00:09.750 --> 00:13.050
Ian Mac: Thanks very much. So
good morning, everyone. Welcome

00:13.050 --> 00:17.610
to the 1045 session. My name is
Ian Mac. I'm a partner with

00:17.910 --> 00:21.750
McCarthy Tetro. We're a full
service law firm, with offices

00:21.750 --> 00:25.290
across Canada and also New York
and London. I'll be your

00:25.500 --> 00:30.930
moderator for this panel. And
the topic for this morning

00:30.960 --> 00:37.230
lending to lenders, strategies
and insights for alternative

00:37.230 --> 00:41.430
lenders to consider when raising
capital to fund their book and

00:41.430 --> 00:49.230
we've assembled a very excellent
and knowledgeable panel from the

00:49.230 --> 00:52.230
industry with tremendous
knowledge. So I think it'll be a

00:52.230 --> 00:56.520
very insightful discussion. So
some very quick introductions of

00:56.520 --> 01:00.720
our panelists, starting on my
right, Lyla Kanji head of

01:00.720 --> 01:04.860
specialty finance with BMO
Financial Group. Next we have

01:05.550 --> 01:11.730
Kevin Westfall, Vice President
Accord Financial, we have Wayne

01:11.760 --> 01:16.950
Pommen, President and CEO of
Paybright. And last but not

01:16.950 --> 01:20.100
least, we have Tyler Meyrick,
Vice President corporate

01:20.100 --> 01:24.420
strategy for Purpose Financial.
So I'm gonna throw it over to

01:24.420 --> 01:28.830
our panelists to give a brief
overview discussion about their

01:28.860 --> 01:31.980
organization and how they're
involved with specialty finance.

01:31.980 --> 01:33.090
So we'll start with Lyla.

01:33.810 --> 01:37.020
Lyla Kanji: Thank you, Ian. So
one of the key strategies that's

01:37.020 --> 01:40.020
been driving growth for our
commercial banking platform over

01:40.020 --> 01:44.460
the last few years has been
industry specializations. So as

01:44.460 --> 01:47.340
part of that initiative, we
rolled out a specialty finance

01:47.340 --> 01:51.600
dedicated team early on in the
year to focus on this important

01:51.600 --> 01:55.140
important and growing segment.
And while the launch has been

01:55.140 --> 01:58.830
this year, as an institution,
BMO has been lending, Hannah has

01:58.830 --> 02:02.670
been active in the space for
over 10 years, through our BMO

02:02.670 --> 02:06.930
Harris platform. So we were
actually very fortunate to

02:06.930 --> 02:09.780
leverage their skill set and
their knowledge base when we

02:09.780 --> 02:13.650
rolled it out here in Canada.
But we do recognize that Canada

02:13.650 --> 02:17.790
and US are two different
markets, especially in terms of

02:17.790 --> 02:20.910
scale of the borrowers and
maturity of the segment. So as

02:20.910 --> 02:25.080
we are rolling out our vertical
here, we are taking into account

02:25.080 --> 02:28.650
those those no answers. So so
yes, we're now ready in the

02:28.650 --> 02:31.050
market actively speaking to
borrowers and doing

02:31.050 --> 02:36.130
Kevin Westfall: We were
established in 1978. And then

02:36.130 --> 02:36.350
transactions.

02:36.350 --> 02:39.940
listed on the TSX, originally as
asset based lenders, so kind of

02:39.940 --> 02:43.120
just providing our own capital
to mid market companies, and

02:43.120 --> 02:45.160
really about 15 years ago
started to grow in the lender

02:45.160 --> 02:48.520
space. So kind of understanding
from ourselves as lenders, how

02:48.520 --> 02:51.400
do we kind of accommodate and
lend to other financial

02:51.400 --> 02:54.640
institutions, we've worked with
merchant cash advance

02:54.640 --> 02:59.680
businesses, those in the kind of
small loan space, subprime auto

02:59.680 --> 03:02.620
loans, personal loans, so we've
got about 15, 20 years of

03:02.620 --> 03:04.060
experience kind of lending to
other lenders.

03:05.650 --> 03:08.710
Wayne Pommen: So Paybright is a
so called buy now pay later

03:08.710 --> 03:11.530
company, we run the point of
sale financing model, which

03:11.530 --> 03:15.040
means we partner with merchants
and retailers of various kinds,

03:15.040 --> 03:17.410
and allow them to offer
installment payments to their

03:17.410 --> 03:21.340
consumers at the point of sale.
We work with about 5000

03:21.370 --> 03:24.670
different retailers across the
country. Some of the bigger ones

03:24.670 --> 03:27.310
tend to be in the E commerce
space, like a Wayfair, or

03:27.310 --> 03:31.180
Samsung or eBay or some of our
partners. And we're a team of

03:31.180 --> 03:35.350
about 110 in downtown Toronto.
And I'll stop there.

03:36.870 --> 03:38.910
Tyler Meyrick: Purpose
Financial, you may know us from

03:38.910 --> 03:42.300
our mutual fund and ETF business
are ads on Air Canada, but we

03:42.300 --> 03:45.720
also run a large small business
lending business under the

03:45.750 --> 03:49.950
thinking capital brand. So we
lend up to 500,000 to two small

03:49.950 --> 03:52.800
business borrowers across the
country. We've deployed about a

03:52.800 --> 03:55.890
billion dollars to Canadian
entrepreneurs since 2006.

