Business Lending
Thoughts on Inflation, a Recession, and Regulation From Someone Who’s Seen ‘This Movie’ Before
July 7, 2022
“I can tell you that in the US that originators are starting to adjust their underwriting policies,” said David Goldin, CEO of Capify and Head of Originations at Lender Capital Partners, “I don’t know about pricing. I haven’t heard that yet.”
Goldin, who has been a small business finance chief executive for 20 years, believes that the economy, inflation, and interest rates are front-and-center issues that the industry should be thinking about right now. In the UK, one region that Capify operates in, Goldin said that several small business finance executives there are already talking about raising margin and doing shorter term deals to prepare for the increased risk.
“Some originators are smart enough to be proactive and others are saying, ‘oh we’ll just watch it.’ So it’s either going to take trickling down through the economy globally or defaults to go up for these adjustment to happen,” he said.
During the Great Recession of ’08/’09, Goldin was right in the thick of it as the CEO of AmeriMerchant, one of the first MCA companies in the US. He explained that there’s a notable difference between now versus then.
“One of the things that didn’t exist back then, someone doing a second [position] was like unheard of in 2008,” he said. “Now, what is it now? first, 2nd, 3rd, 4th, 5th? 6, 7, 8, 9. It’s like a horse race. Ten horses in the race in some cases. […] You have to be careful, right? You have to make sure you’re covering your margin by charging enough and going shorter.”
But in a competitive environment where nobody wants to reveal their cards or risk losing business, not every funder is keen to start making changes right now. Goldin said that many funding companies will wait to see if their competitors start tightening up first especially if they’re driven by their ISOs and brokers. The downside of becoming more conservative is that brokers might just decide to take all of their business elsewhere.
But a looming recession isn’t all bad. “There are some positives,” he said. “The positives are the banks do tighten up. It’s just a question of when not if. So, you may get applicants that come to alternative financing that may have never taken or considered these types of products because they got bank financing.”
Complicating the landscape now, however, is that funding companies are wrangling with new state regulations. Goldin is aware of several originators that have temporarily paused business in Virginia, for example, where a disclosure requirement went into effect just last week. The soon-to-be implemented New York and California laws are also causing rumblings about funding suspensions respectively. In each of those states it was “sales-based financing” products that were specifically targeted, a trend that looks sure to continue as states like Maryland, Connecticut, and others are determined to reintroduce disclosure legislation next year.
“I think more and more originators will eventually get away from the MCA model,” Goldin said, “and go more towards the business loan model by partnering with a bank. I think you’re going to see more companies trying to implement bank programs to become full business loans and not deal with all the nuances of a state by state and MCA program.”
Goldin’s point of view, wisdom, and predictions are aggressively sobering. Only three months ago, industry sources were telling deBanked that their outlook for 2022 was optimistic and that the end of covid-era government stimulus suggested that there would be growth for non-bank finance companies. Suddenly the tone has shifted, the stock market has plummeted, and interest rates are rising.
“I think if you resurveyed originators now, I think you’d get a different response than you did eight weeks ago or even four weeks ago,” Goldin said. “I can tell you right now that capital providers are asking their originators about how they’re making adjusments in this environment…”
Indeed, deBanked did speak with several players just last week and did notice that the general sentiment had shifted to one of concern and caution.
“I think funders should be thinking about redundancy,” Goldin said. “More than ever the best time to raise capital is when you don’t need it. And I don’t know if [funding sources] will pull lines, yes if defaults go up, but they may not be as inclined to enter into new relationships in this environment.” Because of that, now might be the last best opportunity to secure additional credit sources even they’re not necessarily needed, he suggested.
With that, he said that funders should be thinking about tightening up the bottom of their credit profile, increasing their margins, doing shorter term deals, looking for more mature businesses, and working with businesses with higher credit scores.
“I think that those that don’t make credit adjustments, raise margin, and go shorter are going to have their you-know-what handed to them,” he said. “I’ve seen this movie too many times. It doesn’t have to be called a recession. […] It’s all about affordability to repay, and the more debt [the customers] have, and the more their margins are squeezed, or the more their sales go down. That’s when problems begin. You’re less likely to have a problem if you’re only out six months instead of eighteen months. I’ve used this saying a million times: ‘When the ships are too far out to sea and it’s a tidal wave, you can’t get them back.'”
