Business Lending
Idea Financial Upsizes its Credit Facility to $112M
February 23, 2023
In just eighteen months since Idea Financial closed on an $84M warehouse facility with the Specialty Finance Division of Synovus Bank and Hudson Cove Capital Management, the company has gotten it upsized to $112M and the term extended by another 3 years. Idea Financial provides small businesses with lines of credit while its sister company LevelEsq finances the cost of lawsuits mostly undertaken by lawyers that work on contingency.
Co-founders Larry Bassuk and Justin Leto say that the upsizing news is “a testament to our discipline and our focus on risk management.”
The company has around 50 employees, less than what might be expected, but Bassuk and Leto say that technology has helped make tremendous efficiency possible while emphasizing that they have a human underwriting team that reviews every single loan before it goes out.
Jayan Krishnan, Managing Director of Synovus Bank, said that they were “very happy to provide them with the growth capital they need.” Synovus is the senior debt in the arrangement. Krishnan said that they love to work with companies that are thoughtful, mindful, and conservative and that Idea fit that criteria.
Fred Wang, a Co-Founder and Partner at Hudson Cove, said his firm is pretty selective on mezzanine within the small business lending asset class but that Idea’s performance has been very strong and consistent. “We’ve gotten a very good feel for them as a management team,” Wang said.
Both Synovus and Hudson Cove are well-versed in the commercial finance space.
“We’re obviously growing and they’re happing to be growing with us,” said the two founders of Idea Financial. “We run our company risk management first and sales second.”
LendingClub Ceases Equipment Financing Biz
February 22, 2023
Similar to Upstart, LendingClub is hitting the pause button on a segment of its lending business. In particular the company announced that it has ceased originations in equipment finance and commercial real estate.
“…commercial real estate and equipment finance, in this environment just not as attractive returns for the bank or for shareholders,” said LendingClub CEO Scott Sanborn in the Q4 earnings call. “So, we aren’t originating new loans there.”
What will remain on the commercial side, however, is its SBA Government Guaranteed Lending business.
Shopify Capital Seeing “Incredibly Strong Renewals From Previous Borrowers”
February 16, 2023Shopify Capital originated $393.2M in MCAs and business loans in Q4, an increase of 21% YoY, the company revealed. The company also began funding small businesses in Australia last year, bringing the total countries it does business in to four.
“[Shopify] Capital has acted as a lifeline for merchants, especially through the pandemic and this tough macro environment, allowing them to conveniently access capital when they need it most,” said Shopify President Harley Finkelstein. “Capital is now available in four countries, and our machine-learning algorithms to underwrite merchants keeps getting better.”
Finkelstein also noted that the company is “seeing incredibly strong renewals from previous borrowers.”
The graphic below, illustrating the cumulative growth of Shopify Capital’s originations, was shown in the company’s Q4 earnings presentation:
Upstart Halts Small Business Lending Division
February 14, 2023
Upstart, the embattled online lender that recently announced a 20% reduction in headcount, revealed on Tuesday that it had also suspended its small business lending operations. The sudden about-face is notable given that the company just entered that market in mid-2022.
“With th[at] reduction in staffing, we also decided to pause development of our small business lending product,” said Upstart CEO David Girouard during the quarterly earnings call. “This was a necessary step to ensure we can adequately resource the rest of the roadmap. We look forward to the day when we can resume our pursuit of the world’s best AI-powered business loan.”
In the previous quarter, talk of small business lending had sounded more celebratory, which had just crossed $10 million originated since inception at the time.
“In many ways, last year was the perfect storm for our business model,” Girouard said. “The withdrawal of federal stimulus disproportionately harmed our borrowers, akin to a simulated recession for millions of mainstream Americans suddenly lost what had become their primary source of income. The Fed’s interest rate hikes, the fastest in several decades, left both lenders and capital markets cautious and concerned about what might come next in our economy.”
NYC’s Small Business Loan Program Stops Accepting Applications After Just 3 Weeks
February 13, 2023
The opening of NYC’s $75M Small Business Opportunity Fund backed by a combined partnership of Goldman Sachs, Mastercard, Community Reinvestment Fund, and CDFIs was heralded as historic. Cheered as the largest public-private loan fund ever directed at small businesses, which stood to offer 5-6 year loans up to $250,000 at a rate of 4% interest to help them recover from the pandemic, the program kicked off on January 23. Just three weeks later, however, the acceptance of new applications has been halted.