03:57.780 --> 04:00.150
Ian Mac: Excellent, thank you
very much. So we'll kick off the

04:00.150 --> 04:04.380
discussion to talk about how to
attract funding. So what do you

04:04.380 --> 04:07.920
need to look like in order to
attract funding? And what are

04:07.920 --> 04:11.340
some important factors to
consider in that vein? And I'll,

04:12.180 --> 04:15.600
I'll throw it over to Wayne to
kick off the discussion.

04:16.230 --> 04:19.920
Wayne Pommen: Sure. So I think
one of the main things in our

04:19.920 --> 04:23.850
industry is when you're a small
company or a startup, you need

04:23.850 --> 04:27.330
to attract so much more capital
than a small company of the same

04:27.330 --> 04:29.970
size in another industry,
because you have to fund the

04:29.970 --> 04:33.300
portfolio. And what that means,
I think is you kind of need to

04:33.300 --> 04:36.210
have your act together in a
whole bunch of ways, much

04:36.240 --> 04:40.830
earlier than you otherwise would
have. Before I was was with

04:40.830 --> 04:43.620
paybright. I was with a private
equity firm. And we spent a

04:43.620 --> 04:46.680
bunch of time looking at
specialty finance companies from

04:46.680 --> 04:50.430
an equity standpoint. And there
were many, many times where we

04:50.430 --> 04:53.010
go into a meeting and we would
know in about 10 minutes that it

04:53.010 --> 04:55.620
was never going to happen
because the company didn't have

04:55.620 --> 04:59.250
a handle on, you know their
data, their loan tape. They

04:59.250 --> 05:02.730
didn't have Paula Cs written
down that were in good shape,

05:03.090 --> 05:05.610
they couldn't articulate
different aspects of how their

05:05.700 --> 05:08.340
book was performing, they didn't
have the right metrics,

05:08.610 --> 05:12.000
financial reporting wasn't
there. At an early stage, you

05:12.000 --> 05:14.490
really have to have all this
stuff locked down. Because if a,

05:14.670 --> 05:17.670
if a lender or an equity
provider comes in and feels like

05:17.670 --> 05:20.640
they need to teach you this
stuff, that's really bad. I

05:20.640 --> 05:22.770
would also make a pitch, for
example, that it makes sense to

05:22.770 --> 05:25.230
get your statements audited
almost right from the get go,

05:25.680 --> 05:28.980
and just start building that
rigorous track record. And if

05:28.980 --> 05:31.620
you're at an early stage, and
you, you don't have these things

05:31.620 --> 05:33.510
in place, you want to find
someone who's been there and

05:33.510 --> 05:35.520
done it before to help you put
those things in place. That's

05:35.520 --> 05:38.820
really what separates the good
from the great at the early

05:38.820 --> 05:39.270
stage.

05:41.070 --> 05:42.450
Ian Mac: Tyler, any thoughts on
that?

05:42.870 --> 05:44.310
Tyler Meyrick: Yeah, I think
that's absolutely right. I

05:44.310 --> 05:47.340
think, you know, in the FinTech
side, there's a tendency to

05:47.340 --> 05:52.140
focus on the fin, or rather, on
the tech, not the fin. And in

05:52.140 --> 05:55.650
sourcing capital, they care much
more about the fin. So as Wayne

05:55.650 --> 06:00.210
said, you know, having policies,
procedures and the data so that

06:00.210 --> 06:03.390
when when a lender walks in,
you're able to provide them with

06:03.390 --> 06:05.700
a pretty robust set of
procedures that you're

06:05.700 --> 06:09.360
following. They care much more
about that than they do about

06:09.360 --> 06:12.090
your growth trajectory over the
next little while, you know,

06:12.090 --> 06:14.220
obviously, every lender would
like to grow with you and wants

06:14.220 --> 06:17.190
to see your growth, but being
able to demonstrate robust

06:17.190 --> 06:19.890
internal policies and
procedures, being able to show

06:19.890 --> 06:22.980
that you know how to service
loans, you know how to collect

06:22.980 --> 06:27.900
on loans, not just how to grow
volume is, is really critical.

06:28.140 --> 06:32.550
And so I think what what we've
found is having all of that in

06:32.670 --> 06:36.480
written documents, and in kind
of institutionalized form, as

06:36.480 --> 06:39.150
opposed to trying to explain it
every time on a one off basis.

06:39.360 --> 06:41.700
One, make sure that you're
you're actually adhering to them

06:41.700 --> 06:45.840
internally. And that, that, you
know, you've got kind of robust

06:45.840 --> 06:48.570
policies that are being
followed. And to it simplifies

06:48.570 --> 06:50.220
your life when you're trying to
deal with a whole bunch of

06:50.220 --> 06:52.680
different lenders, which is
typically how you source

06:52.680 --> 06:55.470
capital, because you're just
able to send them a bunch of

06:55.470 --> 06:56.160
documents.

06:58.950 --> 07:02.070
Ian Mac: Kevin, any from the
perspective of a lender or

07:02.070 --> 07:04.200
funder, any any thoughts on
those comments?

