Business Lending

Kabbage Co-founder Rob Frohwein Steps Down from the Company

January 6, 2022
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kabbageRob Frohwein, who served as the CEO of Kabbage for more than a decade, has left the company. A post he published on social media revealed that his last day was December 17th.

“I didn’t make a big deal – the company has always been about our customers & our employees – and never about any person,” Frohwein said about the quiet exit.

The move is not altogether unsurprising. American Express acquired Kabbage in August 2020 after covid heavily disrupted its small business financing business. Amex first reintroduced Kabbage as a checking account brand and only just recently resurrected its funding operations.

That re-emergence was the catalyst to move, according to Frohwein.

“Why now? Lots of blah blah blahs but it’s the right time,” he wrote. “We’ve relaunched our products with Amex. Now, it’s time to fully devote myself to being an entrepreneur once again.”

Frohwein has kept busy on the side as an advisor & investor in SentiLink, the vice chair of StimLabs, and the CEO of Drum Technologies, Inc, according to his profile, but he apparently has even more plans in the works.

“So what now? Well, I’m pretty excited for what is next. Keep a lookout!”

The benign salutation may actually be a nod to what his next venture is. We’ll see…

New York’s Commercial Financing Disclosure Law to Undergo Further Comment and Review

January 4, 2022
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Albany CapitolImplementation of the New York Commercial Financing Disclosure law originally intended to go into effect four days ago, is now subject to another delay on top of the existing one, with no official date on when compliance will be required.

Seeing as the New York Department of Financial Services (DFS) was still accepting comments on the proposed regulation through December 20th, DFS had originally granted covered companies a six-month reprieve on compliance. But after having reviewed the comments, DFS determined that it’s actually back to the drawing board on a regulatory proposal. Sometime “early in the new year,” DFS said, it will publish a revised proposal for further public comment.

“Given the complexity of the disclosures required by the CDFL (Commercial Financing Disclosure Law), we believe the Legislature intended that the Department first provide regulatory guidance regarding the standardized disclosures required to be provided under the CDFL,” said Serwat Farooq, a Deputy Superintendent at DFS, in a published statement. “Waiting to commence CDFL obligations until implementing regulations are in place will ensure that the disclosures are made in a consistent, standardized fashion. This will help businesses understand the terms and conditions of the various forms of credit being offered to them, the very intent of the CDFL.”

A copy of the full statement from DFS can be viewed here.

Five Things Small Business Financing Should Look out for in 2022 

January 3, 2022
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A timeline of alternative financeWith another year in the books, below is a list of things that the small business finance community should think about in 2022.

Disclosure Laws are Coming

The laws in New York are changing. While the date for the new law was pushed back at least until June, the state is about to make it very difficult to finance small businesses. California, New Jersey, Maryland, Connecticut, and North Carolina are among other states to also keep an eye on regarding disclosures in 2022.

Blockchains, Blockchains, Blockchains

Regardless of the legitimacy of things like cryptocurrencies and NFTs, blockchain technology is on its way to the initial states of implementation in the financial world. In a further effort to eliminate paperwork, redundancy, and time, the idea of a decentralized ledger has all corners of the financial world watching closely.

Merchants are Becoming Digitally Native

As business owners are continuing to emerge as younger and more technologically sound, lenders should embrace fintech in any area of their processes that they can. Just to appear as a tech company may become a marketing strategy for some brokers or lenders, as those who offer the smoothest, simplest, and technological form of funding will win over their competition with this new emerging business owner.

Funders Using Motivational Social Media Posts to Develop Brands

As small business financiers continue to try and find their place on social media, there seems to be a gathering of those in the funding space to create motivational content. Keep a lookout for more funders to continue internet marketing via motivational posts to not only give a face to their company, but legitimize themselves as a go-to in the space; so maybe they can launch some type of broker training program in the future.

Networking Will Continue to Re-Emerge as Top Tool

As 2021 concluded with in-person events slowly approaching normalcy after pandemic induced restrictions, the industry is showing an unprecedented amount of desire to get together multiple times a year to build their books of business. Look for events across finance, technology, and cryptocurrency spaces to increase in both numbers and attendees.

