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
Beneficiary of NAB/TMS Deal Could Be Rapid Capital Funding
July 14, 2017
Square is not alone in offering working capital to their payment processing customers. Troy,MI-based North American Bancard (NAB) has been offering their customers merchant cash advances through a Troy-based subsidiary known as Capital For Merchants (CFM) for more than 10 years. And after seeing the growth of that segment, NAB went out and acquired Miami,FL-based Rapid Capital Funding (RCF) in late 2014.
Now, NAB has become even bigger by acquiring Total Merchant Services to make them the seventh largest payment processor in North America. The new combined company, which will operate under the NAB name, will rival Square in annual processing volume.
One beneficiary of the deal could be RCF, who merged with CFM earlier this year. RCF has historically had a sizable direct sales operation that facilitated financing for all merchants, regardless of whether or not they processed payments with NAB. That continued until recently when they reportedly pivoted towards focusing more of their new origination efforts on NAB’s (and now combined with TMS’s) 350,000+ merchants.
RCF was founded nearly 10 years ago. They acquired Anaheim,CA-based rival American Finance Solutions in the fall of 2014, right before joining the NAB family.
Need Leads This Summer?
July 13, 2017
I am often asked for referrals on things like lead sources. Fortunately our website already has quick cheat sheets on who to call for your everyday merchant cash advance and business lending needs. Below is a link to a few of them:
Accountants and auditors familiar with the industry
Industry attorneys – it’s pretty common for a firm to have an area of focus so they’re already categorized
Conferences we’re attending in 2017
Past digital issues of our magazine
I hope you find this helpful!
CFPB’s New Arbitration Rule Does Not Apply to Business Loans
July 10, 2017The CFPB’s new rule to regulate arbitration clauses in consumer finance contracts does not apply to business loans, according to the agency’s fine print. Page 403 of 775 (that’s how long the rule is) includes a footnote that says:
As is explained in proposed comment 3(a)(1)(i)-1, Regulation B defines “credit” by reference to persons who meet the definition of “creditor” in Regulation B. Persons who do not regularly participate in credit decisions in the ordinary course of business, for example, are not creditors as defined by Regulation B. 12 CFR 1002.2(l). In addition, by proposing to cover only credit that is “consumer credit” under Regulation B, the Bureau was making clear that the proposal would not have applied to business loans.
Watch the video on what the CFPB’s rule is about below:
What Happened to Bizfi?
July 1, 2017
Update 9/22: Select assets of Bizfi including the brand and marketplace were acquired by rival World Business Lenders
Update 8/30: Credibly was selected to service Bizfi’s $250 million portfolio
This past week, Bizfi gave their remaining employees a 90-day warning notice, according to sources familiar with the matter. It was the latest wave of layoffs to hit the company over the last few months. At its peak, Bizfi, which provided capital to small businesses, employed more than 200 people. Some of those riding out their potentially last 90 days are anxiously awaiting the outcome of nonpublic negotiations to salvage parts of the company’s legacy, if it can be done at all.
It’s a bittersweet moment, according to newly former employees I spoke with, some of whom are so young they vaguely recall Bizfi’s past as both Merchant Cash and Capital (MCC) and Next Level Funding (NLF). They characterized their experience as having worked in fintech.
MCC was founded in 2005 as a buyer of future credit card sales, way before the rise of modern fintech. They later spawned affiliate company NLF, which was eventually consolidated into the newly minted Bizfi brand in 2015. In 2016, they were one of the top three largest originators of merchant cash advances. Today, they are no longer funding new business.
Overall, the company grew too fast and missed the window of opportunity to sell, observers maintain. In a CNBC interview in 2015, a Bizfi representative said that they believed securing a major equity investment would allow them to go public by 2017. Such an investment never came. And with the market cooling last year, institutional interest in the space waned and several of the industry’s better-known players were forced into a precarious position.
Bizfi held on, until recently.
I myself was the third employee of MCC, or fourth depending on who actually walked through the door first on my first day that I shared with another new hire back in 2006 (who by the way was Jared Feldman, the eventual co-founder and CEO of Fora Financial, which sold for millions to Palladium Equity Partners LLC). I was at MCC until 2008 and then worked at NLF until 2010. That means I had been gone for five years before the companies ever merged to become Bizfi and seven years before the current dilemma. Therefore I’m not able to personally comment on what exactly went wrong because the company was nowhere near the same as when I left it.
I will report new developments as they become public.
All Companies Can Now Submit Draft IPO Registrations Confidentially
June 29, 2017
There’s a reason the public never got to view BFS Capital’s September 2015 IPO registration documents. Thanks to the JOBS Act, “an emerging growth company may confidentially submit to the Commission a draft registration statement for confidential, non-public review by the Commission staff prior to public filing.” They can then choose to abandon the offering altogether without having to suffer the fate of their financial statements being made public, which is what BFS Capital did. But if they ultimately had chosen to move forward, their documents would’ve been shared in the public domain.
A new decision handed down by the SEC is now expanding that privilege beyond “emerging growth companies” to all companies. That means that any company can submit draft documents confidentially. It will take effect on July 10th.
“This is an important step in our efforts to foster capital formation, provide investment opportunities, and protect investors,” said Director of the Division of Corporation Finance, Bill Hinman. “This process makes it easier for more companies to enter and participate in our public company disclosure-based system.”