07:04.440 --> 07:06.420
Kevin Westfall: Yeah, I agree
with all of the above. I mean,

07:06.420 --> 07:09.090
we're kind of at the earlier
stage, guys. So we talked

07:09.090 --> 07:12.060
earlier about barriers to entry,
and how to, again, financing and

07:12.060 --> 07:14.670
so on. And so we work with kind
of a lot of earlier stage

07:14.670 --> 07:17.700
companies and kind of to Wayne
and Tyler's points of, you know,

07:17.700 --> 07:20.340
first and foremost, who are we
learning to? Do you understand

07:20.340 --> 07:22.950
your processes, procedures, and
again, us being you know,

07:22.950 --> 07:26.130
lenders by background, we know
what we would like and how we

07:26.130 --> 07:28.800
would underwrite deals, and so
not necessarily in the same

07:28.830 --> 07:31.800
aspects as what an MCA or small
business loan provider might be

07:31.830 --> 07:34.860
providin, but what you know, who
is it that we're lending to? And

07:34.860 --> 07:37.080
then kind of, for our
perspective, is the company

07:37.110 --> 07:39.600
trading profitably? So we can
kind of take a look at those

07:39.600 --> 07:42.180
kind of couple of aspects on who
are we lending to? Is there some

07:42.180 --> 07:45.120
profitability? You know, we
provide some pretty significant

07:45.120 --> 07:47.670
leverage. So we're kind of at
the earlier stage, guys, so it's

07:47.670 --> 07:50.370
not always cut and dry. You
know, I've got this process

07:50.370 --> 07:52.500
nailed down, I've got this
procedure nailed down. There

07:52.500 --> 07:55.470
should be something you know, in
writing, key process controls,

07:55.470 --> 07:57.900
management controls, and so on
how you're managing cash and,

07:58.080 --> 08:00.690
and kind of dealing with loans
and adjudications. But aside

08:00.690 --> 08:03.240
from that, we can be pretty
flexible in providing solutions.

08:04.920 --> 08:08.610
Ian Mac: And Lyla, I think,
perhaps, your BMO is a bit more

08:08.610 --> 08:12.750
focused on later stage funding.
So any comments from from that

08:12.750 --> 08:15.000
perspective, or anything else
that was said?

08:15.120 --> 08:17.520
Lyla Kanji: Sure. So for more
established borrowers, there are

08:17.520 --> 08:20.430
a couple of things that we look
at. And the first and the most

08:20.430 --> 08:23.820
important thing and wouldn't
come as a surprise is a track

08:23.820 --> 08:27.150
record and the ability to
demonstrate a track record track

08:27.150 --> 08:30.120
record of not just financial
profitability, but being able to

08:30.120 --> 08:34.080
grow and sustain a business that
is at a certain scale, and then

08:34.080 --> 08:37.530
the track record of navigating
through economic cycles. And

08:37.530 --> 08:40.170
then that's becoming harder and
harder to test given that we've

08:40.170 --> 08:42.780
been in such a bull market over
the last few years. But, but

08:42.780 --> 08:45.150
that, to me, is probably the
most fundamental thing.

08:45.510 --> 08:50.310
Secondly, a defined product or a
market niche, because as lending

08:50.340 --> 08:53.040
to as lenders to lenders, we
really relying on your

08:53.040 --> 08:56.580
underwriting standards. And for
us, we place a strong emphasis

08:56.610 --> 08:59.760
on the consistency of that, and
then the resulting portfolio

08:59.760 --> 09:04.140
that data. And lastly, I would
say, stable and tenured

09:04.380 --> 09:08.820
management teams, who don't just
have financial services

09:08.820 --> 09:11.010
experience, but really
experience with the asset class,

09:11.010 --> 09:14.280
because when the downturn does
happen, we are really relying on

09:14.280 --> 09:17.940
these management teams to just
steer the ship and protect our

09:17.940 --> 09:21.420
collateral. So that's, that's
yeah, that's the perspective

09:21.570 --> 09:22.140
from our end.

09:22.800 --> 09:28.530
Ian Mac: Excellent. Let's get a
little more granular on the

09:28.530 --> 09:34.650
actual portfolio mix. How did
the considerations change based

09:34.650 --> 09:37.980
on the asset class? So if we're
talking about consumer loans,

09:38.280 --> 09:43.530
versus auto loans, consumer
finance, how does that inform

09:43.560 --> 09:47.820
where you seek sources of
capital and I'll throw that one

09:47.820 --> 09:50.550
out to Wayne as well that to
kick it off.

09:51.720 --> 09:53.490
Wayne Pommen: I think our
observation has been that

09:53.490 --> 09:56.610
different lenders have different
preferences and different asset

09:56.610 --> 09:59.130
classes and different experience
based on what's worked for them

09:59.130 --> 10:02.850
in the past or how they they
structure their deals, I think

10:02.850 --> 10:05.730
one of the biggest
considerations that would affect

10:05.790 --> 10:08.340
more folks in this room is the
distinction between prime and

10:08.340 --> 10:12.360
non prime, whether that's
consumer or commercial. And

10:12.360 --> 10:15.510
there are, frankly, just a bunch
of lenders who have trouble

10:15.510 --> 10:19.230
getting their head around the
non prime side. And so if you're

10:19.260 --> 10:21.630
a non prime lender, you tend to
have a smaller number of

10:21.630 --> 10:25.140
options, or at least a different
type of potential lenders to

10:25.140 --> 10:28.470
your business, or at least that
will give you capital at a

10:28.470 --> 10:31.500
reasonable scale at a reasonable
price. So that's always

10:31.500 --> 10:33.540
something to keep in mind. And
you have to kind of pound the

10:33.540 --> 10:37.230
pavement harder sooner to fund a
non prime book than a prime

10:37.230 --> 10:39.090
book. That's just one, one
dimension.