Nuula, Still in the Business Lending Game, Lays Groundwork for Larger Ecosystem

December 29, 2021
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Nuula, formerly known as BFS Capital, has 5,000 merchants on a waitlist to access a line of credit after just four months of its application process being made available.

But there’s more.

“Nuula is built to not only deliver our own financial products, but it’s developed to help us provision and deploy third party financial products that come from our ecosystem,” said Mark Ruddock, Nuula’s CEO. “So what we’re trying to do here is not really be a broker, but we will carefully curate products.”

“That could be larger, longer loans from one partner, it could be insurance from another partner, it could be entrepreneur wealth management from a third partner,” he continued.

“So we bring those partners onto the platform, and then we expose their functionality within the app, in a way that’s consistent with all the other tools in the app. So yes, there is room for third party lenders.”

Ruddock spoke about how as of now, Nuula’s infrastructure only offers opportunities to those interested in directly funding businesses. The company profits via revenue sharing when businesses are provided with capital from a third party funder on the platform.

Despite not being available yet, he hinted at possibly incorporating broker-esque products as the app’s financial product suite grows.

“Today, we don’t see a near term role for brokers on the app, because we’re not really trying to create a marketplace of a multitude of products, we’re really trying to curate things very, very carefully,” said Ruddock. “However that’s not to say say that we will not over time provide the ability for the more digital brokers or intermediaries to play a role as we seek to broaden the portfolio of tools that we offer.”

“I would say no to brokers in the sense that we really don’t have a compelling offer for them at the moment, but yes to other financial services providers.”

Ruddock described how Nuula is serving a niche customer base, a tech-centric merchant who is looking for an easy-to-use mobile software that can manage their businesses’ X’s and O’s. Not only is this type of merchant underserved and beginning to substantiate in numbers according to Ruddock, but they are extremely eager for access to capital.

“It’s a fundamental change in the way underwriting has been done, away from kind of a rearward looking model, towards a real-time forward looking model, and that’s what we believe is going to be required to unlock capital to this new generation of businesses.”

“[Nuula] reimagines underwriting in a way that says ‘don’t just look at the last six months of bank statements’,” Ruddock said. “[We] look on not only of the day of lending, but the lifetime of your relationship, and how those businesses are recovering, growing, and thriving.”

He spoke about how with real-time data being accessible through Nuula, businesses that are building their creditworthiness can have a mobile reference point for the data that they need to see their real-time financial state, while simultaneously giving lenders a live picture of the businesses’ books.

“So even if a business is not strong enough for credit today, it might be in three months, and we can go watch your progression through this period and unlock the capital when the time is right, and then if that business grows out of the pandemic and recovers and is stronger, we’re going to be able to a broader and richer portfolio of credit.”

Although their target customer seems to be a digitally native merchant, Ruddock says that Nuula’s onboarding process is designed to be simple enough for a merchant who may not be as familiar with fintech.

“I’m a fifty-plus year-old CEO of a fintech company, and I would say I’m as digitally savvy as a twenty year-old, so it isn’t really about age anymore,” said Ruddock. “It’s by the way which [merchants] have embraced technology.”

“What we’ve done with Nuula is we’ve tried to make this product intuitive and simple for a first time app user and we’ve tried to help these folks get access to the data that now is sitting in a multitude of systems. While we believe people who have grown up in an app-centric world are going to be amongst the first adopters, we’re trying to make this product accessible for the fifty year-old restaurant owner too.”

Nuula plans on expanding their data harnessing tools with other fintechs early next year. “Over the next two weeks, we will actually unlock the ability for [merchant] sales data from Shopify or Square,” said Ruddock.

Transition to NMLS Extension Postponed to March 15, 2022

December 21, 2021
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With permission for reprint from Leasing News and credit to Ken Greene


California LendingThe California DFPI has extended the deadline for transitioning to the NMLS to March 15, 2022 for all those with a California license.

I had a long talk with the DFPI NMLS specialist and the agency is well aware that the transition process is not simple, and that many companies are having difficulty with it. I was also advised that if an application is pending but not approved when the deadline passes, your license will not be revoked. That is also good news.

This three-month extension should give everyone sufficient time to get the transition done. The process is confusing, but the folks at the DFPI are quite helpful. I urge anyone having difficulty to call them. Still, don’t wait until the last minute!

