Business Lending
Bernie Sanders is Probably Not the Marketplace Lending Candidate of Choice
January 6, 2016
Perhaps the fastest way for Americans to become deBanked is to elect Bernie Sanders as President. In a proposal he laid out on Tuesday, Sanders pledged to break up commercial banks, shadow banks and insurance companies that he believes are “Too-Big-to-Fail.” While not everyone would be especially sad to see something like that happen, there’s a whole bunch of other reasons Sanders might not be the marketplace lending candidate of choice.
Here’s a summary of what he said:
- The Business Model on Wall Street is Fraud.
- All consumer loans should have an interest rate cap of 15%.
- Lenders who charge more than 15% are awaited in the Seventh Circle of Hell.
- Quote: “Today, we don’t need the hellfire and the pitch forks, we don’t need the rivers of boiling blood, but we do need a national usury law.”
- Big banks need to stop acting like loan sharks and start acting like responsible lenders.
- Post offices should become government banks so that free market lenders will go out of business.
While Sanders admittedly said we don’t need the rivers of boiling blood, a large portion of lenders, marketplace lenders included, apparently have a special place in hell reserved for them. His over the top statements come on the heels of a gaffe, in which he revealed very publicly on twitter his ignorance over how loan underwriting actually works.
Will you be voting for Bernie Sanders this primary season?
Meet the Lending Platform With 0% Interest (Kiva)
January 6, 2016
Chany of Angela’s Boutique in Philadelphia, PA needs $5,000 to help purchase new signage and lighting to improve her storefront. She’s been turned down by banks even though she’s been in business for more than five years. 61 participants have already contributed to her loan thanks to a marketplace lending platform, which puts her very close to her goal. If it funds, all of the participants will get back their principal from her payments over the next 24 months and NO interest.
Meet Kiva Zip, the anti-Lending Club because the borrowers are far from anonymous and the yield delivered to investors is negative due to inflation.
Angela’s Boutique, which is a real prospect on the Kiva Zip platform, includes a picture of the owner, her bio, endorsements, and comments from supporters.
According to Jessica Feingold, Kiva’s East Coast Manager of Development, “Kiva is the world’s first and largest crowdfunding platform for social good with a mission to connect people through lending to alleviate poverty and expand economic opportunity.”
And just like Lending Club, contributions as small as $25 are accepted. Obviously structured as a non-profit, “Kiva and its growing global community of 1.2 million lenders has crowdfunded more than $775 million in microloans to over 1.7 million entrepreneurs in 83 countries, all the while maintaining a 98% repayment rate,” according to Feingold.
Normally thought of as an overseas endeavor, Feingold said that “in 2011, Kiva launched Kiva Zip, a pilot program in the US that provides 0% interest crowdfunded loans to small business entrepreneurs.” Their underlying purpose and target market sounds very much like those being served by for-profit alternative lenders. “Kiva doesn’t require a minimum FICO score, collateral, or a minimum operations period for the business,” Feingold said.
Since inception they’ve made loans to over 1,800 borrowers in 47 days states, Peru, and Guam.
Notably, Lending Club promises borrowers that their “identity will at all times remain confidential and not be disclosed to anyone,” according to their website. Kiva by contrast is looking to “instill empathy” in their lenders. “We want to show that whether in East New York or Uganda, underserved entrepreneurs are credit-worthy, and will pay you back,” Feingold said. “All of these features on the Kiva websites enhance our ability to do so.”
While there is definitely a certain allure about being able to see the borrower for yourself, the concept seems to fly in the face of Dodd-Frank’s Section 1071 which stipulated that lenders are prohibited from knowing the sex and gender of business loan applicants. While the CFPB is not currently enforcing the law until the rules can be clarified, Democratic members of Congress have been pushing them to take action.
According to the law, no loan underwriter or other officer or employee of a financial institution, or any affiliate of a financial institution, involved in making any determination concerning an application for credit shall have access to any information provided by the applicant about whether or not the business is women-owned or minority owned.
