Funding Circle’s US arm originated $259M worth of business loans in the first half of 2023, up from $214M in the previous half. Those loans are funded “through forward flow agreements with institutional investors.”
The company’s recently filed financial statements say that US loans are “showing good growth.” And it’s with top tier borrowers to boot. It referred to 32% of its first half loans as being “super prime.”
AEBITDA was negative but that’s due to its planned investment to scale the business, the company said.
Yields on their US Loans averaged 5.8%, up from 4.4% over the same period last year.
The company’s newer product “Flexipay” was highly touted in its first half financials. Flexipay works like a line of credit. Once approved for a line, you provide invoice details to Funding Circle and they’ll make a secure payment in your name.
“We’ve seen good growth in US Loans and FlexiPay is showing great momentum as we expand our offering to access a larger market and serve more of our customers’ needs,” said company CEO Lisa Jacobs.
In this current environment, small business finance companies are proceeding cautiously.
“In 2022, the company’s turndown rate stood at 8%, but it has surged to 12% this year,” said David Miles, VP and Director of Credit for Eastern Funding. Eastern Funding primarily serves coin laundromats, grocery stores, and car washes but also operates two subsidiaries that focus on assets like commercial vehicles & tow trucks and fitness & wellness equipment. While Miles said that loan volume has remained strong, the percentage of transactions being turned down has increased.
“…I think that’s fairly indicative of the market or the environment that we’re currently in, which is high interest rates,” said Miles. “You have consumers that are carrying a lot of debt and it’s somewhat of a precursor to a potential downturn or recession.”
The circumstances are being felt all across the lending spectrum. According to a recent consumer lending study from the Federal Reserve, the overall rejection rate for credit applicants was 21.8% in June, the highest level in five years. That study looked primarily at mortgages, credit cards, and auto loans.
But in the commercial universe where Eastern Funding operates, the sentiment seems to be matching the shift in the numbers. On a recent quarterly earnings call, for example, Lightspeed CFO Asha Bakshani said of their MCA program, “There’s tons of demand. We’re just taking our time intentionally given the macro.” On unsecured business loans, Enova CEO David Fisher recently said that “we’re just not convinced the risk/reward is there right now, again, given the uncertainty in the economy, an extra few percentages of origination growth for us this year is pretty inconsequential.” Both Lightspeed and Enova are also still experiencing strong volume despite the conservative approach.
“We’ve definitely seen credit quality go down compared to prior years but that’s the main challenge,” said Miles of Eastern Funding. “And we want to make sure that especially in this environment, that we continue to make good loans, we make loans that don’t go to collections, that don’t go to work-out, and we don’t experience any losses across any of the three divisions.”
One challenge of being cautious, however, is communicating the situation to potential customers who may still be stuck in the mindset of 1-2 years ago.
“Our focus is on making sure that the people that do have credit authority, that they’re well aware of the environment that we’re currently in, and that there is enhanced risk just to do with the macroeconomic environment that we’re operating in,” Miles said.
The annual Inc 5000 list is out again and with it some big reveals about who in the industry is taking off like a rocket. We’ve pulled out some of the relevant names for you below!
#30 – B2 Capital Solution Provider – Miami, FL – 10,446% growth over 3 years
#38 – Novo – Miami, FL – 9,906%
#76 – Byzfunder – New York, NY – 6,228%
#89 – Valiant Capital – Houston, TX – 5,223%
#157 – Ampla – New York, NY – 3,404%
#180 – LeasePoint Funding Group – Austin, TX – 2920%
#192 – Backd – Austin, TX – 2,819%
#269 – Percent – New York, NY – 2,087%
#1383 – eCapital – Aventura, FL – 422%
#1617 – North Mill Equipment Finance – Norwalk, CT- 354%
#1622 – Oakmont Capital Services – Westchester, PA – 346%
#1837 – Nav Technologies – Draper, UT – 305%
#1942 – Crestmont Capital – Irvine, CA – 289%
#2026 – 7 Figures Funding – American Fork, UT – 277%
#2593 – SBG Funding – New York, NY – 210%
#2929 – 1West – New York, NY – 179%
#2947 – ApplePie Capital – San Francisco, CA – 178%
#3145 – Channel – Minnetonka, MN – 164%
#3737 – Direct Funding Now, Irvine, CA – 128%
#4085 – Smarter Equipment Finance – Las Vegas, NV – 111%
#4094 – iAdvance Now. – Uniondale, NY – 111%
#4651 – Expansion Capital Group – Sioux Falls, SD – 87%
If we missed you, let us know, email email@example.com.
When World Business Lenders (WBL) resumed funding in April, they made it a point to announce that it wasn’t just going to be some regular old reboot with fresh capital. The company was going digital. At the helm of the changes taking place is a new face, John Milligan, who has more than 25 years of experience in maximizing profitability and long-term growth for lending companies. He’s now not only the company’s Managing Director and the Chief Operating Officer but he’s also spearheading loan production. And one of the first initiatives he touted was a more streamlined process for ISO partners.
