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
Broker Prediction for 2024
January 2, 2024For many brokers the day revolves around going from call to call, email to email, deal to deal. Close one, go to the next, keep going, leave late, and continue to respond to merchants up until it’s time to go to sleep. Funders have come and gone, underwriting requirements have changed, and technology has made the business more efficient, but the broker role has remained. Merchants, time has proven, still just want to talk to someone.
Indeed, every time a new regulation or technology comes out that portends danger for brokers, life pretty much goes on like normal. Yes, it’s a competitive business and a changing business but here we are now in the mid-2020s and numerous brokers are just so bogged down with merchant calls and emails that they hardly have time to consider that anything is different other than so and so just changed their underwriting guidelines.
What’s my prediction for brokers in 2024? That brokers will keep brokering!
Surprising Stats of 2023
December 27, 2023Remember when interest rates soared, banks collapsed, and experts began to prepare for the worst? Well, appearances can be deceiving.
Business loan origination volume at Square, Enova, Shopify, and Funding Circle are all on track to surpass 2022’s numbers. When it came to bad debt, PayPal was the only large tech lender to announce that it had become a problem this year. PayPal’s origination numbers are consequently also down year-over-year.
The S&P 500 was at 3,839.50 one year ago and closed at 4,774.75 yesterday, a gain of more than 24%.
Unemployment was 3.5% last December and had only modestly increased to 3.7% this November.
Inflation was 7.1% last November and only 3.1% this November.
Bitcoin is up by 150% year-over-year!
Anecdotal reports at smaller non-public small business funders, however, have hinted at bad debt increases all year and underwriting has generally become more conservative. Despite this, brokers are still brokering deals and funders are still funding. The predicted mass AI-induced layoffs have also not yet materialized. In the grand scheme of things, the argument could be made that 2023 was actually a pretty good year.
But 2024 could be dicey.
- The FCC closed the lead generator loophole.
- The first wave of small business finance companies will have to begin complying with new CFPB regulations.
- It will be a presidential election year like none ever experienced before.
- Americans are overleveraged. Forty percent of student loan borrowers failed to make a payment after the covid-era pause ended.
- General economic, societal, and political unease.
So what will happen? I guess we’ll find out. It could be terrible or awesome or anything in between.
Nice Asset, Sure Would Love to Lend Against It
December 6, 2023
“Sean,” said the moderator, “where do you see domain names in five years?”
At the inaugural Domainer Expo in Las Vegas this week, I was sort of a self-proclaimed emissary from the lending world, there to tell everyone that domain names had a lot more potential utility than what most people probably realize.
“When businesses are looking for capital, there’s sort of a diagnostic checklist,” I said (in substance). “You ask the business how much revenue they have, you ask them if they have equipment, you ask them if they have real estate, etc. and lenders are trying to figure out which of those assets is something they can use as the basis for financing, but nobody asks about their domain name.”
Maybe they should. If a million links on the internet point to a business’s domain name and search engines rank it, then that domain name is integral to the sales generated on the site. And if a business got a loan against a domain name that they’re using to generate tens of thousands or hundreds of thousands in sales per month, they probably wouldn’t want to lose it because it’s worth a lot.
Usually in the business loan world the story ends here. Ok, domain names? sounds complicated, too techie, waste of time, dollar amounts are too small, nobody wants to deal with that, etc.
But you’d actually be surprised. The technology is just about there that if a business doing $1 million/year in website-originated sales said that they’d be willing to put up their domain name as collateral for a $100,000 loan today, you could send them a link that automatically transfers their domain name to escrow in seconds without them experiencing any disruption to their site. Then if they default on the loan, the domain name transfers to you, where if you understand anything about e-commerce, you should immediately be able to monetize their domain and capture those sales for yourself.
That means no trying to foreclose on a property, no trying to chase down equipment, no suing them, getting a judgment and then hiring an expert to find if they have assets anywhere. Just click-click yours, a revenue generating asset that you can use as leverage to cure the default or monetize immediately and start making your money back with. If you don’t know anything about websites, then maybe this concept wouldn’t be enticing for you as a lender.
I could go into the technical mechanics of how this domain loan process would work, but for now just imagine talking to a business owner generating a lot of revenue that really doesn’t have many assets to make use of. They need $100k and they can’t get it any other way. You tell them they can use their domain name as collateral with no disruption to their website. It will happen instantly. There’s no tax returns needed, no credit check. It’s based on sales, something we might all already be familiar with. Will some business owners say “yes” to such a proposal or would they tell you they’d rather have nothing instead?
Small Businesses More Understanding, Looking for LOCs
December 4, 2023
“The ISO channel is an important part of our business and we remain committed to it,” said Jay Shaw, Head of Sales at Enova SMB. Enova, which operates OnDeck and Headway Capital, is one of the largest small business lenders in the United States. The company has originated more than $2.2B in loans in the first three quarters of this year, a lot of which comes through “highly compliant ISOs.” The relationship works, especially in times like these when banks are reducing their exposure to small business lending.
But officially we’re not in a recession. The S&P 500 is up 20% YTD, for example, unemployment is low, and inflation has backed off from its previous peak. Shaw says that a positive sentiment among small businesses is something they’re seeing along with this, that when they actually talk to small business owners one-on-one, many of them are feeling pretty good right now.
While most observers would point out that elevated interest rates have shaken up the game, there’s actually been a silver lining to how it’s played out.
“There’s a lot more education and understanding of cost of capital,” said Shaw.