“Due to the high level of interest, the NYC Small Business Opportunity Fund has temporarily paused intake of new applications while our lending partners assess completed applications,” the official website states. News reports claim the that fund was swarmed with 10,000 applications.
Indeed, that is already more than 6x the maximum number of loans that the fund was set up to support. The Fund envisioned a maximum of 1,500 total loans originated before the capital was exhausted. The approval criteria itself is lenient as the fund boasts that there is no minimum credit score requirement. Documentation supporting an ability to repay the loan is required, however.
Businesses that didn’t apply early are told that they can fill out an inquiry form to be notified if the fund reopens.
Examining the Charge Off Rates on PayPal’s Business Loans
February 13, 2023Wondering how a competing small business lender with more than $17 billion in originations since inception has been doing lately with? Check out some of PayPal’s business loan and MCA stats:
| Period | % of Merchants Within Expected Timeframe | % of Merchants > 90 Days Past Expected | Net Charge-offs |
| 2017 | 87.4% | 5.5% | |
| 2018 | 91% | 3.7% | |
| 2019 | 89.6% | 4.2% | 7.4% |
| 2020 | 75.4% | 12.5% | 18.9% |
| 2021 | 91.8% | 3.1% | 4.7% |
| 2022 | 90.7% | 3.7% | 4.5% |
Enova’s Current Small Business Lending Strategy
February 10, 2023
“We are being very conservative with our small business lending right now. There’s a tremendous amount of demand,” said David Fisher, CEO of Enova, on the company’s most recently quarterly earnings call. “I think both demand from businesses who need money coming out of COVID still but also from a lack of competition and a reduction of competition. So there’s a tremendous amount of demand. We’re filling a very small portion of it as we are trying to remain very, very conservative with respect to our originations, so we can manage through any turmoil in the economy.”
Fisher said that for its small business lending right now, the focus is really on diversification, that being “diversification across states, across industries, across product types and across kind of the credit spectrum.”
“…as we’ve just seen over the last 6 to 12 months, there are some industries that are doing well for a couple of quarters and some that are doing worse and then that rotates,” he said. “And having that strong diversification has allowed us to manage through that variability over the last couple of years without too much difficulty.”
Despite the company’s conservative strategy right now, Enova still managed to originate $826M in small business loans in Q4 2022, an increase from the $807M in the previous quarter.
Given all of Enova’s consistent success, especially in the current environment, one analyst asked if there was a play for the company to increase its marketshare.
“So we’re not being super aggressive with taking share right now because we don’t want to be too aggressive with our lending,” Fisher replied. “But we continue to build out products and expand the types of opportunities we can offer to small businesses and we’ll continue to do that over time so that as we do get aggressive hopefully in the next — more aggressive over the next 6 to 12 months, we can take our industry-leading position, combine that with the new products that we can offer customers and we’ll be even in a more dominant position. So we’re gaining share kind of just by the fact that competitors are pulling back even more due to credit concerns or lack of capital and we’re fine with that. But we’re not trying to maximize our market share right now because we do want to make sure that we’re being smart about credit. But continuing to build in the background so that when we do get more aggressive, we’re really well positioned.”
SoFi Pondering But Not Ready to Become Small Business Lender
February 8, 2023
“When the pandemic first started back in 2020, March time period, we were inundated with tons of small, medium businesses coming on to SoFi and trying to apply for PPP loans,” said Anthony Noto, CEO of SoFi in the company’s most recent quarterly earnings call. “We clearly don’t have small, medium lending. Now that we have a banking license, that is an area that we could go into, but we didn’t at that point in time.”
Alerted to the possible opportunity, however, SoFi leveraged its Lantern technology during covid to send interested business borrowers to a marketplace of lenders, which produced favorable results.
“The demand, as a result of that, led us to realize that many of our members are operating small, medium businesses and that we could serve them on the commercial side as well,” said Noto.
Nevertheless, Noto said that small business lending was not on their agenda for 2023 unless there was a big economic recovery this year. But if and when it decided to go into the market, it feels confident that its cost of capital would be of great advantage. As a bank, SoFi can leverage customer deposits.
“So if we get to the point that our deposits are significantly higher than they are today, we can deploy them in many, many other ways to drive a great return for the company,” Noto said.
Another advantage is the organic interest in working with SoFi to begin with.
“If you follow us on any social media, it’s a constant request that we get from people to launch small, medium business checking and savings, small, medium business lending,” Noto noted.
