Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.
Articles by Sean Murray
Sales, Tech, Funding, and the Law in California
July 7, 2023deBanked sat down with three individuals from across the spectrum of the small business finance world in Southern California.
With David Austin, an attorney and Managing Partner at Austin LLP, we discussed merchant cash advance law and the importance of legal counsel to run one’s business correctly.
With Trey Markel, VP Sales & Marketing at Centrex Software, we discussed corporate finance, AI, blockchain, tech, and more.
With Justin Thompson, Chief Revenue Officer at National Funding, we talked about what’s changed in sales and the state of selling.
They’re all on deBanked TV or listen to them on Spotify!
And don’t forget to register for deBanked CONNECT San Diego!
Can’t Watch Videos In the Office? deBanked is On Spotify
June 30, 2023Can’t watch videos on company time? Catch up with what’s going on in the industry by listening to deBanked’s podcast on your commute. With more than 500 deBanked TV segments altogether since 2020, we’ve been adding some of the most memorable and informative ones to Spotify.
Recent interview guests include:
- Justin Thompson – National Funding
- Andrew Carman – PerCina Report
- Steve Geller – Leasing Solutions LLC
- George A. Parker – VenSource Capital
- Nancy Robles – Eastern Funding
- Alyssa Guglielmi – JRG Funding
- Porsha Brooks – Lenpick
Federal Legislators Jump on Commercial Financing Disclosure Bandwagon, Renew Push to Give CFPB Authority Over Industry
June 16, 2023
Feel like there’s a lot of state-level disclosure going around lately? Well now some members of Congress believe another layer is needed at the federal level. In a bill titled the “Small Business Financing Disclosure Act of 2023,” the language looks awfully familiar. There’s a Double Dipping clause in it, for example, which was a term first seen in a New York State law.
The federal bill, which was introduced by US Senator Robert Menendez and Congresswoman Nydia M. Velázquez, seeks to place the small business finance industry under the authority of the Consumer Financial Protection Bureau (CFPB). As part of that, the Director (currently Rohit Chopra) would be responsible for devising all the rules and formulas, according to the bill. Furthermore, with regards to sales-based financing, the bill specifically states:
1. The provider must disclose an APR.
2. The estimated term of repayment and periodic payments based on projected sales volume must be disclosed.
“Small businesses are the lifeblood of the American economy,” said Congresswoman Velázquez. “But for too long, predatory lenders have taken advantage of businesses in need of capital by offering loans and similar products with unclear terms and exorbitant interest rates.”
Supporters of the bill, including Senator Sherrod Brown and Senator Ron Wyden, also stated that the bill is aimed at “predatory lenders.”
In Senator Menendez’s press statement for the bill, it cites Funding Circle, a small business lending company, as a supporter.
“We believe a free and fair market operates most efficiently when there is transparency in pricing, terms and conditions,” said Ryan Metcalf, Head of U.S. Public Affairs at Funding Circle U.S. When a small business has all of the necessary information up front including the annual percentage rate (APR), they can comparison shop and make informed decisions that are best for their business. Funding Circle supports one national uniform small business financing disclosure law because it is in the best interests of small businesses and interstate commerce.”
The push for a small business financing bill is not new. A similar bill introduced by Velázquez last year did not move forward, nor did the one from 2021, nor the one from 2019. The difference is that previous versions focused on Confessions of Judgment and fairness in small business lending. The latest version takes on the air of disclosure while attempting to subjugate the whole industry to CFPB regulatory authority.
Connecticut Nears Passage of a Unique Commercial Financing Disclosure Bill
June 5, 2023
Connecticut’s General Assembly came one step closer to passing its own commercial financing disclosure bill when SB1032 passed the Senate on Monday. The State’s legislative session ends on June 7 so the House would have to also pass it by then in order to send it off to the governor.
Connecticut’s bill has several unique rules in addition to standard disclosures already seen in other states.
1. A provider shall not revoke, withdraw or modify a specific offer until midnight of the third calendar day after the date of the specific offer.
2. Providers and brokers must register with the Banking Commissioner.
3. No commercial financing contract shall contain any provision waiving a recipient’s right to notice, judicial hearing or prior court order in connection with the provider obtaining any prejudgment remedy, including, but not limited to, attachment, execution, garnishment or replevin, upon commencing any litigation against the recipient.