Have You Heard of Jeeves?
July 6, 2022
Founded in 2020, the expense management platform Jeeves, recently won the Small-Medium Sized Business Lender Award from the Canadian Lenders’ Association. Jeeves is a Y-combinator company providing financial services internationally, and with their recent success the company has been able to operate in 24 countries.
“I think the number one thing that all of us at Jeeves would agree on is that we intently listen to our clients, we understand that we try to understand the pain points and therefore try to match those pain points or client demands to work with our skill sets,” said William Lam, Jeeves General Manager of North America.
Lam oversees the market activities for the US and Canada. An expense management platform, which the company labels its product as, is essentially a platform used to track expenses. Compared to platforms like QuickBooks, Jeeves integrates with the software rather than competes against it.
“We focus on providing financial services, not accounting software, for international startups and fast-growing companies. We are excited to continue to enhance the Jeeves platform and integrate with more accounting software in the near future,” said Lam.
According to the Dictionary, the term Jeeves is defined as a butler or valet which resonates with the behavior that the company tries to model.
“We want to remind ourselves, that we need to be providing the type of services and products that our clients need, and nothing beats a happy client. And therefore, we came up with that name, Jeeves, and that’s the mode of writing that our CEO and founder has been living on a daily basis with the rest of his team,” said Lam.
During Covid many businesses suffered tremendously in Canada, but for Jeeves it helped the company to grow and expand.
“For us as a company, as a FinTech company, that aspires to provide financial services globally, I think the pandemic fueled growth, and we’re experiencing like 900% growth since our Series B,” he said.
For loans, Jeeves focuses on corporate card solutions which upon approval allows clients to get funds in 48 hours and can be paid back in 12 monthly payments.
“So specifically, we launched our growth capital products as of just last month in June. Growth capital is a non-diluted revenue-based financing that’s very suitable for a lot of SaaS businesses specifically, and the clients are able to get the loans,” said Lam.
Lam believes there is still a lot of work to be done to complete the vision of becoming a global finance company with hopes of launching in more countries, more products, and more news to share.
“We service a lot of the small businesses as far as like unicorns, or unicorn startups, we’re very proud of the achievement so far. But I think that this is just the beginning,” he said.
Small Business Finance Industry Ponders Inflation, Changing Economic Conditions Ahead
July 1, 2022
“I think what’s really important is just the same for our businesses and any business, is being able to make sure that as things change, you’re updating and changing what you’re doing,” said Seth Broman, Chief Revenue Officer at Yardline.
With the constant changes in the economy, inflation being on the rise, and a rumored recession, businesses providing financing are analyzing whether or not their customers will be able to withstand challenging times ahead.
“For us a big factor is the increased costs of being able to source goods from overseas, for example, the challenges around getting those goods in a timely fashion,” said Broman. “That’s the first thing we saw. And then similarly, in the e-commerce space, you’re seeing brands that aren’t able to sell at the same level as they were beforehand.”
Like Broman, John Celifarco, a Managing Partner at Horizon Funding Group, acknowledges that inflation is directly affecting his customers.
“It’s definitely going to have an effect on the industry as a whole in terms of our clients, I’d say it’s going to affect certain ones more than others, depending upon how their business is structured, and what type of relationship they have with their customers,” said Celifarco.
And with recent concerns for a recession, Celifarco believes this won’t affect a client’s willingness to borrow but rather the ability to get them approved.
“Having seen this in the past, there have been times where the economy has slowed or there’s been a recession, and the customers still want money, but because of the trouble the businesses are having it’s a lot harder to get people approved on the lending side,” said Celifarco.
Not being able to access credit for customers is also an area of concern for Luis Hernandez, CEO of CapLadder.
“There are going to be more cash constraints in a recession. Obviously, funding companies won’t want to take on certain risks so they’ll obviously be more careful on how they disperse those funds just to make sure they’re getting paid back,” said Hernandez.
Hernandez suggests companies should limit hiring and expenses to better weather the storm.