The only reason BFS Capital’s confidential filing is known, is because the company broadcasted that they had filed accordingly in a press release.
“By expanding a popular JOBS Act benefit to all companies, we hope that the next American success story will look to our public markets when they need access to affordable capital,” said Chairman Jay Clayton. “We are striving for efficiency in our processes to encourage more companies to consider going public, which can result in more choices for investors, job creation, and a stronger U.S. economy.”
It is possible that other companies in the industry have filed draft registration statements, got discouraging feedback from the SEC and then decided to withdraw without any of their competitors being the wiser.
Puerto Rico Bankers Association Calls Section 1071 Absurd and Unreasonable
June 28, 2017Section 1071, the law that grants the CFPB authority to collect loan application data on minority and women-owned businesses, is under fire, again. This time it’s the Puerto Rico Bankers Association in response to the CFPB’s RFI on the matter. In a letter, the PRBA points out the sheer irony of conducting costly disparate impact studies on minorities in minority-only communities.
An excerpt from their statement:
According to the 2010 US Census Bureau, 99% of the population of Puerto Rico is Hispanic.
[…]
The direct and evident effect of Section 704B of ECOA for the financial institutions in Puerto Rico will inevitably be the collection, recordkeeping and reporting of virtually all commercial loan applications received within the Puerto Rico marketplace, since most of such applicants would be regarded as “Minority Owned Business”, in accordance with Section 704B.
The PRBA believes that this absurd and unreasonable result must not have been intended by Congress when it enacted Section 1071 of the Dodd-Frank Act. The data so collected, maintained and reported will not serve the purposes for with Section 1071 was enacted since, for the reasons set forth above, it will be completely inaccurate and unreliable. The potential complexity and cost of compliance with the minority-owned businesses data collection and reporting requirements of Section 704(B), will impose on our banks an unintended and unreasonable burden.
Other responses to the CFPB’s RFI have so far called Section 1071, “literally impossible to comply with” and a duplicated effort.
Dubious Story On Strategic Funding Unfounded
June 22, 2017
A questionable story published by Allen Taylor of Lending Times pushed the boundaries of journalism earlier this week. Citing a single anonymous source, Taylor wrote that an alleged breakdown in negotiations between Strategic Funding Source (SFS) and CAN Capital (CAN) had compounded into more problems for SFS when a burst water main drenched their main office and server room at a time when they supposedly had no disaster backup plan in place.
“Unfortunately, in order to save money, they [SFS] did not have a disaster backup plan in place,” is the quote Lending Times ran with from their anonymous and only source.
Peculiar on its face, especially with no published response from SFS to confirm it, the story was nonetheless rebroadcast by a new blog calling itself SmallBusinessLending.io, who added their own little editorial flair to it in an email they sent out.
“Having cut a few corners to save money, the company [SFS] didn’t have a disaster backup plan in place. Owch,” the email said.
Eager to determine the accuracy of the story, I reached out to SFS personally for comment, whose executives responded with an astonished bewilderment. They invited me over to go see for myself, which I took them up on. deBanked had ranked SFS as one of the largest small business funders of 2016, and their demise (especially in a great flood of some kind) would indeed be newsworthy.
A water main was struck on the 5th floor of Tower 45 at 120 West 45th Street, only one of three buildings in Manhattan that SFS has offices in. Andy Reiser, the company’s CEO, and David Sederholt, a Senior Advisor, gave me a tour of several floors, including the 5th where the incident happened. There is some water damage on lower floors, prompting some employees and executives to reshuffle their workspaces, and necessitating the use of available office space up on the 19th floor. That much is true.
Little, if anything seemed to have been disrupted, however, least of all their servers, which Sederholt maintained is in Amazon’s cloud anyway. They have redundancy built in nonetheless for all types of disasters should something impede New York’s operations, they explained, with Virginia and Texas operations as their fallback.
Just to be sure, I visited their other Manhattan offices at 1501 Broadway and 145 West 45th street, each of which hummed with normal activity.
The company wouldn’t comment on matters regarding CAN. CAN, if you recall, suspended funding operations almost 7 months ago and rumors have surfaced from time to time on industry forums regarding a comeback, but none have been confirmed.
On June 13th, American Banker reported that CAN had laid off an estimated 55 employees in their Kennesaw, GA office.
A message left for Lending Times about their reporting on SFS had not been answered by the time this story went live.
Pearl Capital Secures $15M in Financing From Chatham Capital Management
June 21, 2017
Pearl Capital Business Funding, LLC has closed on $15 million in financing from Atlanta-based Chatham Capital Management, according to the company. Pearl is a NY-based small business funder that was acquired in 2015 by Capital Z Partners, a private equity firm.
“We understand that despite personal credit issues, many small business owners have triumphed in building successful businesses,” said Pearl CEO Solomon Lax. “Locked out of the traditional bank financing channels, those small business owners turn to Pearl Capital Business Funding to enable their dreams. By partnering with Chatham, we are able to make those dreams a reality.”
Chatham has invested in other companies such as iPayment, Vitamin Shoppe, DirectTV, QVC, Neiman Marcus, and 5-hour energy, according to their website.
Pearl also secured $20 Million from Arena Investors, LP in July of last year.
