Business Lending

JPMorgan Chase and OnDeck Partner Up

Coming soon, when small businesses apply at a Chase bank for a loan under $250,000, there’s a good chance that OnDeck will be doing all the work. That’s because JPMorgan Chase and OnDeck announced a strategic partnership earlier today that is expected to commence in 2016.

A comment earlier in the day by Jamie Dimon hinted that something was coming. “We haven’t announced it yet, we’re going to be doing a thing with one of these peer-to-peer, small-business lenders,” Bloomberg reported.

That caused peer-to-peer lending industry advocates like Peter Renton of LendAcademy to speculate who that might be. He originally bet on Lending Club but posited that it could also be OnDeck, Funding Circle, or Kabbage.

When I asked Lending Club on twitter if they were slated to be JPM’s partner, I received a public reply back from a VP at OnDeck saying that it would in fact be them. By then the news had already been released.

The SEC filing states, “JPM will use the Company’s small business lending platform and the OnDeck Score® to serve its small business customers” and adds that they’re still in the process of building things out and finalizing agreements.

OnDeck (ONDK) which closed at $9.01 before the announcement is expected to soar on the news for the Wednesday open.

Shark Tank’s Barbara Corcoran Teams Up With OnDeck for Small Business Contest

Barbara Corcoran, co-founder of The Corcoran Group and famous Shark Tank investor, has teamed up with small business lender OnDeck to support entrepreneurs through a contest. Three winners will be chosen for a $10,000 prize and they’ll also get to meet Barbara Corcoran.

Contest applicants are asked to enter what they would spend the $10,000 on to grow their business. The deadline to enter is December 2nd, 2015.

The partnership is significant because it marks yet another time that a Shark has crossed paths with online business lenders. Just one year ago, Kevin O’Leary became a spokesperson for IOU Financial.

Also around that time, Kevin Harrington, an original Shark Tank investor before Mark Cuban or Lori Greiner, co-founded his own small business lending marketplace, Ventury Capital. Straight out of the OnDeck or merchant cash advance playbook, Ventury’s FAQ says their system “deducts a fixed, daily payment directly from your business bank account each business day.”

Watch Kevin Harrington explain his company here:

Of course there was the time that a merchant cash advance company (Total Merchant Resources) actually went on Shark Tank and pitched the sharks…

It seems that the show and the real world have a lot in common.

What Makes a Good Loan Broker? Is it How Much You Fund?

What Makes A Good Broker?

Through the plethora of recruiting ads by brokerages, funders and lenders, trying to draw people into the space through promises of lucrative paydays with minimal work, one has to stop and wonder, who are the actual good brokers? What do they look like, sound like, and dress like? How is their personality? How is their work ethic? How can you spot them in a crowd?

There are a number of things that make a good broker, a good broker, but for the sake of this discussion, I wanted to begin with expectations and measurements of funding volumes.

LIMITING THE MEASUREMENT

A broker can have a good month, a good quarter, and even a good year, so to truly judge the quality of a broker’s work, I believe you have to start the measurement over at least a 24 month time period. This would smooth out things that usually plague sales professionals such as down times, seasonal periods, stall periods, dry spells, artificial market boom and bust periods.

One won’t even be able to complete this measurement on most brokers entering the space, as most of them will be out of the industry within 3 – 6 months. I believe that success in our industry is mainly due to having leveraged resources that give you a competitive advantage, rather than actual superior “selling” capabilities. 20% of brokers will have these resources and 80% will not.

MEASUREMENT TIERS

From my research, these are the measuring tiers that can be utilized to gauge the quality of a broker over at least a 24 month time period. These numbers include both new and renewal funding volumes. With renewal merchants, even though you are dealing with the same client, they still require a new underwriting process with new offers being generated, thus requiring a new sales process or another “close.” As renewals are the lifeblood of our industry, many brokers have a plan in place to build a renewal portfolio and “sit back”, thus we shouldn’t only factor in new deals to this measurement.

• $300,000 plus a month in funding average: The Superstar Broker Level
• $150,000 to $250,000 a month in funding average: The Good Broker Level
• $75,000 to $125,000 a month in funding average: The Average Broker Level
• $25,000 to $50,000 a month in funding average: The Rookie Broker Level

If you have been a broker for at least 24 months, what is your current standing? If you are currently at the Rookie Agent level or the Average Agent level, what do you think you can do to get to the Good Agent level or the Superstar Agent level?

NOT ALL BROKERS ARE EQUAL IN TERMS OF OPERATIONAL STRUCTURE

These measurement tiers are only for individual brokers and not for total funding volumes completed by an entire office of brokers.

But also understand that other variables might be at play for an individual broker as well, such as the fact that he might be a sub-broker to a large brokerage house that feeds him warm leads all day, and his job is just to come in, sit down and focus only on the selling/closing part of the process. Or, he might be a part of a funder’s inside sales team and similar to the sub-broker, he gets warm leads fed to him all day to where he just needs to come in, sit down and focus only on selling/closing.