10:40.710 --> 10:43.650
Tyler Meyrick: Yeah, I would
echo that for sure. The other

10:43.650 --> 10:46.140
thing I would add, that I think
informs what type of lender you

10:46.140 --> 10:49.650
talk to is, is your track record
in the asset. And we see this

10:49.650 --> 10:53.310
all the time where, you know,
we're looking to add a product

10:53.310 --> 10:56.580
in an adjacent vertical or, or
that even just looks slightly

10:56.580 --> 10:59.850
different than what we do today.
And quite often, that informs

10:59.880 --> 11:03.210
who we go to, you know, we've
got good relations with some of

11:03.210 --> 11:06.990
the banks, but they're often not
your first call on a new

11:06.990 --> 11:09.450
product. You know, I think a lot
of people in this room will

11:09.450 --> 11:11.730
understand that, that the
Canadian banks have a great

11:11.730 --> 11:14.370
appetite for mortgages, for
credit cards, and for auto

11:14.370 --> 11:17.190
loans, because they've got very
well established securitization

11:17.190 --> 11:20.760
conduits for those. You know,
when it comes to small business,

11:20.760 --> 11:25.170
particularly non prime small
business, you sometimes talk to

11:25.170 --> 11:27.720
alternative lenders first, and
as you build a track record,

11:27.840 --> 11:30.120
then you can, you can educate
the banks a little bit more,

11:30.120 --> 11:33.510
maybe start with a smaller bank,
and then move to to the vimos of

11:33.510 --> 11:35.910
the world. Once you've you've
got a track record, because I

11:35.910 --> 11:39.270
think, you know, every bank is
looking for something different.

11:39.420 --> 11:42.420
There is capital out there for
all different types of assets.

11:42.420 --> 11:45.750
And for all different types of
track records, I think it's

11:45.750 --> 11:48.120
really just a question of where
you start and having realistic

11:48.120 --> 11:51.690
expectations. I think if you're
a FinTech, that's built a

11:51.690 --> 11:55.590
business case on having a scat,
one bank, lend you at a 90%

11:55.800 --> 11:59.490
advance rate from from day one,
but your your business plan, you

11:59.490 --> 12:02.280
know, may need a little bit of
refinement. But I think if

12:02.280 --> 12:04.890
you've got reasonable
expectations of equity

12:04.890 --> 12:07.740
contribution, sort of, of taking
time to build a track record,

12:07.740 --> 12:09.870
there is capital out there, I
think you just need to

12:09.870 --> 12:12.780
understand the landscape and
understand to Wayne's point, you

12:12.780 --> 12:13.950
know, who's got interest in
what.

12:16.470 --> 12:18.660
Kevin Westfall: Our focus is
primarily kind of a subprime

12:18.660 --> 12:21.330
space, but we're fairly
agnostic, loan wise, and again,

12:21.330 --> 12:23.850
to kind of underwriting to the
management team and kind of the

12:23.850 --> 12:25.890
acumen of the business as long
as you're kind of strong and

12:25.890 --> 12:28.650
your asset class and got it, you
know, built your team and your

12:28.650 --> 12:32.760
management systems and so on and
reporting around those circles

12:32.760 --> 12:36.360
and cycles, we'd be fairly
agnostic and an industry.

12:36.900 --> 12:39.270
Lyla Kanji: Yeah, I would just
add, when we're looking at

12:39.300 --> 12:42.840
consumer finance company, the
additional diligence that we

12:42.840 --> 12:45.840
would do is, is the framework or
the controls that these

12:45.840 --> 12:48.840
companies have over all the
regulatory stuff, right, like

12:48.840 --> 12:51.540
stuff on the consumer
protection. And we do place a

12:51.540 --> 12:55.110
ton of emphasis on that, as well
as looking at the AML KYC. That

12:55.110 --> 12:57.330
will be the key difference when
we look at these different asset

12:57.330 --> 13:01.440
classes. In terms of sourcing
capital from different sources,

13:01.440 --> 13:04.620
I personally think it's more
driven by scale, a smaller

13:04.620 --> 13:07.860
company, that's a plus or minus
50 million of assets, what we're

13:07.860 --> 13:12.150
seeing, they are initially
relying on alternative lenders,

13:12.150 --> 13:15.660
and as the scale happens, then
that's where the commercial

13:15.660 --> 13:18.360
banks should step in, or if it's
a new product, it does take

13:18.360 --> 13:20.400
time, and I will completely
agree it does take time for the

13:20.400 --> 13:25.140
commercial banks to understand,
but it helps when there's enough

13:25.140 --> 13:26.700
diversification in the
portfolio.

13:28.800 --> 13:32.760
Ian Mac: Excellent. Now, sort of
continuing on this theme of

13:33.270 --> 13:37.680
evolution of the life cycle when
when a boar scales when their

13:37.680 --> 13:42.840
book scales, how do the loan
terms actually changed? Just

13:42.840 --> 13:45.840
getting a bit more granular on
on types of terms of the loans,

13:45.840 --> 13:50.460
covenants, etc. Once the bore
scales, how do you see that

13:50.460 --> 13:54.120
changing? Maybe I'll I'll ask
Lyla first on that one.