Here is the announcement:
Extension – NMLS Transition for California Financing Law Licensees: Deadline Extended to March 15, 2022

Notice of Extension

The deadline for licensees under the California Financing Law not currently on NMLS to transition onto NMLS is extended to March 15, 2022.

All licensees not yet on NMLS must establish an account in NMLS and submit their information through NMLS on or before the March 15, 2022 deadline.

Begin by Establishing an Account in NMLS

Licensees seeking to transition onto NMLS may access NMLS’s website here. From this homepage, select the button for “Getting Started – Company.”

To facilitate creating an account in NMLS, all transitioning CFL licensees should be familiar with the documentation required when setting up the account. This NMLS Account Creation Help Document describes step-by-step how to create an NMLS account and the documents needed.

Input Licensee Information

After establishing an account, a licensee must input its information on two electronic forms (three electronic forms if the licensee has branch locations). Information about the licensee is entered on the “Company Form,” MU1. Information about each key personnel (owners, officers, directors, managing members, partners, etc.) is entered on the “Individual Form,” MU2. Information about branch locations/licenses is entered on the “Branch Form,” MU3. After completing the applicable information, submit the information through NMLS.

NMLS has state-specific checklists to assist licensees transitioning onto NMLS, and FAQs for guidance on transitioning a license onto NMLS.

Questions

For questions regarding the creation of an account in NMLS, contact the NMLS Call Center at (855) 665-7123. For questions regarding transitioning a CFL license onto NMLS, contact DFPI at CFL.Inquiries@dfpi.ca.gov or (866) 275-2677.

Finally, for those of you who missed it, here is a link to my Leasing News article from 12/8/21 outlining the CFL to NMLS transition process:
https://leasingnews.org/archives/Nov2021/11_15.htm#cfl

Ken Greene Leasing & Finance Observations
https://leasingnews.org/Pages/greene_observations.html

Ken Greene
Tel: 818.575.9095
Fax: 805.435.7464
ken@kengreenelaw.com
Alternate: kengreenelaw@outlook.com

EIDL Applicants Still Waiting for Funds as Deadline Approaches

December 16, 2021
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SBA LoansThere is a major pileup of applicants waiting to hear back from the SBA regarding EIDL applications, according to Iron Capital Equities, a fintech firm who owns websites that help businesses through the EIDL application process. According to a press release by the company, many applicants who have not yet received funding seem to believe they’ve been ghosted by the SBA.

The EIDL deadline to file an application is December 31.

“90% (9 out of 10) of our 400 client applicants are still in limbo, with no update regarding the status of the funds,” states co-founder Matthew Elling. “The short-term economic outlook from small businesses is dim, so these funds are highly sought after.”

Elling insisted that he is in constant contact with his customers, and says his company is doing everything they can to service these clients who are playing the waiting game.

“Even though we are a financial technology company, we still ‘talk’ with our customers,” Elling continued. “We understand their struggles in a post COVID economic environment, we have provided them with advice on the SBA assistance like EIDL and the two PPP rounds for payroll and business expense assistance during and after the government-imposed lockdowns.”

EIDL loans were a beacon of hope for many businesses struggling to survive in the pandemic. This type of  government funding isn’t a grant, and needs to be paid back by the merchant at a term of 30 years at 3.75% annual interest.

How a Former Banker is Servicing Clients that Turned Down Alternative Funding Offers

December 15, 2021
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Juan CabanWhat do brokers do with the clients that don’t want to pay the costs of an alternative product, but are still too underqualified for traditional financing?

Juan Caban, CEO and Co-Founder of Financial Lynx, has leveraged his interpersonal relationships as a former banker with his passion for networking and his discovery of a niche type of client into a business that is now spread across 44 states. Lenders aren’t the only ones turning down deals, the applicants do too, he says.

Caban built a referral business by talking to people, being an active member of the industry, and taking advantage of pandemic-induced halts in business to research the best ways to serve a section of business owners that prior to Financial Lynx, were either using less attractive products or never taking on financing at all.

