Business Lending

Have Your Marketing Response Rates Changed?

Notice anything different with your marketing response rates lately? OnDeck has…

During the OnDeck Q2 earnings call yesterday, company CEO Noah Breslow said, “there are no two or three competitors dominating this trend (direct marketing), but we know the sheer number of marketing solicitations targeted to small businesses has grown meaningfully over the last six months which impacts our response rates.”

The comments were interesting because while they opposed any correlation between the increased competition and their continuously declining interesting rates, it was an acknowledgement that they are not alone in their marketing efforts, nor are their marketing methodologies proprietary.

The comment was focused mainly on direct mail campaigns and Breslow argued their strategy was to “break through the clutter” and “better communicate our value proposition.”

“Competition for customer response remains elevated,” he later added.

OnDeck still managed to fund $419 million for the quarter, up only $3 million from the previous quarter, but a 69% increase over the same time period a year ago.

During the Q&A which was unfortunately not part of the recorded transcript so I will paraphrase as best I can from memory, a few analysts inquired deeper about the competition.

One wondered if their competitors’ marketing efforts were sustainable or if they were simply on a market share binge and would eventually go away. Breslow said there would probably be a combination of both, that some would continue to stick around long term and others might fall off. It was a safe answer because while some of their competitors may indeed have high acquisition costs, there are still profits being made and nobody should expect the competition to subside any time soon, if ever.

Breslow also shared that the competition was bidding up the price online, talking at least in part about Pay-Per-Click marketing.

OnDeck shed more Funding Advisors (brokers) in Q2 than they expected to because of their “re-certification program.” Brokers either didn’t make the cut or would not go through the program. Only 20.6% of their loans were originated by brokers in Q2 of this year as opposed to 30.8% during this time last year. Brokers brought in bigger loans though on average because they made up 28.4% of the dollar volume of loans originated this year. Last year at this time they made up 42.9% of the volume.

OnDeck has managed to grow despite their dwindling reliance on brokers and a marked increase in competition.

Have your direct mail and online advertising response rates changed recently? If OnDeck has taken notice, surely you must have too…

Update: You can read the full transcript of the call here, including the Q&A

New Funding Brokers Struggle As Industry Grows

Here’s a few things that will have you scratching your head.

1. A new sales agent recently took to an industry forum to ask for help with ACH processing. According to him, he charged a closing fee on a loan that closed and then realized that he had no idea how to collect the fee. His problem was perplexing because he had the merchant sign an agreement that authorized him to debit the funds out despite not having an ACH processing account.

Some sympathetic veterans advised him to have the merchant write him a check, but others were too dumbfounded by his use of an ACH agreement when he did not know anything about ACH. The agreed fee was probably too large to write off as a mistake so hopefully the merchant will understand and write him a check for services rendered.

The lesson: If you don’t know how to do something, don’t guess. The agent would’ve been in a much better situation if he had asked how to collect fees prior to drawing up an agreement that referred to a methodology he had no familiarity with.

2. A semi-seasoned sales agent griped about a recent experience on an online message board about a business lender that stole his deals and turned out to be a repeat felon. The broker community was not sympathetic when they learned that the “lender” used a gmail address to communicate. What’s worse is that a perfunctory Google search revealed a record of violent crime.

The lesson: At the very least, do not send deals to anyone using a free email address. This was item #3 on my Advice to New Brokers list, published back in February. This also violated item #4 on my list, which says, don’t send your deal to some random company just because they went around posting on the web. A simple Google search for this broker would’ve showed that the “lender” was a serial criminal.

3. One broker e-mailed me to say that a lender had stolen his syndication money and disappeared. Another told me that they had stopped receiving their syndication deposits for their entire portfolio and wasn’t sure what was going on. This situation often doesn’t make the public forums because the aggrieved parties are sometimes too embarrassed to tell others that they got hustled. I recommended a lawyer to one of them.

The lesson: Refer to #4 on my Advice to New Brokers list. Even if others claim to be having a positive experience, there are a few red flags to look out for when it comes to syndication:

• Were they too eager to accept your money?
• Did they have an Anti-Money Laundering process in place?
• Would your funds be co-mingled with their operating funds or isolated in a separate account?
• How is their system structured? Will you get paid even if they declare bankruptcy?
• Was the owner of the company ever charged or convicted with fraud? This is probably the most important and for some reason the most overlooked. If the owner was previously charged with fraud and your money eventually gets stolen, you can only blame yourself. And if you don’t know if someone has a past criminal history, you should probably ask around in addition to conducting a formal background check.

Syndicating brings me to item #1 on my Advice list, hire a lawyer. If you can’t afford a lawyer, you definitely can’t afford to syndicate.