Business Lending

Company Acquiring Funding Circle USA Had Previously Acquired Knight Capital and Assets of Foutainhead

June 24, 2024
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Funding Circle WebiBusiness Funding, LLC, which is acquiring Funding Circle’s US arm, is no stranger to the small business finance industry. That’s because the company not only acquired select assets of Fountainhead SBF LLC last year, but its parent company, Ready Capital, had also acquired Knight Capital in 2019.

Ready Capital, a non-bank SBA lender, had also been one of the largest PPP lenders in the country during the pandemic. The designation of being an SBA lender is a highlight in the acquisition of Funding Circle because it means it does not need Funding Circle’s SBLC license to do SBA loans. Funding Circle had faced hostility by members of congress earlier this year for exploring a sale of its business only after it had lobbied for and finally secured an SBLC license. Now the matter is moot.

“As the Ready Capital group already holds an SBLC license, Funding Circle has, with SBA consent, surrendered its SBLC license,” the announcement by Funding Circle said. “The transaction is expected to close by the end of June.”

It was a share purchase agreement for a total cash consideration of £33 million ($42 million) which includes all of the company’s loan portfolios.

Funding Circle CEO Lisa Jacobs said, “We are pleased to have reached an agreement with iBusiness Funding, one of the leading processors of loans to US small businesses. In iBusiness, we have found a partner that shares in our mission, and we look forward to seeing the success of the combined entity.”

Ready Capital CEO Thomas Capasse said, “We’re excited to acquire FC USA and expect the acquisition to yield meaningful revenue and earnings to the combined company in the years to come.”

Founder and CEO of iBusiness Funding LLC Justin Levy said, “We are thrilled to welcome the exceptional FC USA team to the iBusiness family. FC USA’s mission to be the largest SBA lender for loans under $500,000 aligns with our goal to support underserved borrowers, the only difference is iBusiness achieves this goal through many SBA-approved lenders in our network.”

SBA Direct Lending Plan Not Likely to Happen

June 19, 2024
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A proposal to allow the SBA to get into the direct lending business appears to have been taken off the table. Originally, the president’s FY 2025 budget plan called for the SBA to get into direct lending “to address gaps in access to small dollar lending.” However, in the budget introduced by The House Committee on Appropriations this week, the Committee added a provision that would prohibit the SBA from “creating, implementing, administering, expanding, or enforcing a direct lending program that was not already in effect on January 1, 2024.” The Committee is chaired by Republican Tom Cole.

SellersFi Surpasses $1B in Loans Since Inception, Experiences Success Through E-Commerce Funding

June 14, 2024
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The timing of it all was fortuitous for SellersFi. When the company announced in January that it had secured a partnership with Amazon to provide eligible Amazon sellers with access to credit lines, it was clear that its fresh equity raise and credit facility of up to $300 million were going to be put to use. SellersFi wasn’t the only partner, however, and Amazon still did most of the lending to its own sellers directly, a business it had been in for more than a decade, but it was still a big relationship to have. But then it got better. In March, Amazon announced that it would end its direct lending program and rely entirely on its partners instead. For SellersFi that meant it would have the opportunity to service even more sellers on the platform than before. Since then, SellersFi has quietly surpassed $1 billion in loans since inception.

ricardo pero, sellersfi
Ricardo Pero, CEO, SellersFi

“What we are seeing now is less competition,” said Ricardo Pero, CEO of SellersFi, in a call with deBanked. He partially attributed that to the current interest rate environment which has impacted those with small margins. SellersFi, however, has experienced a lot of success. The company knows the e-commerce space particularly well, the only space it operates in, since its the only US lending platform also approved as a payment service provider member for Amazon. They started their relationship with Amazon as a service provider 3 years ago. While Pero said they have seen “nothing that points to a recession,” their experience suggests that even if one were to happen in the future, consumers would react by seeking out bargains on e-commerce platforms, reinforcing their position as the niche to be in. As readers may recall, a flight to e-commerce is also what happened during the pandemic.

E-commerce, however, is a broad umbrella, and Amazon is not alone in the universe. Millions of businesses rely on various platforms for e-commerce from basic templates with API connections to Shopify and more. Even big box brick and mortar retailers are waking up and rapidly inching their way into e-commerce. Walmart is just one example, which not only accommodates individual sellers on its platform but also offers merchant cash advances to them.

“The competitive landscape is changing for our clients,” Pero said. Pero added that they know what’s going on because they talk to these clients all the time and that even in the e-commerce business there are person-to-person relationships. “Customers mention their account managers by name,” Pero said. “We have a reputation as a partner to these merchants.”