13:54.390 --> 13:57.240
Lyla Kanji: Sure. So so what
we've seen as a fast growing

13:57.240 --> 14:01.500
originator, or as a start up,
companies are really relying on

14:01.680 --> 14:05.640
asset specific financing or what
we call SBB, bankruptcy remote

14:05.640 --> 14:08.640
kind of financings. And that
doesn't make a ton of sense from

14:08.640 --> 14:11.310
a borrower perspective, because
there's not much equity

14:11.310 --> 14:16.020
requirements there. But those do
come with additional cost of

14:16.020 --> 14:19.380
capital and very restrictive
performance governance, because

14:19.380 --> 14:22.050
of lenders are really relying on
the recourse against those

14:22.050 --> 14:26.790
assets. As the company does grow
in scale it there's definitely

14:26.790 --> 14:30.930
an advantage in looking at more
corporate style financing, more

14:30.930 --> 14:33.510
borrowing, base balance sheet
financing, because there's

14:33.510 --> 14:36.690
enough equity buffer for the for
the lenders to to get

14:36.690 --> 14:39.330
comfortable, because at that
point in time, we're really

14:39.330 --> 14:42.420
relying on and we look we do
have performance governance as

14:42.420 --> 14:45.420
as the company scales, but we
are really relying on the

14:45.570 --> 14:49.350
financial wherewithal of the
company. And we're also looking

14:49.380 --> 14:52.860
at their ability to attract more
institutional type of capital or

14:52.860 --> 14:56.730
more private equity or public
equity type of capital, as well

14:56.730 --> 15:00.240
as looking at the business as a
going concern. So so it's more

15:00.240 --> 15:04.140
movement from an acid pure acid
lender to a more corporate

15:04.500 --> 15:05.130
facility.

15:05.340 --> 15:05.820
Ian Mac: Sure.

15:06.680 --> 15:08.990
Kevin Westfall: Yeah, we're kind
of that that initial layer. So

15:08.990 --> 15:11.480
we're, you're generally the
first step provider, after that

15:11.480 --> 15:14.390
layer of equity, business starts
building some scale and kind of

15:14.390 --> 15:16.640
started to burn through some of
that equity and are hindered by

15:16.640 --> 15:19.340
growth. So we're generally in
there on the earlier stages,

15:19.700 --> 15:23.090
providing higher leverage, you
know, less covenants, a little

15:23.090 --> 15:25.790
bit more flexibility. And as as
they start to scale and so on.

15:25.940 --> 15:28.280
That's generally where they kind
of exit from us and more

15:28.280 --> 15:30.800
introductions to Lyla and her
group and at the bank, and it's

15:30.800 --> 15:33.260
just, it's like anything, it's
kind of at that cycle, that

15:33.260 --> 15:36.020
lifecycle that we play in and
more alternative space than the

15:36.020 --> 15:36.950
more traditional space.

15:39.110 --> 15:43.550
Ian Mac: Any comments from from
Wayne, from a perspective of an

15:43.550 --> 15:46.070
originator on the actual loan
terms?

15:46.760 --> 15:48.740
Wayne Pommen: Well, I think just
generally, if you're scaling,

15:48.740 --> 15:51.650
that means you're probably doing
reasonably well, you're you're

15:51.650 --> 15:54.770
building the track record, you
have larger amounts of assets

15:54.770 --> 15:57.650
and add all of that means you
can bring more potential vendors

15:57.650 --> 16:02.420
to the table as you grow into
their size range. As you prove

16:02.420 --> 16:06.230
that you maybe know what you're
doing, you can tend to get sort

16:06.230 --> 16:08.960
of schedule one, you know,
balance sheets, or large

16:08.960 --> 16:12.860
institutions involved. And all
of that tends to improve most of

16:12.860 --> 16:15.170
the terms, particularly the cost
of capital, yes, there may be

16:15.170 --> 16:18.350
trade offs with advanced rates
and other and other covenants.

16:18.350 --> 16:22.160
But you should be able to, if
everything's going well optimize

16:22.160 --> 16:26.270
your, your sort of capital
structure over time, based on

16:26.270 --> 16:28.640
your scale and your track
record. And so we've we've been

16:28.640 --> 16:31.340
able to sort of move down that
path in our business over the

16:31.340 --> 16:32.150
past few years.

16:34.220 --> 16:36.620
Tyler Meyrick: Yeah, and I would
even add to what Lyla said, I

16:36.620 --> 16:39.770
think you can start with with
asset specific facilities that

16:40.490 --> 16:42.860
you don't have uptight
performance covenants on on the

16:42.860 --> 16:45.800
assets, because you've got, you
know, less equity or less

16:45.830 --> 16:49.430
earnings built up in your
corporate business, you then

16:49.430 --> 16:51.410
moved to the corporate
facilities, as was noted, and I

16:51.410 --> 16:53.510
think, you know, at some point,
you can actually look to make a

16:53.510 --> 16:56.810
transition back, where you start
doing public securitizations,

16:56.810 --> 16:59.690
and you start building kind of a
more robust diversified

16:59.690 --> 17:01.910
financial structure like like
what was talked about with Go

17:01.910 --> 17:05.720
Easy, and, and some of the
OnDeck US business as well,

17:05.840 --> 17:08.390
where you actually eventually
pretty much fully off balance

17:08.390 --> 17:12.320
sheet into only asset specific
facilities, which is, which is

17:12.320 --> 17:15.110
sort of the kind of end state
for most specialty finance

17:15.110 --> 17:17.930
companies, many years down the
road once they've scaled.

17:20.840 --> 17:23.870
Ian Mac: Excellent. So maybe
just getting a little bit more.

17:23.900 --> 17:27.470
And I think I heard you, you
actually said KYC, Lyla earlier,

17:27.470 --> 17:33.140
but just on due diligence around
structuring, especially finance

17:33.140 --> 17:37.550
transaction, what are some
thoughts on common pitfalls that

17:37.550 --> 17:42.470
you might think about at the
outset of a transaction that you

17:42.470 --> 17:47.150
think both borrowers and funders
should be aware of any thoughts

17:47.150 --> 17:50.810
from the panel on that question?
Sure. Lyla.