Given the likelihood this bill could pass, it has been added to deBanked’s state regulation map.
ChatGPT Makes it Debut in The Secured Finance Market
June 2, 2023
“Based on the balance sheet provided, the business appears to have a healthy financial position,” the report states. This is the opening line of the written Financial Health Analysis conducted by OpenAI’s ChatGPT. From there it elaborates at length with all the relevant financial stats that an underwriter could ever dream of, even going so far as to recommend all on its own that recent tax returns, among other stips, should be requested to move forward.
What the world is coming to know as a chatbot, is capable of much, much more, according to Dave Kim, co-founder and CEO of Harbr, Inc. Harbr’s flagship product, IntakeIQ, is taking online application technology to new advanced places thanks to the introduction of real artificial intelligence. But there’s a right and wrong way to do this because keeping applicant information anonymous and secure is paramount.
“…security is massive, right?” said Kim. “Like you have to know going in that if you’re going to use a GPT or a Large Language Model that’s being hosted and you don’t have control of it yourself, that the data is 100% being used for machine learning.”
And along with security is the science of data input. Roughly speaking, the more information you send to ChatGPT the more it costs to spit out an answer. That means data not only needs to be secure but condensed down to such compact bits of input that the cost is acceptable and scalable. This is no domain for amateurs who think they can accomplish this with a basic monthly ChatGPT subscription. And Kim is no amateur.
“My background is in enterprise software development,” Kim said. A previous company he co-founded, GoInstant, was acquired by Salesforce for $70 million in 2012. Kim was already developing AI-driven technologies long before ChatGPT became known to the world, more recently in the commercial construction business. The aspect of invoices and payments combined with OCR technology soon evolved into a separate use-case where it could be used in financing like factoring and more. But their tech had to understand the niche particulars of the information it was analyzing.
“So we essentially started training a natural language processing model using machine learning techniques around those sorts of phrases and terminology for the construction industry,” said Kim. “So we were building that kind of tech first and then it became relatively easier when dealing with broader information in documents and other invoices that were coming in for not just construction.”
In 2022, Kim first encountered the capabilities of ChatGPT. He said that while the AI is great at creating a diversity of answers, the way they engineered their prompts with financial data produced consistent output. That’s what’s key. Harbr’s technology does a lot of the work on its own side first before sending off a highly secure, highly redacted, anonymized and reduction-optimized prompt to ChatGPT. The process can start with a pdf statement because it’s automatically OCR’d and analyzed first before any of this happens. Harbr isn’t able to view or retain any of the data and ChatGPT does not know anything identifiable about the applicant. Only the lending company is privy to the applicant’s info and the results. Setting this up for a lender can be accomplished very quickly.
The object isn’t to entirely replace underwriting, but to make it more efficient.
“Today we work with businesses that are in asset based lending, factoring, supply chain finance,” Kim said. “We’re starting to look at equipment, transportation, equipment financing and leasing. […] I think the entire secured finance market, there’s a fit here as the technology grows.”
Dependent on “Search” for Lead Flow? AI Might Replace the Links and Become a Personal Concierge
May 30, 2023
Even if an entire generation is unimpressed with ChatGPT or newfangled AI technologies, the pre-existing Q&A experience as we know it on web search might change regardless. Google, for example, is currently experimenting with “generative-AI” responses for its search bar.
While Google emphasizes that it is experimental and available only to a select group of people, the technology is being marketed as a way for users to find what they’re looking for in faster, easier ways. And it’s not just about “chatting.” According to one user testing the technology, the search query for “buy surfboard online” resulted in Google’s AI offering tips on the fly about what to consider when making a purchase. Below all the advice are the links to buy surfboards. The difference is that AI has now intervened in the customer’s journey and told them what to be looking for.
This sort of shopping experience was recently pondered in a deBanked blog post about small business lending in which an AI did more than just provide a list of names to respond to a query, it also answered personalized questions that guided a user toward a decision, leaving the potential sources vying for that customer out of the conversation.
Indeed, Google emphasizes that its generative-AI search is built for follow-up questions that will enable users to “dive deeper on a topic in a conversational way.”