Business owners, for example, who were used to a perpetual low interest rate environment, have watched banks dramatically increase interest rates over the last year or so and it’s actually brought attention and awareness to the fact that lenders have a cost of a capital to contend with as well, that rates come from somewhere. It’s made them more understanding, according to Shaw, when they’re presented with terms now from online lenders. That understanding is compounded by a greater openness to doing it all online in the first place, which businesses are now more accustomed with after having to do so much online during the covid years. In essence it’s a strong environment to be working in right now. Still, many businesses are coming in with a certain expectation of how online lending should work especially if they worked with a bank previously.
“More and more businesses are looking for a line of credit product,” Shaw said, which Enova offers in addition to term loans. Businesses tend to appreciate this product not only because of the control it gives them but also because “they have continuous access to capital after every payment they’ve made,” Shaw said.
According to the Intuit Small Business Index Annual Report, 22% of small businesses applied for a loan or line of credit last year. Although this didn’t distinguish term loans from lines of credit, the demand for a revolving product is evident by an even more sought after type of financing, credit cards, which 30% of small business owners applied for. MCAs, by comparison, were a distant fifth, with only 6% of businesses applying for one.
Perhaps an all important measure is not only what businesses want but how they’re using it in the end.
“A lot of [our customer’s] borrowing is growth borrowing with a significant ROI,” Shaw said.
Wait, Is Section 1071 On The Verge Of Being Cancelled?
December 1, 2023
After the CFPB spent 13 years trying to figure out how to implement a wide-reaching poorly-worded law, the ensuing 888-page handbook full of rules for small business lenders to follow so the government can measure disparities in commercial loan underwriting processes, may have all been for naught. Congress wants the rules gone.
The rules in question were mandated by Section 1071 of the Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) at a time when the bill’s drafters assumed that all business financing products were loans and all loans came from banks. The consequence has been endless rounds of debates, RFIs, hearings, committees, consultations, explainer guides, and lawsuits. Most recently there was a court-ordered injunction put in place to delay implementation of these rules.
Today, however, the House followed the Senate in voting to strike down the relevant rules. Though it was close in both chambers of Congress, Democrats did join Republicans in reaching this outcome. Nevertheless, reports say that Biden is expected to veto their resolution.
Notably, the passed legislation disapproves the rules submitted by the CFPB, not the underlying section of the law that mandates they draft a set of rules. This is important because it’s not Section 1071 that they’ve voted to undo, but rather the final rules that the CFPB has issued as part of its obligation to Section 1071.
According to House republicans, “By overturning the final 1071 rule, Congress will force the CFPB to reengage small businesses and their lenders to create a rule that is better tailored to their concerns and less likely to reduce the availability of credit.”
This effectively means that Section 1071 itself is safe (unless a court rules it or the CFPB unconstitutional). If the President does not veto it the legislation would force the CFPB to go back to the drawing board on rules it took 13 years to come up with in the first place.
Bluevine Partner Email Circulates
December 1, 2023An e-mail purporting to come from Bluevine’s Partner Notifications account was sent out to about 300 of their resellers yesterday with a plainly stated notice that their Referral Marketing Agreements had been terminated.
A representative from Bluevine confirmed that these notices were legitimate, saying that “we refined our strategy and are moving away from the ISO/reseller model.”
This was followed by the statement that “We will continue to work with a set of select strategic partners to deliver loans to small businesses.”
Bluevine has been making moves as of late. The company relocated its headquarters to Jersey City, NJ earlier this year, launched an Accounts Payable solution in August, and began offering protection of up to $3 million for business banking customers in September.
Big Lines of Credit for Canadian Merchants?
November 15, 2023
Business loan brokers in Canada typically do not fit the same mold as brokers in the United States. Most business loan brokers in Canada are actually mortgage brokers working with mortgage clients that happen to own a business. Such has been the case for Kingsmen Capital Investments, a Canadian small business lender that gets roughly half of its deal flow from mortgage brokers. It’s a nice relationship, but Kingsmen Capital believed that something was missing between a bank loan and merchant cash advances/small unsecured loans.
“We’ve started to come out of the MCA space,” said Kingsmen Managing Partner Roger Dusanj.
The company’s idea was lines of credit that start as low as $250,000 and go up to $2 million (or even higher). Although it can be a little more expensive than a bank, the true LOC can also be easier to obtain. Dusanj, for example, said that they’ll evaluate a business’s ebitda versus looking at their total net income. Covid, he added, has also made businesses across Canada more receptive to non-bank products and so it’s taking off.
“In 18 months, we paid out $100 million,” Dusanj said of the loans they’ve made already. The progress so far has made them confident that they’re on to something big. The company will also do term loans and equipment financing.
Although the Canadian mortage broker community works well, Kingsmen says that they would work with US-residing business loan brokers. The company was founded in 2015.
deBanked CONNECT MIAMI Unveils Inaugural Broker Battle™
November 13, 2023In the span of just a few hours after deBanked CONNECT MIAMI announced BROKER BATTLE, about a dozen brokers entered their names into the contest on the hope that they may be chosen to compete LIVE at the Miami Beach Convention Center on January 11th. Entries will be accepted through December 1st but it may shut off sooner if the broker contestant pool reaches critical mass.
deBanked CONNECT Miami is adding Broker Battle to this year’s lineup of content. The first-of-its-kind event aims to be fun, educational, and serious. The winner of the Battle will earn the distinction of being the Top Broker and win a grand prize of $5,000.
To learn more about Broker Battle and/or enter, CLICK HERE.
To register for the event and make sure you witness history, learn from the experts, and enjoy the extraordinary networking opportunities of deBanked CONNECT MIAMI, CLICK HERE.
Got questions about deBanked CONNECT Miami? Want to sponsor? Email events@debanked.com.
This will be deBanked’s 6th annual event in Miami since 2018. ARE YOU READY?!
