Business Lending

In The Wake of Hurricane Ian

October 21, 2022
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palm treesThe last week of September was pretty ugly for Floridians with Hurricane Ian hitting numerous cities like Fort Myers, Naples, and Tampa, to name a few. With 2.8 million small businesses making up the Sunshine state, many experienced power outages, flooding, and other physical damages. For the small business finance industry, natural disasters are always a possible challenge that they’ll have to contend with.

Jordan Fein, CEO at Greenbox Capital, knows firsthand how to deal with natural disasters during hurricane season. The Miami-based funding provider has been in business since 2012 and has experience with funding businesses in tropical areas like Puerto Rico and the Virgin Islands.

“We’re now at a point where we feel that we do it among the best on how to handle these kinds of situations in terms of being able to meet our customers’ needs, especially during times of duress,” said Fein.

Flooding, wind damage, and trees fallen over on buildings and properties is what Tarneisha Peters, Regional Director of West Florida at Black Business Investment Fund (BBIF), has seen in her area of South Tampa. Many people have lost power for up to 4 days, affecting not only small businesses but staff members as well. And while the extent of the storm’s effects on some merchants are still unknown, Peters hopes the variety of program mentorship and training will help their clients remain resilient in the wake of the hurricane.

“Over 500,000 people experienced outages in the Tampa Bay area, as well as our staff in the Orlando area, including some of our clients,” said Peters. “Our goal is to support BIPOC business owner’s resiliency, so that they are prepared and able to navigate challenging circumstances that may come their way.”

Hurricane FlorenceMark Kane, CEO at Sunwise Capital in Boca Raton, has seen a fair number of hurricanes since he started his business in 2010. His company has even had to relocate to Orlando before just to have internet in order to work. Businesses that are a true “brick and mortar,” as Kane described, may not have the luxury of moving elsewhere. But before immediately knowing which angle to help clients, Kane tries to look at it from a couple different angles. What was the impact of the damages? What exactly do they need? And how can they accommodate those needs?

“I think it has to be looked at from a number of different levels,” said Kane. “So, what was the total impact? Is it ‘hey, I’m done, I’m out of business?’ or ‘hey, I need a break, because our business is slow, or we haven’t reopened, and I’m not able to make the payments.’”

Meanwhile, impacted businesses may be eligible for Business Physical Disaster Loans as well as Home Disaster and Economic Injury Disaster Loans. For physical damage, the deadline to apply for a loan ends November 28th and economic injuries the deadline ends June 29, 2023.

“BBIF is an SBA lender,” said Tarneisha Peters, who added that the SBA was a great partner of theirs. “[The SBA provides] disaster related support, guidance and business assistance to help provide relief when it is needed most.”

A Glimpse Into Amazon Lending

October 16, 2022
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amazonWhen Amazon revealed it had made more than $1 billion in small business loans in 2018, many people were stunned to find out they had become so active as a lender. But other than marketing it to sellers on their own platform, the company has not attempted to draw much attention to it. They have, however, regularly disclosed “seller receivables” which are defined as “amounts due from sellers related to [their] seller lending program.” Assuming the company has consistently kept their loans on balance sheet and kept loan terms steady, one can drawn their own conclusions about the trajectory of its loan program.

Below are the loan receivables as of year-end for each year except for 2022.

2016: $661M
2017: $692M
2018: $710M
2019: $863M
2020: $381M (covid)
2021: $1B
2022 (Q2): $1.3B

Loan receivables dropped significantly during covid and are most recently at their highest level ever, almost double what it had been in 2018.

In addition to its own Amazon Lending product, Amazon is also offering loans through Lendistry and lines of credit through Marcus by Goldman Sachs. The Lendistry relationship, which piloted last year, resulted in $35M being loaned to more than 800 sellers. Because of its success, Lendistry now plans to loan $150M to Amazon sellers over the next 3 years.

The Marcus by Goldman Sachs relationship is notable because it marks Marcus’ first foray into small business lending.

Rapid Finance Has Evolved Into a Three-Piece Business

October 12, 2022
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Rapid FinanceHistorically, Rapid Finance has been a lender, but over the last few years the company has expanded into other areas including portfolio servicing and technology. It’s a three-piece business, one that now includes a new wholly owned subsidiary, Thrive.

Thrive is described as an end-to-end digital lending platform that can be used by banks, credit unions, or other organizations to offer small business loans faster and easier to their customers.