17:50.810 --> 17:53.540
Lyla Kanji: So I think when we
do our due diligence, we really

17:53.540 --> 17:57.290
get deep into the portfolio. And
I think that is essentially key

17:57.290 --> 18:01.730
to to specialty finance lending
is slicing and dicing the the

18:01.730 --> 18:06.800
loan data across so many
different levels. Because at the

18:06.800 --> 18:09.590
end of the day, when we do end
up lending, we always have

18:09.590 --> 18:11.990
certain advanced rates, which
are fairly common across the

18:11.990 --> 18:15.620
industry. But we we do a lot of
work in our stress case

18:15.620 --> 18:20.090
scenarios, to make sure that the
business and our loan is

18:20.090 --> 18:21.410
protected in that sense.

18:21.410 --> 18:21.830
Ian Mac: Sure.

18:22.880 --> 18:25.160
Kevin Westfall: I think kind of
leveraging off of some of

18:25.160 --> 18:28.070
Wayne's earlier comments on
being organized and having

18:28.070 --> 18:31.070
access to information. And
again, I mean, we're happy to

18:31.070 --> 18:33.560
lend against, you know, certain
businesses and different asset

18:33.560 --> 18:36.530
classes, kind of, you know, make
the joke about inventory, we're

18:36.530 --> 18:38.300
happy to lend against inventory,
you don't have to tell us what

18:38.300 --> 18:43.280
it is. So, again, access to the
data and information is, is

18:43.280 --> 18:45.320
really kind of key for us. And
again, we kind of come in on the

18:45.320 --> 18:49.520
early stages. So we see all
kinds of different venues,

18:49.610 --> 18:53.000
things like, you know, review
engagement, or audited financial

18:53.000 --> 18:56.480
statements are a huge plus. And
we know kind of in small or

18:56.480 --> 18:58.940
medium sized businesses that
want to avoid the cost for the

18:58.940 --> 19:01.040
initial couple of years. But,
you know, from a lender's

19:01.040 --> 19:04.400
perspective, incurring that cost
early on, just kind of show us,

19:04.430 --> 19:07.220
you know, that organization and
commitment to the business sort

19:07.220 --> 19:09.620
of thing. So and again, we're
probably similar to live is that

19:09.620 --> 19:12.140
we're slicing and dicing the the
the loan data and information

19:12.140 --> 19:14.810
and, you know, it's access to
that information. That's the

19:14.810 --> 19:15.110
key.

19:17.750 --> 19:20.300
Wayne Pommen: And I think maybe
just on a slightly different but

19:20.300 --> 19:24.410
related topic. The one thing
that I've seen over the years is

19:25.790 --> 19:28.850
people getting tripped up on the
relationship of equity and debt,

19:28.940 --> 19:31.970
right, the equity side of the
portfolio side, and thinking

19:31.970 --> 19:35.510
about what has to be in place
when you guys probably see this

19:35.510 --> 19:39.620
all the time. And so, you know,
what are the our thought process

19:39.620 --> 19:43.370
at paybright is, if we're going
quickly, we need to have the

19:43.370 --> 19:46.310
portfolio funding in place now
for the volumes we want to have

19:46.310 --> 19:50.090
a year from now. And we probably
needed to have our equity in

19:50.090 --> 19:53.330
good shape like six months ago.
So yeah, we always try to have

19:53.330 --> 19:55.790
the equity running like 18
months so ahead of where it

19:55.790 --> 19:58.760
needs to be and the portfolio
funding a year ahead ahead of

19:58.760 --> 20:01.730
where it needs to be and It's
very easy to kind of get the

20:01.730 --> 20:05.570
order backwards and then
everything gets stalled. And

20:05.570 --> 20:08.660
that it's up, it's obviously
challenging to execute. But it's

20:08.690 --> 20:12.110
it's important not to have a
situation where, you know, the

20:12.140 --> 20:14.480
the portfolio funders say, okay,
where's the equity? And then the

20:14.480 --> 20:16.460
equity guys say, okay, well, you
know, how are you going to fund

20:16.460 --> 20:19.520
all this? And so there's kind of
a dance that goes on. And I

20:19.520 --> 20:22.640
think a lot of small originators
over the years have been had

20:22.640 --> 20:25.010
their growth slowed by trying to
figure that out sort of in a

20:25.010 --> 20:26.120
timely way.

20:27.440 --> 20:29.060
Tyler Meyrick: Yeah, I would
absolutely agree. I think that

20:29.060 --> 20:31.880
that's probably the most common
downfall for lenders in this

20:31.880 --> 20:35.750
space, you know, because Because
alternative lenders typically

20:35.750 --> 20:38.240
are not regulated by OSPI, or
someone that forces you to hold

20:38.240 --> 20:42.050
regulatory capital, you the
equity, debt balance can be

20:42.050 --> 20:46.460
sometimes more more subjective.
And I think, you know, you're

20:46.460 --> 20:50.480
prudent to carry as much equity
as you can afford. Because it

20:50.480 --> 20:53.000
allows you to plan for losses
that may be higher than you

20:53.000 --> 20:56.780
might expect. You know, whereas
in a Saskatchewan bank, they're,

20:56.810 --> 20:59.150
they're regulated, and they're
told how much equity they need

20:59.150 --> 21:03.170
to hold, we're really not. So
making sure that you've got that

21:03.170 --> 21:05.600
that dance right, as Wayne said,
and that your equity is probably

21:05.600 --> 21:09.200
planned in advance that the debt
will allow you to better manage

21:09.200 --> 21:12.350
for credit downturns, it'll
allow you to better manage for

21:12.350 --> 21:17.270
surprises. And to the point,
it's generally harder to find

21:17.270 --> 21:19.460
that equity when you need it,
than it will be to find the debt

21:19.460 --> 21:20.840
that you need to grow and good
times.