As small businesses often celebrate the heritage of their founders, and at times that can be the entire reason customers buy from them in the first place, the law has presumably put the small business lending world in an awkward position (and that’s why the law should be repealed). Non-profits like Kiva have embraced the very things that make a small business bankable outside of a credit score, like the owner, their background, and their story.
Borrowers on the Kiva Zip platform don’t raise all the money from strangers though. Their credit-worthiness is based on their ability to recruit friends and family to fund a small portion of their loan. The other lenders though of course may make their decisions based on the numbers or entirely on the perceived cultural, racial, or gender values of the borrower, all of the things that the CFPB is attempting to eradicate in the for-profit arena.
I didn’t ask Kiva any questions about Dodd Frank or Section 1071, but many people might empathize with their empathy approach as a way to fund small businesses that otherwise don’t qualify for bank loans. Its reminiscent of the subjective underwriting that a lot of alternative lenders and merchant cash advance companies employ to get deals done that banks won’t touch.
Not so coincidentally, Fundry, Yellowstone Capital’s parent company, donated $25,000 to Kiva just last month to support their cause.
Kiva’s Feingold (pictured at center above) said in regards to that, “Kiva is thrilled to receive a grant from Fundry to further our work to make credit more affordable.”
deBank the World: See the Times Square Ad Campaign LIVE
January 1, 2016If you didn’t make it to Times Square for the New Year’s Eve celebration, you’re probably a lot better off. But if you’re not going to be in that neighborhood any time soon either, you can still catch a LIVE glimpse of three very important company logos that are broadcasting on a video billboard above 43rd and Broadway. (hint: look at the top left)
The deBanked ad in particular, which only makes a handful of appearances every hour in the rotation, can be viewed in the continuous live stream hosted by Nasdaq. (Update: The ad was retired in early 2016)
What isn’t visible is the half of the screen that wraps around the building. On that side is the story produced by BizBloom, the company behind the campaign. In the video above, you will occasionally see the logos for deBanked, BizBloom, and Quick Bridge Funding in the top left hand corner. The live stream has the ability to rewind up to the previous 3 hours. So if you don’t want to wait, rewind to different parts until you spot them.
Below is the video footage you can’t see that wraps around the other side of the building:
The purpose of the campaign, according to BizBloom’s Thomas Costa, is to tell the story of the American Dream, particularly the struggles and accomplishments of entrepreneurs.
Happy New Year.
‘Twas the Day Before New Year’s for Funders
December 31, 2015
‘Twas the day before New Year’s, and all through the floor
The staff was busy catching up, but being pushed for more
Submissions kept coming, most missing some stips
The most simplest of standards, the brokers always miss
The underwriters were dizzy, crunching numbers for hours
Getting hustled for approvals because they hold all the power
And management holding meetings, going over collections
Returns and defaults, and next year’s projections
When out of the blue, there arose such a clatter
The originators sprung up to see what was the matter
An announcement being made, attentive they listened
“Employees of the company!” said a face that glistened
With cheer in his eyes, and a non-familiar glow
Everyone was excited and frightened at the same time to know
He continued to explain, news that was both bad and good
Reflecting on the year, in terms they understood
With a lot of fluff talk, numbers, and percents
They knew at that moment, how it all made sense
Understanding their roles, and those who contribute
Appreciating their time and how they distribute
Now, closers! Now, admins! Now, marketing and relations!
Now, underwriting and sales! Anyone who had patience!
To the breakroom! To the breakroom with you all!
And they all huddled in, without an argue or a brawl
There on the table sat a wonderful spread
Snacks and desserts, more than enough to be fed
Stuffing their faces with enough food for two
The staff laughed and chatted though there was so much to do
“We can’t take a break! there’s so much to complete!”
“Though this is more than I ate all this week!”