One trend they’ve noticed over the last year or so is their strategy towards borrowing. While merchants have always typically used funds for things like advertising or inventory, the previous low rate environment enabled behavior where merchants could borrow first and then figure out how to spend the funds second whereas now that rates are higher there is a lot more of a deliberative approach to precisely how much they should get and what it will be used for in advance. It’s something they see all the time now and agree with. “You need to plan,” Pero said.

Looking at PayPal’s Business Funding Charge-Offs

June 10, 2024
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paypalWhen PayPal announced a sudden and dramatic pullback on its MCA and business loan operations in the third quarter of 2023, it was surprising news. For instance, the company’s net charge-off rate had been trending downward for years, coming in 7.4% at year-end 2019 right before covid and going down to 4.7% in 2021 and down to 4.5% in 2022. By June 2023, however, that number had somehow soared to 13.3% and by September was 20.4%. At the time, PayPal attributed this shift to “the expansion of acceptable risk parameters in 2022, which resulted in a decline in the overall credit quality of loans outstanding.” Because of how they calculate charge-offs, reducing originations at the same time that charge-offs were peaking made that number look a bit worse than it was. But still…

Although many funding and lending companies have complained of an increase in fraudulent applications in the immediate post-covid era, PayPal’s figures can hardly be attributed to fraud. That’s because their charge-off rate doesn’t even include losses from fraud.

PayPal’s products are very short-term so it was able to rapidly scale back its balance sheet exposure. Total merchant advances and loans outstanding, net of participation interest sold, decreased from $2.1B in Q1 2023 down to $1.2B in Q1 2024. Of the active loans, 88.7% were considered current in Q1 and 4.4% were greater than 90 days beyond their projected payment pace. With the exception of 2020 (when the % > 90 days past expected hit 12.5%), 4.4% is among the worst PayPal has experienced since 2017.

Trading MCA for Mortgages

June 5, 2024
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house on cash“I like multiple ways of getting business,” said Julio Sencion, Principal at Alta Financial. “If I did one thing and one thing only and that slows down, it affects my bottom line, so I like to keep my doors open for more opportunity and I think the ISOs should as well.”

Sencion’s not funding MCAs today, he’s doing mortgages, a business he had been in for years prior to the Great Recession. In the early 2000s, he said that everyone wanted to be a mortgage broker, himself included when he got into it. Like many in that business at the time, the fallout of it all pushed him to seek out a new revenue stream and a product that was still in demand. By 2011 he and a partner were running a large MCA brokerage shop in New York with nearly 70 sales reps on the floor. Sencion liked the business but not necessarily the conversion rates on the leads he was buying. By his count only 2-3% of the leads would become a funded deal, a metric deemed too low in the industry era of yesteryear. Old habits die hard, however, because he couldn’t help but continue to think like a mortgage guy.

“We realized that we had a couple of different questions on our application, one of them was ‘Do you own real estate? Commercial, residential?’ 40 to 50% of our clients owned real estate, so because of that we spun off a division for commercial lending.”

By 2016 Sencion exited MCA and went back into traditional finance. He’s now a principal at Alta Financial, which not only does mortgages but has also found a unique niche to source borrowers from, MCA brokers.

“So let’s say for example you’re an ISO and the client says ‘yes, I own real estate’ I’ll be interested in looking at that product,” Sencion said. “Then you will click a link that we will give you, that link will open up the questionnaire and you will fill out that questionnaire and then my agent will receive that lead from that questionnaire with all the data in it.”

Referrals of this nature in the biz are not new, but perhaps the circumstances are. One of Sencion’s account managers, Jamie Schiff, is also a former MCA rep himself, and he’s found this business to be better.

“I think over the past a year and a half, from my perspective, I think the MCA space is just a bit saturated,” said Schiff. “There’s a million and one funders out there.”

The challenge with this different product, according to Schiff, is getting an MCA broker to wrap their mind around a deal that could take a month to close when they might be used to 2-3 days. But on the upside Alta Financial does all the work and they really just want a broker to qualify a lead and submit the details. If a loan closes the broker gets paid. Quite a number of MCA broker shops are already doing this with them, the company said. Once these files are in hand, they underwrite various factors including credit score of the borrower. While just about any kind of property could qualify except for gas stations, they said that multifamily properties are the most common they get.

“People will be surprised how many clients have real estate, not just a [primary home], but they own just a small multifamily down the road that they never touched or tapped into,” said Sencion. “So I think it’s important nowadays to have the ISOs ask the question because if they didn’t do the cash advance they could always flip this into a mortgage.”