21:23.090 --> 21:26.360
Ian Mac: Excellent. And just on,
maybe this one's for both Kevin

21:26.419 --> 21:29.570
and Lila, on the actual
investment guidelines for the

21:29.630 --> 21:33.138
investment criteria of that
particular portfolio. So you're

21:33.197 --> 21:36.943
looking at a MIC, what is, walk
us through or talk a little bit

21:37.003 --> 21:40.332
about how critically you're
looking at that and what the

21:40.392 --> 21:43.840
process looks like, from a
lender perspective, when you're

21:43.900 --> 21:46.100
looking at the investment guidelines.

21:46.170 --> 21:48.221
Kevin Westfall: I'll kick it
off, because I'm sure there's

21:48.270 --> 21:51.299
going to be a little bit lighter
than than Leila. Really, it's

21:51.348 --> 21:54.181
it, we're kind of storybook
lenders, it's, you know, Where

21:54.230 --> 21:57.307
could the business be with the
right capital. So again, kind of

21:57.356 --> 22:00.385
that that probably initial debt
and early stage kind of coming

22:00.434 --> 22:03.511
to a business after that layer
of equity. It really is kind of,

22:03.560 --> 22:06.442
you know, covenant light, and,
and a lot going on. So it's,

22:06.491 --> 22:09.276
it's fairly simple for us to
provide kind of that initial

22:09.325 --> 22:12.256
facility, as long as we've got
that management team, and the

22:12.304 --> 22:14.747
company has achieved
profitability, we can provide

22:14.796 --> 22:17.190
the capital in a lot of
instances and situations.

22:17.669 --> 22:17.999
Ian Mac: Sure.

22:17.999 --> 22:20.986
Lyla Kanji: Ours is a bit more
structured, to that. So we will

22:21.046 --> 22:23.855
look at a couple of years of
positive operating

22:23.914 --> 22:27.679
profitability, we will look at a
level of equity base, and then

22:27.739 --> 22:31.205
underwrite to that equity base.
And in terms of the of the

22:31.264 --> 22:34.909
structure, the covenant packages
are very standard, but there

22:34.969 --> 22:38.614
will be around debt to equity,
there'll be loan to value that

22:38.674 --> 22:42.259
we will look at. So it's those
critical things. And again, I

22:42.319 --> 22:45.187
think one point is of critical
importance is the

22:45.247 --> 22:49.012
diversification in the book. I
can't stress enough, how much do

22:49.071 --> 22:52.298
we look at diversification on
the book in terms of the

22:52.358 --> 22:54.450
underlying loans or the borrower's?

22:55.920 --> 22:59.987
Ian Mac: No, that's helpful. So
we had an entire panel earlier

23:00.064 --> 23:04.132
this morning on market
readiness. So we have a little

23:04.209 --> 23:09.121
bit of time left. So maybe just
from the where we are in the the

23:09.197 --> 23:13.726
economic cycle, a lot of people
using the R word recession,

23:13.802 --> 23:18.024
where we are in terms of
specialty finance itself, just

23:18.101 --> 23:22.859
from the panelists, where do you
see the industry going in the

23:22.936 --> 23:27.464
medium term in terms in the
context of of of this impending

23:27.541 --> 23:32.453
downturn that everybody seems to
be talking about? How does that

23:32.530 --> 23:36.981
are there particular asset
classes that might be relevant,

23:37.058 --> 23:41.279
or from an underwriting
perspective is getting tighter?

23:41.356 --> 23:46.268
So any thoughts on the trend as
we move forward in the next part

23:46.345 --> 23:50.490
of the cycle? And I'll invite
anybody to start. Wayne?

23:50.520 --> 23:52.938
Wayne Pommen: Yeah, I think
it's, it's gonna be really

23:52.999 --> 23:56.687
interesting, because this has
been such a long expansion. And

23:56.747 --> 24:00.436
we have had such a long, benign
credit cycle now. And so many

24:00.496 --> 24:04.185
specialty finance companies,
FinTech lenders, etc. in Canada,

24:04.245 --> 24:07.813
but especially the US and other
countries have all grown up

24:07.873 --> 24:11.743
since the last credit cycle. And
probably 85% of their employees

24:11.803 --> 24:15.552
weren't even in the workforce
during the credit crisis. And so

24:15.613 --> 24:18.999
it will be really, really
interesting to see who's got a

24:19.059 --> 24:22.687
bunch of this stuff figured out
and are ready for it and who

24:22.748 --> 24:26.376
isn't. And so I've always been
predicting a big washout. But

24:26.436 --> 24:29.943
we'll see. I can just tell you
that a paybright. We are at

24:30.003 --> 24:33.571
paybright. We're just watching
very closely sort of week to

24:33.631 --> 24:37.562
week to see what's changing. And
what we're absolutely trying not

24:37.622 --> 24:41.008
to do is create is repeat the
classic mistake of chasing

24:41.069 --> 24:44.213
growth late in the cycle by
loosening various credit

24:44.273 --> 24:47.780
parameters, well, convincing
ourselves the whole time that

24:47.841 --> 24:51.469
it's actually fine. So we're
trying not to repeat that cycle

24:51.529 --> 24:55.097
and we're trying to be ready to
respond to going to Jason's

24:55.157 --> 24:58.966
comments in the earlier panel to
respond if we need to, to sort

24:59.027 --> 25:00.660
of protect the performance?