“I’m a big networker,” said Caban. “I always go out, I meet a lot of people, I always get referrals from a lot of different areas.” He spoke about how as a decade-long banker with major banks, he knew right off the bat in his career that traditional financing was excluding financially-sound merchants who weren’t meeting overzealous bank qualifications.

“I would meet people who want to do business with me and I would present it to my bank, but it was always a challenge,” Caban said. “You want to help out a client, but you’re limited to the credit appetite of the bank that you are working for. After getting frustrated and declining a lot of clients, I wanted to seek out how I can help these clients out.”

After leaving the traditional finance world in 2019, Caban began work at an alternative lender, where the doors to a variety of new options opened up for him.

Caban still felt limited in his abilities to get deals done because of the confines funders mandate through their qualifications, and left to start his own company within seven months. After seeing a market in financing for merchants who fall between the high risk and traditional financing qualification threshold, he began talking to people across the financial community about what products exist for these types of clients.

“I used my banker network, I probably know about 200 bankers here in New York, and I started asking them, ‘hey, do you have a program in your bank that can help this type of client?’” Seeing that merchants with good credit and no desire to pay a 40% cost of capital were being pushed aside throughout the industry, Caban decided to pursue a business out of servicing this type of merchant.

“What I found was that there are some banks out there that as long as [the merchant] has a 700 FICO score, has been in business at least two years, and are considered to be in a preferred industry, some banks are willing to lend in some cases 20% of annual sales, up to $250,000, with just an application and one year of tax returns.”

The lending services being provided through Financial Lynx based on these qualifications are bank lines of credit that revolve and renew annually.

Caban described the qualifications for this type of financing as a look into the business owner themselves, and not as much into the business. “[These banks] focus on you as an individual and if you have personal credit.”

The concept took off.

“I started working exclusively with one MCA broker shop, they were calling hundreds of businesses a day,” said Caban. “They were trying to sell [merchants] cash advances obviously because it is a very lucrative commission business, but anything that was non-cash advance, or didn’t fit the cash advance space, or merchants who wouldn’t accept the expensive cash advances, they would refer that client to me.”

The twist is that the banks don’t pay him a commission so he has to charge a fee to the merchant once the financing is completed.

“At the end of the day I feel good because I am providing the client with something that they couldn’t find on their own,” Caban said. “So I am helping the client, and almost 100% of my clients are satisfied with what they have, because they’re getting cheap financing, 5% instead of 30% money, so even with my 10% consulting fee to connect the client, it’s still 50% cheaper than what they would’ve gotten in any type of cash advance.”

The biggest hesitancy Caban sees from alternative finance companies in terms of working with his niche product and client is the patience required in dealing with bigger banks. “Everything is quick in MCA, [brokers] get approved today, get funded today, and get paid tomorrow. I say look, I can provide the client what you’re looking for, but it is a three week process.”

“The ones that say, ‘hey we want to do what’s best for the client,’ they buy into it, they send us referrals on a constant basis,” Caban continued. “The ones that say ‘it’s taking too long, they’re not into it’ and I tell them ‘you’re going to lose that client eventually.’ As opposed to losing them, make some money out of it before you leave them.”

Trying to convince the legitimacy of his product seems to be part of the daily ritual for Caban. “Having a bank line of credit is considered a unicorn in the industry. Everyone says that they have it, but it’s not really a line of credit. We’re actually providing true lines of credit. It’s truly a revolving line of credit.”

“It’s always a thing where it’s like, are you for real?”

QuickBooks Capital’s Small Business Lending Originations Surge

December 13, 2021
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IntuitQuickBooks Capital, part of Intuit, originated $125M worth of small business loans in the fiscal quarter ending October 31, 2021.

For context, the company originated $232M across the entire fiscal year of 2021 ending on July 31st and $243M for the entire fiscal year of 2020. The company’s best fiscal year so far was 2019 when it originated $316M.

The company is now on track to surpass all previous years.

During the earnings call, CEO Sasan Goodarzi said that one of the company’s big bets is “to become the center of small business growth by helping our customers get customers, get paid fast, manage capital, pay employees with confidence and grow in an omnichannel world.”

“60% of small businesses struggle with cash flow and we are continuing to innovate to create solutions for customers to overcome this challenge,” Goodarzi said.

Intuit recently acquired Mailchimp and acquired Credit Karma last year.