Kunal Sehgal, co-founder and CEO at Thrive, said that Thrive’s technology can handle everything “from the application intake, to actual data collation and aggregation, to underwriting to decisioning, to origination to closing, and then servicing as well.”

The product gives Rapid a unique tool in its arsenal, given the company’s background. Will Tumulty, CEO at Rapid Finance, explained that Thrive’s technology will be greatly enhanced by Rapid’s own experience in the lending business.

“If you want to do a partnership with Rapid [through Thrive], you’re not just signing up for software,” Tumulty told deBanked. “You can get software, you can get potentially balance sheet access, you get expertise in servicing and credit management that Rapid has developed over more than 15 years in small business lending. And we think that’s a big difference for companies that are looking for a partner to help them get into the small business lending space.”

The acquisition was announced on October 3rd at American Banker’s Small Business Banking conference and is part of Rapid’s recent corporate rebrand and restructuring, which includes a new logo and website.

IOU Financial Sets Internal Loan Originations Record for Q3

October 4, 2022
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IOU FinancialIOU Financial is showing no signs of slowing down. The company announced Q3 loan originations of $74.2M on Tuesday, up from $59.M in Q2. Altogether, IOU has originated $192.7M in 2022 so far.

“IOU’s strong Q3 2022 loan originations and progress towards its strategic goals makes us cautiously optimistic about delivering on the high end of our guidance,” said Robert Gloer, President and CEO, in a statement. “IOU Financial continues to execute on its strategy substantially growing loan originations while investing in technology and product innovation.”

The company has projected total originations of $220M – $260M by year end. That would be significantly higher than the $161.5M originated last year.

This New Small Business Lending Tech Started in New Zealand

October 3, 2022
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Dave LewisDave Lewis, CEO at Ranqx, co-founded his company in 2015 in New Zealand. With a plan to help small businesses, accountants, and bankers all understand the financial performance of a business, the company eventually realized that such information could be used to improve the archaic small business lending process with banks.

“The long story short is we pivoted into small business lending because we saw that banks and credit unions were broken and couldn’t efficiently lend to small businesses,” said Lewis, “and we think there’s a huge opportunity to change that going forward.”

At the time, Ranqx was focused on its own domestic market, a nation with approximately 5 million people. It was when Covid started that the company’s technology was finally understood. In 2020, for example, Lewis received a call from the CEO of Kiwibank, saying, “Look Dave I think every CEO of every bank in the world has just figured out that it’s not a good idea to have small businesses visit a branch to fill out forms for a loan because we’re in a pandemic.”

Suddenly, Ranqx became the technology behind Kiwibank’s Fast Capital product, opening the door to a lightning fast online loan application process.

“A small business can apply for working capital in under two minutes. And they’ve got a decision within three minutes of that application,” said Lewis. “Within five minutes they know whether they’re going to be funded by Kiwibank or not.”

More recently, Ranqx is expanding into North America where it sees similar opportunities to improve the loan application process. Though the target customer is still banks, the company is open to working with online lenders, which Lewis thinks can benefit from the tech as well.

“We see a lot of portals that happen in the online lending space, but we don’t see a great use of real time data of APIs, of auto decisioning,” said Lewis, “which we’ll see there are a lot of manual processes that go in there, a lot of document uploading, and a lot of, still people-time required to underwrite and manually spread the financials to be able to get a yes or no decision.”

Ranqx has also recently appointed Ex-JPMorgan Chase CIO and Treasurer John Horner as its new chairman and formed a new partnership with Visa.

“I think the key thing that I would want [the] audience to be aware of is just the alternative data sets that are now available that can be automatedly analyzed and calculated and used within an underwriting decision,” said Lewis. “And the ability to ingest that data from companies like us in an orchestrated way, is something that we can really help accelerate. At the end of the day, it doesn’t matter whether you’re a bank or an online lender, the key fundamentals are, ‘who am I listening to and how likely am I going to get repaid?’”

New York is Funding Seed Grants and Lendistry is Powering It

September 27, 2022
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Albany at Dusk“The pandemic has had profound impacts on our economy and our small and micro businesses were among the hardest hit, especially in New York State,” said Hope Knight, Empire State Development President, CEO and Commissioner. “Supporting our State’s small businesses has been a priority of Governor Hochul’s administration and the steps taken to expand eligibility and get funding out the door has helped countless businesses stay on track.”

Empire State Development created the NY State Seed Funding Grant program to help rebuild the small business community and they chose Lendistry to administer this program and distribute grants to businesses that qualify. As for how they picked Lendistry, it probably helped that they had their foot in the door as they previously won an RFP from the State to roll out the Covid-19 small business recovery grant.