25:01.650 --> 25:03.810
Tyler Meyrick: Yeah, I would
absolutely echo that. I think,

25:04.320 --> 25:07.050
you know, as much as we'd like
to think the growth will sustain

25:07.050 --> 25:10.500
forever, I think, you know, we
all know it won't. The small

25:10.500 --> 25:13.590
business space has gotten quite
a bit more competitive, since

25:13.590 --> 25:16.440
thinking capital was was founded
in 2006, is basically the only

25:16.440 --> 25:21.180
one. And so I think we see the
market getting competitive, we

25:21.180 --> 25:24.060
see people chasing growth. And I
think it's important to want to

25:24.060 --> 25:26.160
make sure you've got a
diversified portfolio, as we

25:26.160 --> 25:28.740
said earlier, to as, as we just
talked about, make sure you've

25:28.740 --> 25:33.270
got that that kind of financial
dry powder in case you need it,

25:33.390 --> 25:35.520
and three to make sure that you
stay disciplined around your

25:35.520 --> 25:38.460
credit policies, and that you're
not chasing growth that at the

25:38.460 --> 25:40.950
expense of potential long term
profitability.

25:41.550 --> 25:43.860
Kevin Westfall: I think that'll
be the key I think, for most in

25:43.860 --> 25:48.180
this room, we'll call it, it may
be a little downturn, more than

25:48.240 --> 25:51.180
than a recession, because we're
not really from our perspective,

25:51.180 --> 25:54.930
not expecting recession, but we
see a lot of opportunity opening

25:54.930 --> 25:56.820
up. So for a lot of the
alternative lenders in this

25:56.820 --> 25:59.340
space, I think the opportunities
that you will start to see will

25:59.340 --> 26:01.560
actually improve, you'll get
some of the more traditionals

26:01.560 --> 26:04.380
that will kind of start to move
up market a little bit, making

26:04.410 --> 26:07.590
more room for for better credits
and availability in the

26:07.590 --> 26:10.140
alternative side. So as long as
you've kind of stayed true to

26:10.140 --> 26:12.570
your practice and your process,
you know, what is your existing

26:12.570 --> 26:15.360
portfolio look like today? So
it's not necessarily a matter of

26:15.360 --> 26:17.670
we're gonna get a what's your,
your prospect for new business

26:17.820 --> 26:20.010
going to be because I think it's
gonna be excellent. As long as

26:20.010 --> 26:22.950
you stay true to your process
and your procedures and kind of

26:22.950 --> 26:26.340
you got your existing book
intact, then you can kind of be

26:26.340 --> 26:28.500
successful through the through
transition.

26:28.620 --> 26:31.242
Lyla Kanji: Yeah, similar to
Kevin's point at BMO, not just

26:31.298 --> 26:34.591
with specialty finance, we are
very patient lenders, we are

26:34.646 --> 26:38.162
relationship based lenders. So I
think that will follow through

26:38.218 --> 26:41.399
to the cycle. But when we are
getting into each and every

26:41.455 --> 26:44.859
transaction, what we do is we do
doomsday scenarios, if let's

26:44.915 --> 26:48.375
say, the borrower defaults, the
credit cycle completely turns,

26:48.430 --> 26:51.834
we do those scenarios, and we
see how long will it take us to

26:51.890 --> 26:55.406
get out. So we're already doing
all the work on on that when we

26:55.462 --> 26:58.922
get into the transaction. On the
other side, we are looking at

26:58.978 --> 27:02.103
the portfolio data and the
reporting. at a very granular

27:02.158 --> 27:05.786
level, we've got triggers, we've
got played a covenant structures

27:05.842 --> 27:09.078
in place that should give us an
early warning, and help us

27:09.134 --> 27:12.594
modify the structure if needed.
So we are getting prepared for

27:12.650 --> 27:13.320
it for sure.

27:14.100 --> 27:16.590
Tyler Meyrick: Excellent. And I
think for for those that are

27:16.620 --> 27:19.260
well prepared, there will be
huge opportunity, you know, to

27:19.320 --> 27:23.400
Kevin's point, I think for those
that can can handle the downturn

27:23.400 --> 27:25.860
well and can can maintain the
quality of their book through

27:25.860 --> 27:27.690
it, though, there'll be those
that won't. And I think that

27:27.690 --> 27:29.820
there'll be a lot of business to
pick up for those that are well

27:29.820 --> 27:32.610
prepared. That'll look a lot
better than the business that's

27:32.610 --> 27:35.160
that's probably being chased
around the margins today toward

27:35.160 --> 27:37.320
the end of the cycle in a more
competitive market.

27:39.300 --> 27:41.700
Ian Mac: That's great. Thank you
very much. Now, we have one

27:41.700 --> 27:44.760
minute and I wanted to throw to
the audience for one question,

27:44.760 --> 27:50.070
but it better not. But thank you
very much to our panelists for

27:50.310 --> 27:53.220
sharing their insights today
that I think that's very

27:53.220 --> 27:55.500
helpful. And I'm sure a lot of
the the audience members got a

27:55.500 --> 27:59.430
lot out of that. And we probably
scratched the surface on a lot

27:59.430 --> 28:01.800
of the things we were talking
about. So that probably bodes

28:01.800 --> 28:06.390
well for the the networking and
reception of that's later on

28:06.390 --> 28:08.100
today. And thank you very much