“With the recession looming, and pretty much it is going in this direction, the best practices right now are what’s always been tried, which is, hold on to your reserves. Cash is definitely better in your pocket than out there,” he said.
NextPoint Financial Formally Announces End of LoanMe Business
June 23, 2022
Less than a week after word spread that LoanMe had stopped originating business loans, NextPoint Financial, LoanMe’s parent company, confirmed it in a formal announcement.
“Given current market conditions, the Company announces that LoanMe, Inc. (“LoanMe”), a subsidiary of the Company, will cease loan originations,” the statement read. “As a result, LoanMe has reduced its workforce and will continue to service outstanding loans that were previously originated. The Company decided to make these strategic changes to the business of LoanMe to better reflect the areas of focus and growth at NextPoint and to take into account existing market dynamics.”
The circumstances with LoanMe have apparently contributed to NextPoint’s failure to file its year-end 2021 and Q1 2022 financials, which are claimed to be forthcoming. NextPoint is publicly traded on the Toronto Stock Exchange. The sunsetting of LoanMe is oddly timed given that NextPoint only just acquired LoanMe last year and because LoanMe was one of its two primary business operations. NextPoint was a SPAC that also acquired Liberty Tax at the same time.
Although NextPoint cites “current market conditions,” a recent lawsuit filed by LoanMe against a loan servicer suggests that there may have been other issues at play as well.
LoanMe Has Stopped Originating Business Loans
June 15, 2022
At least two public-facing employees of LoanMe have stated that the company has stopped originating business loans. Both believe that this is permanent.
The news may seem rather abrupt given that NextPoint Financial, a new publicly traded SPAC, just completed its acquisition of LoanMe less than a year ago. NextPoint apparently had second thoughts because in March it announced that it may have overpaid for LoanMe after reviewing its financial calculations. It stated that it would commence a review of the matter and report back. No determination to that end, if one were made, was subsequently announced.
NextPoint has since delayed filings of its year-end 2021 and Q1 2022 statements on the basis that it had not yet been able to finalize the books for LoanMe and another newly acquired subsidiary named Community Tax LLC. In doing so, it did not suggest that anything was awry.
Separately, however, LoanMe sued a loan servicing company in Delaware Superior Court on May 9th under seal for allegedly breaching a contract. The case was unsealed on June 10th. Three days later, two LoanMe employees say that they received notice that the company was shuttering.
The Senior National Accounts Manager wrote on social media, “yes, LoanMe is permanently closing. The powers that be at our parent holding company, NextPoint Financial, decided it was time to pull the plug.”
Credibly is Making Moves
June 14, 2022
Michigan-headquartered Credibly has confirmed it acquired ProApprove, a specialty finance company offering home improvement financing solutions. The deal, which it said actually took place in 2021, is now front-and-center because of an agreement Credibly has secured with Castlelake, a global alternative investment firm, for the purchase of up to $350M in home installment contract receivables originated by ProApprove.
“Through conversations with contractors who obtain financing from Credibly, we identified a significant market opportunity in the home improvement space,” said Ryan Rosett, co-founder and co-CEO of Credibly.
“We are pleased to support the expansion of ProApprove’s home improvement financing program at a time when there is increased demand for financing solutions from homeowners across the U.S.,” said, Matt Little, Partner, Global Specialty Finance and Business Development & Capital Markets at Castlelake. “We believe that ProApprove’s parent Credibly has established itself as an experienced commercial lending platform with a keen focus on risk. We believe this transaction provides an opportunity to support a new product for Credibly in a historically underserved consumer market.”
The news follows the announcement that Credibly had secured a $50M credit facility for its core small business lending business. At the time, Credibly CFO Michael Seneski said of it, “The cost savings resulting from the refinance, coupled with the new financing facility, further solidifies our position as a leader in providing capital to SMBs and will be used to accelerate our aggressive growth trajectory.”
Credibly was founded in 2010.
The Company That Acquired Alchemy Technologies is a Small Business Lender
June 9, 2022
The sale of Alchemy Technologies to Business Warrior was announced on Thursday. The sale price of $8.75M ($2.25M in cash), is more than 3x Alchemy’s 2021 revenue of $2.8M.