“…based on the relationship related to that program and working together, when an opportunity came for the New York Seed program, naturally, Lendistry raised our hands,” said Everett K. Sands, CEO at Lendistry.

Lendistry is the only lending company working on this project with ESD and the portal to apply for a grant is already open. When the pandemic started, more than 2,800 businesses permanently closed in New York City within the first five months alone. With this grant, Hope Knight believes that this will move the economy in a stronger direction going forward.

Everett K. Sands
Everett K. Sands, CEO, Lendistry

“The $800 million Pandemic Small Business Recovery Grant Program and now the new Seed Funding Grant Program marks unprecedented support for New York State’s small businesses and for our economic success moving forward,” said Knight.

With numerous social media ad campaigns and marketing exercises taking place over the next couple weeks, ESD wants to allow every small business a chance to take advantage of this opportunity. The grant can be found under nyseedgrant.com where a list of eligibility requirements is listed as well as an application guide that can be downloaded in various languages. After some initial forms, businesses are then instructed to upload documentation, and if approved they get a grantee agreement to be signed.

“The grant amounts are going to depend on revenue and what we call that revenue we also call gross receipts. And so, depending on their gross receipts, they can receive up to 10% of their gross receipts or about $25,000 or less,” said Sands.

Given that some people improperly applied for the PPP and EIDL programs, Lendistry is monitoring who is eligible for these grants so a repeat of that does not happen.

“I think fraud has to do with a couple of things, has to do with how you handle your Know-Your-Customer, which is also called KYC and Know-Your-Business, KYB process,” said Sands. “Lendistry is pretty robust in terms of how we handle those two processes in terms of kind of who we let in the front door. Naturally, the fraudster would also have to provide the documentation that’s required of the program, and then Lendistry also has technology that kind of cross reviews those who were I’ll just say ‘bad’ in a previous program.”

They Grew Tremendously Through the Pandemic and Landed on the List

September 26, 2022
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rocket speed growthInc recently dropped the latest annual list of the fastest growing small businesses in the country. These 5,000 businesses span across a range of industries including health, financial, IT services and more. Companies such as Fundomate, Fountainhead, and Business Lending Blueprint have been featured on this year’s list due to incredible growth.

For Sam Schapiro, the grit to grow Fundomate through a pandemic stemmed from a realization he came to years earlier.

“I think one of the best lessons I learned when I launched Fundomate, I was in Las Vegas at a conference to raise money,” Schapiro said. “…and barely anybody looked at us and I literally left with nothing.”

Full of doubt, Schapiro had lunch with someone he respected that had built several successful startups. That mentor told him that despite what he thought, 99.9% of the people pitching their business at the show were going to fail regardless, even if they really wanted success.

“So if you don’t really really really want it, then don’t bother doing it, because your chances of success are so slim,” Schapiro was told. That hard dose of advice led Schapiro to first question how bad he wanted it and he realized he was fully committed to seeing it through.

“I always say that if I knew how long it would take us to get here and how hard it would be to be down this road, I’d never get on the road,” Schapiro said. “But that’s the thing about life in general. Anything worth having and anything worth doing requires consistency and determination. And over and over and over again. So if something’s not working, and you can obviously see it’s not working and it’s clear, you know, the job is to keep looking at it, and at the point where it becomes a clear message that it just doesn’t work, then you got to pivot.”

Fundomate is a white label funding and banking platform for wholesale processors and MCA funders to automate their funding in a scaled way. Schapiro says that success was due in part to their technology, which collects a true daily percentage of a business’s sales.

As the pandemic subsided “we didn’t have to get back on the phone with every merchant and say, ‘Hey, we want to increase our daily payment again’ because we’re not on daily payments, we’re on instant collections that are happening on a daily basis,” Schapiro explained. “As soon as their sales came back up and even grew to get through the 2021 boom, all the sudden collections happen faster.”

Meanwhile, for Chris Hurn, Founder and CEO of Fountainhead, he had to refocus his non-bank small business lending company into a PPP loan operation.

“Pivoting our business solely to do PPP loans over the last two years was a pretty challenging experience,” said Hurn. “And we did, we worked ridiculous hours. I mean I averaged about three to four hours of sleep a night for months at a time every day. So, you know, that was probably the biggest challenge we had.”