The company’s ambitions first had to contend with any fallout of having paused lending in the first place, which started on December 9, 2022. At the time, WBL CEO Doug Naidus Cited “unplanned growth given market conditions” as the cause and loan applications in the pipeline that were caught off guard by the unexpected news entered a sort of suspended animation. WBL later secured financing in April that not only enabled the company to resume originating and funding loans “but afforded access to more lending capacity than ever before.”
The resumption spurred a race to revisit those pending deals from five months earlier to see what, if anything, might still be willing and eligible to move forward.
“The merchants in our active pipeline were our first priority,” Milligan said, “and we are pleased that many of them were able to complete their loan once we relaunched.”
That they waited the whole time was a big sign of confidence for WBL. The company’s unique product offering might have played a role in why the borrowers and their ISOs were so patient, however. WBL offers real-estate backed commercial loans in a field of competitors that are mostly pre-occupied with unsecured working capital financing, for example. Although it stands apart, the pace of funding and potential unfamiliarity with the process could be a drawback for ISOs not used to it. That was part of the inspiration for WBL’s “ISO Express.”
“First, ISO Express was conceived based upon feedback from ISOs that a faster, more streamlined program would be beneficial,” Milligan said. “Second, there are many ISOs which are unfamiliar with our real estate collateralized commercial loan products and ISO Express is a perfect introduction for them.”
The ISO Express program consists of 1-2 hour pre-qualifications after submission and 10-day closing guarantees for loans collateralized by residential properties. They accept pledges of second homes, investment properties and primary residences (in most states) as collateral; and say that being in a junior lien position is acceptable. Loans that are to be collateralized by commercial properties can also be submitted through ISO Express but Milligan says those are better suited for their Account Executive channel where ISOs can still engage with a traditional rep.
WBL also simplified their product to a standard interest rate and term, which they feel will make the total loan process faster and easier to understand. Overall, their return to the industry and these changes have led to an outcome that they’re happy with so far.
“In fact, since we relaunched, we have seen an increase in the total of number ISOs registered with WBL,” said Milligan, “driven by a combination of our new ISO Express program, an increased demand by small businesses for capital, and general tightening of credit guidelines throughout the market.”
Block’s Square Loan subsidiary is adding another business loan feature to its arsenal, a monthly payment option “to serve larger sellers who wanted more visibility into managing their cash flow.”
The company had a major quarter by making 119,000 loans for a total of $1.10 billion in originations. The company has consistently ranked among the top online small business lenders in the country.
Square Loans said that 25% of its fixed payment loan customers so far have been “mid-market sellers,” small businesses that process more than $500,000 in annual card payment volume.
Shopify Capital continues to gain momentum, according to the company’s most recent quarterly earnings call. Historically, the company has broadcast its precise business loan and merchant cash advance origination figures for each quarter but this time it held off from doing that. Instead, it emphasized that it had “$719 million in loans receivables and merchant cash advances outstanding on June 30, 2023.” As that figure came straight off the balance sheet, that could be compared to the $629M outstanding in the quarter before. So, receivables went up but originations was not disclosed.
Nevertheless, Shopify explained that Capital was among several business segments that were leading to some of highest cross-sell volumes they have ever achieved.
“The team is working tirelessly,” said Shopify President Harley Finkelstein. “They’re executing it really effectively.”
Enova originated $712M in small business loans in Q2, according to the latest earnings report, up slightly YoY and down slightly QoQ.
Overall, the company says it has been taking a cautious approach even as it continues to grow. There is plenty of demand while the competitive environment remains fairly weak in their opinion.
“During the quarter, we closed our first ever facility secured exclusively by small business lines of credit,” Enova CEO Steve Cunningham said. “The two-year $287 million secured warehouse was priced at SOFR plus 420 basis points. Additionally, last week, we reentered the term securitization market with our first OnDeck deal since 2021. The rated three-year fixed rate $227 million term transaction priced with the blended coupon of 7.7%, demonstrating our confidence in the continued strength of our business relative to our current valuation.”
“…when we look at small business, I think the biggest thing there from a small business perspective is really the organic growth. I think organic growth has slowed,” said Amex CEO Steve Squeri in the company’s Q2 earnings call. Squeri said that this wasn’t just something that Amex was seeing but more of an industry phenomenon.
“…what you saw through the pandemic, is you saw small businesses continue to add and add and add, and you got to remember small businesses use a card to run their entire business,” Squeri said, “and so, there was a lot of buying ahead from a goods and services perspective, from an inventory perspective.”
Delinquencies have been flat at Amex, however, and still remain below pre-covid levels, a feat attributed to the company having made proper adjustments from a risk management perspective.
Squeri said he believes the organic growth will eventually rebound.
“…after the slowdown comes the recovery,” he said.
Business Blueprint, the rebrand of the Kabbage business it acquired, was not mentioned by name in the company’s earnings presentation or 10-Q.