This much is true- as many don’t know
They don’t leave their desks often, like elves at the North Pole
So back to their seats, with plates by their side
Back to reality, but they did it with pride
The realization of all of their hard work
It isn’t all that bad when you look at the perks
As the manager swung by to view his whole team
He realized it too, what isn’t always seen
It takes more than just one, it takes more than just vision
It takes a plan and people, to carry out the mission
As the time grew later, he knew what to do
Since nothing was funding in the late afternoon
He had another announcement which he said with great cheer
You’re all getting out early and have a Happy New Year!
Year of The Broker Concludes – 2015 Recap
December 31, 2015
It was the Year of the Broker, a phrase that often conjured up images of easy money and inexperience. Lenders like OnDeck reacted by reducing their dependence on them. Responsible for 68.5% of their deal flow in 2012, OnDeck only sourced 18.6% of their deals from brokers in the third quarter of 2015.
But there’s money being made. One broker is on pace to do more than $100 million worth of deals annually after working as a plumber eight years ago. Another went from sleeping in his car to driving a Ferrari. Meanwhile, brokers like John Tucker are basically saying just the opposite. Tucker has repeatedly taken to deBanked to preach things like “minimalism,” a practice of living below your means to a point where you can survive, and telling everyone it’s okay to embrace the satisfaction of a middle class life.
So is it the end of days or just the beginning?
In October, initial survey results of top industry CEOs revealed a confidence index of 83.7 out of 100, but out there on the street for the little guy, it’s been a tumultuous year. Things like commission chargebacks have hit brokers at unexpected times, with several funders privately telling us over the year that rogue brokers have closed their bank accounts or frozen the ACH debits in order to avoid giving the commissions back.
In 2015, brokers sued their sales agents and sales agents sued their employing brokers. Deals got backdoored, deals got co-brokered, and soliciting deals anonymously got banned from industry forums. Stacking continued mostly unfettered but is being pursued in the court system by funders allegedly injured by it. Brokers took over Wall Street and are supposedly being watched by regulators. Oh, and robo-dialing? Brokers should probably steer clear of that, just as underwriters should ditch paper bank statements.
It’s a lot to manage. Sometimes for a broker, just losing a deal can make them so sick that they have to go home. That’s apparently what happens when you don’t answer the phone fast enough. At least one said there’s no room left for more competitors so if you were thinking of starting a brokerage now, $2,000 won’t be enough.
But things could be worse. In 2015, IOU Financial was under attack by Russian nuclear scientists, a story that was more truth than exaggeration. In the end, Qwave Capital acquired a 15% stake in IOU.
An OnDeck class action lawsuit that looked bad at first turned out to be mostly based on the words of a convicted stock manipulator with a short position in the stock. The case is still ongoing and OnDeck’s stock price is down 50% from their IPO.
In 2015, two guys lost God but found $40 million (although numerous sources say that number is off).
“Madden” no longer means the football video game and Section 1071 is not a seating area in a stadium.
An RFI turned out to be something not to LOL about. Despite an overwhelming response from lenders and funders, the Treasury isn’t completely sold.
Things weren’t so automated in 2015 despite the cries of technological disruption. Maybe that’s why it feels like 1997. Manual underwriting still dominated and bank statements still matter as much as they ever did. God declined loan applications, Google rigged the search results, and a mayor declared war on merchant cash advance (and then never spoke about it ever again after being re-elected).
Lobbying coalitions formed. NAMAA became the SBFA. The CFPB lied and community bankers testified.
But things are looking up. Brokers can obtain outside investments, get acquired, or make millions through syndication.
Bad Merchants are now ending up in more than one bad database, though a deal for the ages slipped through the cracks. Other merchants went to jail. Square went public and brought merchant cash advances along with them. The industry beamed its message through Times Square and one Democratic congressman has asked God to bless it all.
