brokers, the various ISOs, it’s a great product,” Goldin said.

But the life span of the ERC is purportedly capped. Some experts say that businesses can only amend their 2020 tax return through April 2024 and their 2021 return through April 2025 [dyor]. But then that’s supposed to be it, allegedly.

“That presumes the government is not going to offer any future tax incentives,” Goldin said. “What we’re building at Finance ERC is a platform to finance tax credits. [The ERC] is the first credit.”

The opportunity, he explained, is preparing now for what may repeat often in the future.

“We put together the right players and vendors,” Goldin said. “We’ve hired a super senior management team.” It’s a system that includes sales, marketing, operations, finance, underwriting and more, to be prepared to scale.

But even in the present, opportunity abounds.

“The best estimates I’ve read are 5-6 million ERC are still eligible,” Goldin said. “People in this industry call it America’s best kept secret.”

And thus as marketing of the ERC continues to grow all around, Finance ERC is ready to work with businesses, brokers, and filers going through the process. Businesses can even use the funding from Finance ERC to pay the fee to file in the first place.

“So now all of a sudden they put the risk to me which I’m happy to do for a file that we like, and I pay the filing company / the broker gets paid right away,” Goldin said.

Last Chance to Comment on SBA’s Proposal to Lift SBLC Moratorium

January 4, 2023
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SBA LoanIn November, the Small Business Administration formally proposed a rule to lift the moratorium on licenses for Small Business Lending Companies (SBLCs). The moratorium wasn’t some pause borne out of the covid era. It’s been in place since 1982, creating a market of just 14 licensed SBLCs over the span of 40 years. Originally this moratorium had only gone into place because the SBA “did not have adequate resources to effectively service and supervise additional SBLCs” but now in modern times the SBA has determined there’s a problem, “that certain markets where there are capital market gaps continue to struggle to obtain financing on non-predatory terms.” Their solution? Lift the moratorium.

The proposal was published on November 7th and the public’s ability to comment ends on January 6th. One potential outcome of lifting the moratorium is that fintechs could potentially become licensed SBLCs. That appears to be a desired outcome for Funding Circle who shared their comment on social media on Wednesday.

“We need the SBA to lift the SBLC moratorium in order for us to apply to originate 7(a) loans nationally,” Funding Circle wrote. “This would allow us to leverage our platform technology and more than a decade of lending experience to expand access to 7(a) loans for underserved communities and to do so quicker, at a lower cost and with a superior customer experience.”

With more than 60 comments garnered on the proposal so far, Funding Circle is virtually the only fintech to have weighed in at all. A number of comments from the traditional finance realm were highly critical of the idea of allowing fintechs to become SBLCs, citing their supposed inexperience and perceived failures to responsibly dole out PPP funds. Others expressed a belief that the SBA still did not have the resources necessary to supervise additional SBLCs even after 4 decades and that the agency is already stretched too thin as it is.

“SBA should not expand 7(a) Program until it requests, and receives from Congress, an appropriation to fund the additional SBA staff necessary to supervise additional 7(a) lenders,” the American Bankers Association wrote.

There are complexities and nuances to the pros and cons of the arguments, but the opportunity to comment at all is running out. The deadline is Friday January 6th.

Anyone can submit their own comment here.

Update: Upstart, another fintech, had their comment processed by the SBA after this story was posted. The company also supports lifting the moratorium.