While Business Warrior describes itself as “the source for small businesses in America to get more customers,” its homepage leads with a pitch for a working capital loan. “Our goal is to give you access to funding before you need it so you can grow without the restraints set on you by your bank,” the website says.
Business Warrior provides loans from $5,000 to $100,000 with interest rates as low as 7.97% and with terms between 12-36 months. It also offers marketing, software, and scaling solutions.
“After working with Alchemy, we quickly realized the massive potential of adding this international group of industry leaders to the Business Warrior team,” said Jonathan Brooks, Business Warrior President, in a press release. “With our Business Warrior platform, premium marketing, and now a global lending technology presence, we are building solutions that propel the success of small businesses.”
“We are so excited about joining the Business Warrior family!” said Timothy Li, CEO of Alchemy. “This move provides Alchemy with the additional resources, tools and capital necessary to enhance our service to customers. Both companies believe small business owners are the lifeline of local communities. By bringing Alchemy and Business Warrior together, the positive impact on these communities is going to be worldwide.”
Business Warrior is publicly traded under the ticker (OTC: BZWR).
Grand Opening of Latin Financial’s New Office Joined by Public Officials, Family, and Friends
June 4, 2022
Just a few miles outside of Hartford, cars exited the highway and advanced towards a quieter part of Connecticut. The aptly named “Beaver Road” is home to Wethersfield’s US Postal Service building on one side and the Connecticut Farm Bureau building on the other. Drivers veered towards the latter and pulled into a parking lot situated behind a literal babbling brook. There are other tenants besides the Farm Bureau in the expansive brown-bricked commercial-use building as indicated by a sign outside, but the business that people had come to celebrate hadn’t even been added to it yet.
Nevertheless, the blue and white balloons waving in the wind outside the back entrance were a clue that this was the right place. Inside, on the first floor, a line of people found the large plated logo of Latin Financial, a small business that helps other small businesses obtain working capital.
Already personally acquainted with the firm led by Sonia Alvelo, she led myself and others on a tour of the company’s new space. Latin Financial employees were easily identifiable by their blue company shirts, but others wore green to signal that they were part of a sister company named Sharpe Capital. Sharpe is spearheaded by Brendan P. Lynch.
Both brands previously operated in nearby Newington but outgrew what they had. When the ceremony officially kicked off with some impromptu speeches, the prominence of those assembled became evident. It included, among others, the Better Business Bureau, the local Chamber of Commerce, and the Connecticut Children’s Hospital.
Wethersfield’s mayor, Michael Rell, was also there. Rell welcomed Latin Financial to the neighborhood, echoing the note sang by other government officials.
Connecticut State Senator Matthew Lesser shared his appreciation for Alvelo and her company’s mission to provide capital to underserved small businesses both in the state and across the nation. Lesser explained that the state legislature had recently decided to delay a proposed commercial financing bill (Senate Bill 272) so that it could further assess the input from companies like Latin Financial and the potential impact it would have before moving forward. A version of the bill will be reintroduced next year.
Meanwhile, Joseph Rodriguez, Deputy State Director for US Senator Richard Blumenthal’s office, said that he was impressed by the company’s accomplishiments and contributions to the community. He presented Alvelo with a Certificate of Special Recognition signed by Blumenthal in honor of her new office and for her service to Connecticut Small Businesses.
Werner Oyanadel, Latino and Puerto Rican Policy Director at the Connecticut General Assembly’s Commission on Women, Children, Seniors, Equity & Opportunity, said that Alvelo had “been a good partner of [their] work at the Capitol” and that “Latin Financial is filling a big void assisting new businesses and Latino entrepreneurs’ access to needed reources.”
Employees of both Latin Financial and Sharpe appeared excited by all the fanfare while friends and family members were proud to share in the moment. Alvelo ceremoniously cut a blue ribbon for the cameras and in conversations that followed it became known that they were hiring.
Alvelo has previously spoken at Broker Fair in New York and deBanked CONNECT Miami. She has been a primary source of information for deBanked since 2016 on matters regarding small business financing in Puerto Rico.