It was a crazy year. Marketplace lending became an acknowledged term (and the name of a conference) and already companies under that umbrella have been linked to presidential candidate (and desperate loser) Jeb Bush and the San Bernardino Terrorists. The FDIC had a few things to say and SoFi went triple-A. Marketplace lending is making a lot of people money, but when looking at the tax implications is there something funny?
In 2015, the big boys shared their wisdom and their figures. Turns out, it was beyond hyperbole. Brokers experienced an incredible rise or they pawned their ferrari to the other guys. Some focused on a specific crop, while others are trying it over the top. California sucked, John Tucker tucked, and one lender got totally F*****. In 2015 some funders got tanked, so in 2016 we’ll all be deBanked.
Happy New Year!
Details Emerge About the OnDeck – JPMorgan Chase Deal
December 30, 2015
The Wall Street Journal recently published many details about the recent OnDeck/JPMorgan Chase deal that everyone has been wondering about. Here are the cliff notes:
- OnDeck will get fees to originate and service loans for Chase up to $250,000
- Chase’s small business loans will have terms of 6, 9, and 12 months
- Chase customers won’t know OnDeck is involved at all
- OnDeck will not get Chase’s declines
- OnDeck will process Chase’s business loan applications in a matter of hours instead of weeks
Perhaps most interesting of all is that Chase will be doing 6-12 month small business loans. 2016 should be a unique year. With a Chase loan approved in hours, the days of banks taking weeks or months to underwrite an application will be a thing of the past.
The First Ever Comprehensive Industry Report is Now Available
December 29, 2015
Months ago, investment bank Bryant Park Capital teamed up with us to conduct the first ever industry CEO survey of its kind. A sample of the initial findings were distributed at Money2020 in Las Vegas. Eligible participants that disclosed their identities to the surveyors have already received a complementary copy of the full anonymized report.
Today, those that either weren’t eligible to take the survey or missed the deadline to participate, can buy a copy of it.
With a sample size of small business funding companies that originate more than $2 billion annually, the final report reveals the industry’s Compound Annual Growth Rate, Average Annual Revenues, Average Annual EBITDA, Portfolio Loss Rates, Approval Rates, M&A Expectations, Valuation Expectations, Syndication Data, and much more.
This report is highly recommended for all funders and ISOs seeking to raise capital or for those that want to eventually sell their company. It’s also a must-have for any company that seeks to set short-term or long-term goals, that wants to compare themselves against the industry, or is creating a realistic business plan.
Investors in the industry also stand to benefit from this data.
If you are interested in buying the full report, e-mail sean@debanked.com.
The original report sample for public distribution
Mentioned in Forbes
Bryant Park Capital’s professionals have completed approximately 400 assignments representing an aggregate transaction value of over $80 billion.
Funding Brokers: Critical Thinking is Greater Than Positive Thinking
December 28, 2015
THE NEW THOUGHT MOVEMENT HAS TAKEN OVER THE SALES PROFESSION
Somewhere between the 19th and the current 21st century, the profession of sales as a whole integrated the concepts of the New Thought Movement, going so far as to actually shape the mantras, slogans and thought processes of salespeople everywhere.
In my opinion, the New Thought Movement has the potential to do far more harm than good, because it does not emphasize the importance of individuals learning how to critically think. It has an over-reliance on positive thinking and positive faith, with a complete disregard for critical thought and analysis. When a person fails to critically think, they can easily fall prey to scams, manipulation, brain-washing, etc. and even mismanage their finances through various forms of impulse (emotional-based) spending. As a result, for whatever amount of good that the movement does, in my opinion, it has the potential to do far more damage, such as the damage that I believe it has done to the sales profession.
THE HISTORY OF THE NEW THOUGHT MOVEMENT
It started in the 19th century with the promotion of ideals by philosophers such as Napoleon Hill, that life begins in the mind and that the quality of your life would be based on your level of positive thinking and positive faith. The mantra of the movement is that if you maintain the right level of positive thought processes as well as keep high levels of positive faith, then you can “attract” to you whatever you desire, which usually centers around materialistic items like fancy cars, shallow things like very attractive mates, significant wealth, or good health and wellness.