But the work paid off. Hurn said that they were one of the most active PPP lenders over the last two years, making approximately 300,000 loans.

“Obviously, that helped accelerate our growth,” said Hurn, “as well as many of our full time hires that we made during that time are still there. And we’re still growing now.”

The process is no walk in the park when it comes to being listed on the Inc 5000. Thousands of companies apply annually to be ranked on the list. It’s months of lengthy paperwork and long-waited verifications. After realizing that one’s company has made the list, they find out their ranking along with the rest of the world.

“It’s a painstaking process because you can’t just apply and claim that you’re a growing company,” said Oz Konar, Founder at Business Lending Blueprint. “Your CPA needs to send them income verification or revenue verification, and all the things need to be documented and signed off on so they can actually prove that you’re a growing company, and you can make it on the Inc 5000.”

The hardest part of newfound success is maintaining it. With massive growth over the past four years, Konar believes growth happens when you have happy customers. Focusing on democratizing the lending space for new and existing brokers has drawn clients into his business.

“When you do things the right way consistently and stay laser focused on one problem, one solution, one product, that’s what brought us to the Inc 5000,” said Konar. “And to our surprise, we were hoping that we were going to be ranking about 1,000, the first 1,000 companies. We ranked in 799. So, it’s such an honor, we’re so happy, and we’re just getting started.”

In the competitive industry of finance that is always changing and rearranging, SMB finance companies may feel pressured to do all things for all people. But sometimes it may be more beneficial to stick to what one is good at. As Hurn can agree, it is much more complicated to compete in every marketplace.

“I think if you as a business, if you’re starting out, you need to definitely focus on a niche you want to attack and try to be the best at that,” said Hurn.

Think The New California Disclosure Law is Just About a Disclosure Form? Think Again

September 13, 2022
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California Lending“We’re one of the good guys so of course we’ll comply and include the form with our contracts.”

Variations of the above phrase have been oft-repeated in the last few months by participants in the commercial finance industry when queried by deBanked about California’s new disclosure law. Several companies have shared that they are prepared for what’s to come, but are they? The regulations go into effect on December 9th and begin a new chapter of compliance for the industry.

Though one might be aware that California will require specific disclosures on commercial finance contracts (including purchases of future sales), Katherine C. Fisher, Partner at Hudson Cook, LLP, explained that the breadth of the state’s law will likely require changes to a funding company’s operational processes as well. Fisher told deBanked that there’s not just the matter of disclosing but also the matter of what triggers a disclosure having to be made. What might otherwise be considered the normal discourse between a funding provider and a customer prior to a deal being consummated is now an area requiring close examination.

“If a broker sends a text to a merchant with the offers, could it trigger this?” is one scenario she posed about the threshold for disclosure.

The funding provider needs to know the answer because once the disclosure requirement is triggered, the broker needs to relay back the details of the offers made, the specific disclosures provided, and the timestamp of when this took place. All of this data then needs be stored by the funding provider to maintain compliance.

And funding providers will need to be vigilant.

“The funder is responsible for broker compliance,” Fisher said.

The entire process of who-said-what, when, and how will suddenly become a realm requiring tight control it seems. And that all comes back to the form itself, which is not all that simple either.

merchant cash advance APRCalifornia will require funding providers to estimate an APR on a purchase transaction using one of two methods: the Historical Method or the Underwriting Method. While the methodology selected is probably best left to qualified counsel to assist with, the likely deviation of a future estimated APR from a backwards-looking APR was a reality considered by state regulators. To bridge this gap, California requires that funding providers disclose reasonably anticipated true-up scenarios. A true-up in this instance refers to the already well-established option for a merchant to perform a monthly reconciliation of payments if the amount collected is above or below the purchased percentage specified in the contract.

Though the very nature of the reconciliation is a consequence of not being able to predict the future exactly, California’s law requires that funding providers disclose the dates and amounts of the true-ups that they reasonably anticipate. Such concepts and mathematics, once perhaps the subjective domain of a funding provider’s in-house underwriters will soon be subject to regulatory scrutiny for total accuracy. And this just scratches the surface.

The scope of this law is so unique and technical that the Hudson Cook law firm spent a considerable amount of time preparing a guide on this very subject. deBanked saw some of the pages of this guide during a call.

Fisher, meanwhile, insisted that compliance in California is different than compliance with the law recently enacted in Virginia and that if funding providers wait until December to begin preparing, it will probably be too late to be ready in time.

“This is more than just a form,” Fisher said. “You need to spread the word about it.”