If you are currently in the sub-broker or inside sales team setup, it’s understandable if you are in The Superstar Broker level as you have more leveraged resources, less responsibilities and more time to dedicate solely to your selling/closing process.

But if you are operating as a One Man Show, like I was, then (in my opinion) it would mean a lot more to consistently perform at either The Superstar Broker level or The Good Broker level, considering all of the administrative/operational tasks that you solely have to juggle on your own.

MY ONE MAN SHOW PERFORMANCE

As my office currently goes through restructuring, during my time of selling the product from late November 2009 until September 2015 (70 months), I averaged $200,000 a month in new and renewal funding volume. This would place me at The Good Broker level.

There were surely months when I funded at The Superstar Broker level of over $300,000 with even some months getting at or near $1 million, but those were not my consistent averages throughout the 5 years and 10 months (70 months) that I sold the product. During the 70 month time period operating as a One Man Show, I had to juggle many administrative/operational aspects including but not limited to:

• Completing my own secondary and primary market research
• Designing my own business plan, ROI formulas, and completing my own trend analysis
• Coming up with innovative ways to creatively and profitably finance my office
• Building business related credit
• Setting up my funder network and keeping up on their underwriting criterion
• Setting up agreements with warm data suppliers and other vendors
• Designing and running my own website
• Setting up and managing my own direct and in-direct marketing campaigns
• Running through my daily calls to warm data (averaged about 150 a day)
• Managing and following up with my sales pipeline
• Managing and following up with my current deals in underwriting
• Managing and following up with my renewal portfolio
• Managing legal aspects such as contracts, LLC requirements, keeping up on marketing laws, etc.
• Managing accounting, insurance and tax related aspects
• Managing retirement account aspects

On the side, I built a merchant processing portfolio on track to process close to $200 million.

To top everything off, I also managed to complete four college degrees (MBA and three bachelor’s degrees) during this hectic and stressful time period as well.

YOU MIGHT HAVE BETTER OPERATIONAL LUXURIES THAN I DID

If you have the luxury of being a sub-broker or a part of an inside sales team, with having a team of people to do a good chunk of the administrative/operational tasks listed above (that I had to manage on my own), then as mentioned, you stand a great chance of getting to and staying in The Superstar Broker level of performance in terms of funding volumes.

You want to just bring to the table a solid work ethic and professional competency, always with the passion, desire and ability to learn. You also want to be very efficient in time management. I believe that time management is a “skill” that must be honed and managed. As the English brewer Charles Buxton said: “You will never find time for anything. If you want time, you must make it.”

Top Lawmakers Request Information About Online Small Business Lending

In the past two weeks, four ranking members of Congress have sent letters to the Treasury Department, SBA, SEC and CFPB requesting information about alternative small business lending. On November 3, Senators Jeff Merkley (D-OR), Sherrod Brown (D-OH) and Jeanne Shaheen (D-NH) sent a letter to the Treasury Department and the SBA requesting information about the impact of marketplace lending on small businesses. The Senators serve, respectively, as the ranking member of the Senate Subcommittee on Financial Institutions and Consumer Protection, the ranking member of the Senate Banking Committee, and the ranking member of the Senate Small Business Committee.

In their letter, the Senators cited concerns of some observers about the regulatory framework governing the space:

Observers have questioned what the appropriate role of federal regulators should be in supervising non-bank companies providing small business capital. Government agencies such as the federal financial regulators, Small Business Administration (SBA), or the Federal Trade Commission may have a role to play, as well as state regulators. However, it is possible that ‘the current online marketplace for small business loans falls between the cracks for Federal regulators.’ As we saw during the crisis, financial markets that fall between the cracks may result in predatory lending, consumer abuse, or systemic issues.

And last Thursday, Nydia Velazquez (D-NY), ranking member on the House Committee on Small Business, sent a letter to the SEC and CFPB inquiring about small business lending marketplaces. Rep. Velazquez cited a 2011 GAO report discussing early developments in P2P lending. Rep. Velazquez noted that in the report the GAO had proposed two approaches for federal regulation of online lending: one SEC-centered and the other CFPB-centered. Rep. Velazquez requested the agencies to provide her with more information concerning their regulation of online lending marketplaces for small business borrowers.

The lawmakers also posed a number of specific questions to the agencies, such as:

1. What are the most significant risks in the market?
2. What authority exists for federal agencies to supervise and examine companies offering online small business loans?
3. What impact is the market having on community banks?
4. How do online business lenders fit in the broader financial regulatory framework?
5. What disclosures are required in small business lending?
6. What resources have your agencies devoted to the regulation of the online lending marketplaces?
7. Do you believe that your agencies possess the necessary legal authorities to protect small business borrowers and retail investors as it relates to the online lending marketplace?

And most interesting:

8. What statutory changes, additional legal authorities, and resources are necessary to support your agencies’ role in the regulation of online lending as it relates to small business loans and extensions of credit?

The recent congressional interest is likely a result of the RFI issued by the Treasury Department regarding marketplace lending. It seems Capitol Hill is also interested in learning more about the topic and, specifically, how alternative small business finance products are currently being regulated.