While all of Alta’s loans are secured by real estate, they can look beyond the value of the asset by evaluating an applicant on the rental income they generate or look at the average revenue from their business bank statements and base a loan amount off of that. Naturally, the rates and terms are much more attractive than what’s available in the unsecured market. There’s also the added benefit of these products being able to work alongside an MCA or to buy out existing ones. It’s a commission a broker might not have gotten otherwise.

“I’m actually excited, it’s something different but it’s kind of the same,” said Schiff. “And it’s such a smaller space that I don’t have to worry about every other month 10 other new funders popping up…”

As for Sencion, he said that the barriers to entry are higher than the MCA business, between the education, state licensing, how to process the files, etc.

“It takes years to get to the level of where we’re at, to be able to underwrite, fund deals, sell to a secondary market,” said Sencion. “And I think that’s where the edge comes in, you can’t get a cash advance guy, no matter how big they are, to get into my space unless they team up with a mortgage company. No one’s out there trying to become a mortgage company anymore like it was back then.”

Kris Roglieri To Stay in Prison Indefinitely After Shocking Development

June 3, 2024
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Add credible threats to murder an FBI agent to the list of scandalous accolades that Kris Roglieri has racked up in recent months. On Monday, prosecutors revealed the rationale behind the unusual demand to have him detained for what is seemingly a white collar crime, and that is that he has become dangerous. According to calls and emails Roglieri had with an unnamed friend, he said would “take out” a judge and a receiver, that he was going to “wack anybody” that went after him, and that he had determined the home address of one of the FBI agents investigating him and that he planned to put a bullet in their head.

“when someone takes everything away from you . . . if I go down, everyone goes down,” he said.

When the FBI became fully aware of the circumstances, he was arrested and taken into custody on May 31 on a single charge of wire fraud. It is likely that more charges will follow given that more than $100 million of the funds he took from customers remain unaccounted for. Nevertheless, prosecutors used the danger he posed to secure his temporary detainment without bail and on Monday he was ordered to remain in prison indefinitely while awaiting trial. He is being represented by a public defender.

Meanwhile, Roglieri’s company Prime Capital Ventures has been in receivership while he himself is in Chapter 7. In the latter case, he was recently ordered to turn over all his assets, including ownership of his businesses. One of those businesses, NACLB, announced prior to the order that it was rebranding to a different name, was still accepting payments from customers, and that it was exciting to still be moving forward.

Intuit Originates $452M in Business Loans in FY Q3 2024, Has Excellent Portfolio Performance

May 27, 2024
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IntuitIntuit generated $452M in business loans in its recent fiscal quarter ending April 30th. That was down slightly from the $469M in the quarter before it. Apparently the performance of its business loan portfolio has been excellent. Not only did the company say that “past due amounts were not material” but it also said that the allowance for losses on these loans was also immaterial. Similar to the prior quarter, this segment of Intuit’s business did not even come up once during the earnings call.

Intuit’s business loan originations are roughly on pace with Shopify Capital’s, at somewhere in the neighborhood of $2B a year. Both companies benefit from a sticky core product that their customers use. In the case of Intuit it’s the Quickbooks bookkeeping software.

Intuit’s CEO, Sasan Goodarzi, opened the quarterly earnings announcement by saying that AI is changing the world. “The era of AI is one of the most significant technology shifts in our lifetime and our strategy to be the global AI-driven expert platform is delivering significant benefits to our customers and strong results across the company,” Goodarzi said. “I’m proud of our innovation and performance, and because of our momentum, we are raising Intuit’s revenue, operating income, and earnings per share guidance for the fiscal year.”

Shopify Capital MCA, Loan Origination Growth Appears to Slow Down

May 9, 2024
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Shopify Capital, the funding arm of Shopify that provides merchant cash advances and loans to merchants on its platform, experienced no increase in these related receivables in Q1 compared to Q4 2023. The company typically records significant growth in this figure each quarter. Shopify used to broadcast its origination figures far and wide in each quarterly earnings report and call but has since gotten shy about this segment of its business and no longer discloses originations. Instead, its balance sheet line item for “Loans and merchant cash advances” is virtually all there is to go by now and they were listed at $815M in Q1 vs $816M the prior quarter. This, of course, only reflects anything they’ve kept on balance sheet and could be a misleading indicator if those receivables are being sold off or taken on by a third party.

Shopify’s major rival, Amazon, never disclosed origination figures for its Amazon lending program, and in March announced that it was discontinuing its in-house lending program altogether after a 12-year run.

Shopify is still among the largest online small business lenders in the US.