Should the structure go from experimental to the default search experience, the implication is that AI would be driving the customer decision, whereas currently Google limits itself to offering a list of links in an order that’s roughly based on who paid the most. From here, customers are left to their own devices to acquire the knowledge they need to make a decision. That would end in an AI-oriented experience.
You can learn more about Google’s generative AI search here.
Pending Florida Law Draws From DailyFunder’s Rulebook
May 17, 2023Florida’s impending disclosure law is not so unique after all. As one user pointed out, Florida’s plan to require that brokers disclose their actual address and phone number in any advertisement is actually a copy & paste of a rule on DailyFunder.
On October 24, 2015, for example, DailyFunder declared that any company soliciting business would have to disclose their physical address and phone number. The rule was stickied in the Promotions subforum and is the first thing shown to users visiting that area.
This phone number and address requirement did not appear in commercial financing disclosure laws passed by other states yet it reared its head in Florida’s bill, a state with a strong user base of DailyFunder users.
The bill is currently awaiting the signature of Governor DeSantis. If enacted, the DailyFunder rule as a legal statute would be the first of its kind.
Impact of ChatGPT Era Already Being Felt
May 16, 2023
Anyone that’s ever faced a coding hurdle has inevitably ended up on Stack Overflow, the go-to platform for developers to solicit answers from more experienced professionals about their challenges. Users typically explain what they’re trying to accomplish and paste a copy of the code that’s not achieving the desired result. That’s where the community chimes in, coming forth with their own solutions while other users upvote the best answers. The end result is not just a grateful user but an ever growing public database of questions and solutions available for public consumption. The sheer scope of what’s been compiled has opened up the door for other users to simply find a similar enough question that’s already been asked and copy the answer. It’s a very valuable tool.
Stack Overflow has been around for 15 years but from March to April of this year, traffic plummeted by 17.7%, according to SimilarWeb. Tech blog Gizmodo has suggested that a contributing cause is ChatGPT-4, the OpenAI chatbot technology that can write its own code, edit a user’s code, and even converse about what a user is trying to accomplish. A spokesperson for Stack Overflow confirmed to Gizmodo that ChatGPT was partially responsible for its loss of users. “However, our vision for community and AI coming together means the rise of GenAI is a big opportunity for Stack,” the spokesperson added.
But what’s a coding forum for nerds and brainiacs got to do with the lending industry? Well, for one thing borrowers were already flirting with asking virtual assistants for help with financial services products before ChatGPT even entered the ring. According to the most recent Smarter Loans survey, 16% of loan applicants surveyed said that they had at some point used Alexa, Siri, or other voice search tools to find information about financial services. None of those come even remotely close to what ChatGPT-4 is able to do. And AI is popular, so popular in fact that ChatGPT became the fastest growing app in history, crushing even the likes of TikTok in pace of growth. ChatGPT already had 100 million monthly users as of February, before its signature ChatGPT-4 model was released.
Therein lies the threat because not only is ChatGPT-4 incredibly adept at making coherent conversation but it is also ready to explain a concept or make a recommendation, just like a very knowledgeable friend would. For example, when asking it to make a list of the top small business funding companies, these were among the names it spit out:
- OnDeck
- American Express (Kabbage)
- Funding Circle
- Credibly
- Square Capital
- National Funding
- PayPal Working Capital
It’s not a vomit of names. ChatGPT-4 was familiar with their areas of expertise. When pressed further it said that OnDeck would help get the cash fast but working with Square Capital might work better if one is processing a high volume of credit card transactions. For strong credit and a large loan, it suggested Funding Circle. After expressing an interest in OnDeck, the AI provided instructions on how to apply via the OnDeck website and a phone # to call with questions. In this real-world example, the AI replaced both the online search and the role of a broker all in one and all within minutes. It can also read the contracts and alert borrowers to certain clauses. When pressed about an unusually high APR, for example, the AI even offers an encouraging explanation for how moving forward could still make sense.
“Be sure to also consider the potential return on investment from using the loan funds,” it said. “If the growth or savings you anticipate from using the loan funds exceeds the cost of the loan, it may still be a good decision despite a high APR.”
