Articles by Sean Murray

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

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.

From Zero to $28 Million

Back 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.”

The Next Frontier: Financing the 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.

$220M Worth of EIDL Funds Already Charged Off

It’s a small sum compared to the total outstanding principal balance, but $220M worth of covid-related EIDL funds had already been charged off as of SBA fiscal year-end 2022. That year-end of September 30th is before almost any borrower was required to make even one payment on the 30-year loan. The total outstanding principal balance net of charge-offs was $358B at the time.

The SBA originally allowed a 30-month deferment on EIDL payments and just recently began offering an additional six-month deferment to eligible borrowers if they need it. Making payments at all can be a little bit complex in that of itself, however.

It remains to be seen how covid-era EIDL borrowers will perform. The SBA charged off $457M in just 7(a) loans in 2022 alone, for example, so the figures on the EIDL are not that material yet. In the years before covid, the SBA was regularly charging off between $800M-$2B/year in loans total. However, it is unlikely that a significant number of them defaulted before the first payment was even due.