By the 20th century, the movement would eventually spread to various religious denominations in the form of the prosperity gospel (the word of faith movement), promoted through television evangelists and the vast majority of mega churches throughout the country.
By the 21st century, the movement would spread to even more authors and even film producers with the 2006 film “The Secret” which also included a book version of the ideals promoted during the film.
It was also by the 21st century that the movement had been fully ingrained into the vast majority of sales training material, which would serve as the foundation for a lot of what I deem to be “issues” of the sales profession today. These being the utter lack of critical thinking and critical analysis which leaves too many sales people as mindless, robotic, and routine order-takers, rather than strategic thinkers, innovators, and business developers.
NEW ENTRANTS TO THIS INDUSTRY ARE INSPIRED BY TECHNIQUES FROM THE NEW THOUGHT MOVEMENT
Since this year’s March/April edition of deBanked Magazine, we have talked about the Year of The Broker as it relates to the surge of new brokers coming into the space. These new entrants are inspired by funders, lenders and large brokerages using techniques from the New Thought Movement.
The rah-rah sales motivational speech that’s provided to these new brokers is founded mainly on the New Thought Movement. The people recruiting these new brokers into the space get them to dream about:
- Getting out of debt
- Moving out of their mother’s basement
- Living in a big/fancy house
- Having a very attractive mate on their arm
- Driving a Mercedes Benz S-Class
- Making $25k, $40k, or $50k per month
- Being “the man” in the nightclub, buying up all of the drinks and being the life of the party
They would sum up their rah-rah sales motivational speech with simply, “As you think, so shall you become,” quoting the great Bruce Lee.
Thoughts that arise of a critical nature that look for more market research, market planning, trends, innovative solutions, ROI analysis, and other forms of foresight are either quickly shunned as “over-thinking” or “negative thinking”. You might flat out be kicked out of the room where the rah-rah sales motivational speech is being conducted, with accusations of having “stinking thinking.”
THIS ISN’T ROCKET SCIENCE, IT’S CRITICAL THINKING
The New Thought Movement’s over-reliance on positive thinking and positive faith can be detrimental to personal growth. Being a part of the Mom and Pop Network isn’t necessarily a bad thing, as I have operated within the Mom and Pop Network, but what’s shortsighted is not giving brokers all the tools they need to think critically and truly be successful.
For you to survive, you are going to need to have resources that the vast majority of other brokers don’t have access to. Relying on UCC records and Aged Leads (that every other broker is calling on), isn’t going to cut it. You are going to need resources that provide you with a significant market competitive advantage which includes but isn’t limited to: having better data so you can produce your own exclusive internal leads, having “center of influence” partnerships with banks, credit unions, and other professionals, having access to creative financing in the form of either equity or debt, among other advantages. These advantages will not just give you a leg up over other brokers in the market, but they are truly the key to your long term survival.
A FINAL WORD
In my opinion, The New Thought Movement does more harm than good, by not emphasizing the importance for individuals to learn how to critically think.
We are living in the day and age where to survive in any professional sales environment, you are going to have to be more of a critical thinker and do things outside of “the box”, versus being the stereotypical smiley faced, overly optimistic, robotic, sales guy, that’s incapable of true “independent thought.” You want to be the sales guy that thinks and operates outside of the box, which is basically this bubble in which everybody else is operating and thinking within. You can’t achieve this unless you first embrace cynicism by taking a long hard look at this box, poke holes in it, discover new ways to profit, and then blaze your own trail.
Being cynical, pessimistic and “negative” are the first steps towards becoming an excellent critical thinker, even though they will not make you feel as “good” as compared to that of being optimistic and positive. But in that regard, I must quote Dave Ramsey in that: Children do what feels good. Adults make a plan and follow it.
Critical thinking doesn’t feel good, but you can’t properly plan without it.
