Business Lending
IOU Financial Originates $52.2M in Q3
November 19, 2021
IOU Financial continued its growth trajectory this past quarter with $52.2M in small business funding originations. It was the company’s biggest month since inception.
“Our successful migration to a marketplace strategy has enabled IOU Financial to capture more volume in Q3 than would have previously been possible,” stated Robert Gloer, President and CEO in an official statement. “This has proven to be a win-win that has in turn given us the financial latitude to invest in growth initiatives and further reduce our corporate debt.”
The company was also profitable in Q3, though the company said this was “due in part to a reversal in its provision for loan losses and recoveries of loans previously written off, as well as a reduction in operating expenses due to the recognition of $1.5 million in employee retention credits.”
IOU’s customers have been in business for an average of 11.5 years and borrow $82,688 on average for a weighted average term of 11.9 months.
For the first 3 quarters of 2021, the company has originated $111.9M.
Wing Lake Capital Announces New Capstone Fund
November 12, 2021
After acquiring Franklin Capital in October of last year, Wing Lake Capital CEO Shaya Baum spoke to deBanked about a new fund the company is unveiling, the Capstone Fund.
A mix of debt and equity has put $50 million into the Capstone Fund, all from investors of the Franklin Fund. According to Baum, the Franklin Fund still has about $100 million in it.
“Wing Lake Capital has two funds now,” said Baum. “There’s the Franklin Fund and the Capstone Fund. The Franklin Fund was launched as a bridge for companies that are stuck in the cash advance merry-go-round. Companies are stacking cash advances until they are using Peter to pay Paul, and then there are no more Peters.”
Comparing the Franklin Fund to the Capstone Fund, Baum described it as a “graduate fund” that will enable companies with too many advances to move beyond them and that it would serve as a stepping stone between the Franklin Fund and traditional SBA or bank financing.
Additionally, the Capstone Fund is also a place where companies who have extenuating reasons why they’re denied credit, but aren’t in distressed business situations, can get access to capital.
Baum’s business model is sometimes at odds with the advance providers his companies try to draw customers away from, with Baum going so far as to say that some of these providers “hate” him. Despite this, he says that some quietly work with him.
“These companies say one thing publicly and privately do another,” said Baum. “These companies that come to us for help are companies that can no longer pay their cash advance debt.”
As part of his company’s program, the advance provider can recover some of its money, he asserted.
“We’re getting 800 deals a week from cash advance companies saying ‘hey, can you help us get out of these?’”
Regardless of the tension with competitors, Baum believes the new fund will ultimately benefit the merchants.
“The Capstone Fund is really focused on growth capital as opposed to restructuring distressed assets. Okay, we’ve restructured your business, you don’t have to pay that cost of capital, you have to focus only on growth. You have opportunities to grow, room for success, now let’s scale the business.”
Lender is Providing $5K Incentive to Veteran-Owned Businesses
November 10, 2021
In an effort to promote veteran entrepreneurship, Fountainhead, the nation’s leading SBA 7(a) and 504 non-bank lender, is providing funds to veterans to assist them with closing costs of the deal should they pursue funding through the company.
Fountainhead’s CEO Chris Hurn spoke exclusively to deBanked Wednesday about what Veterans Day means to him, his business, and how giving this group a break on the cost of capital is not just a marketing ploy, but a genuine attempt to give back to an underserved and under-recognized community.
“We have always been very supportive of veterans getting into entrepreneurship,” said Hurn. “[The promotion] is basically us gifting $5,000 on a transaction if they close with us.”
“Oftentimes, that’ll be enough to cover a real estate appraisal, enough to cover the environmental reports, it may be able to cover some of the credit reports, different things like that. We do put a cap on it, we are still a for-profit enterprise, but we are covering up to $5,000 of the closing costs.”
As a lender with more than two decades of experience, Hurn believes that veterans are some of the most trustworthy and reliable business owners to do business with. “Some lenders feel like veterans don’t have business experience, I disagree with that,” he said. “I think the military teaches people to be very organized, very disciplined, which are two critical pieces for entrepreneurship.”
From the lender’s perspective, Hurn believes that it is not only good business practices that military experience can provide, but honesty and creditworthiness when it comes to paying back a loan.
“Veteran business owners tend to be extremely organized, extremely disciplined in terms of operating the business. I’m not saying [non-veteran] business owners don’t have aspects of that, but I think the military does a tremendous job on teaching those character traits, which as a lender I find very helpful to make sure I’m getting repaid.”
According to Hurn, about a fifth of his clients are veterans, and he is hoping to increase that number with this promotion.
“[Veterans] are a very good credit risk, we want to encourage them to get into entrepreneurship, and I think it’s the right thing for the business community to do all they can to help veterans.”
Upstart is Heading into Small Business Lending
November 10, 2021
Upstart, the fintech AI consumer lender originally known for its student loan platform, is heading into small business lending.
“…we believe there is an unmet need to provide fast, easy access to affordable installment loans to business owners across the country,” said Upstart CEO David Girouard during the earnings call. “Every small business is different and they operate across a crazy wide spectrum of industries.”
Girouard explained that there are “significant challenges to delivering a compelling loan product that is useful to business owners,” in which there is also reliable value for the lender itself.
“This challenge is tailor-made for Upstart,” Girouard said. “While there is no shortage of credit options to business owners, we aim to deliver the zero-latency affordable credit solution that modern businesses require. This is another product in high demand from our bank and credit union partners, and we hope to bring it to market during 2022 as well.”
Upstart is no small player. The company’s market cap is currently around $20B and it is putting out about 1.5M loans a year for a total of more than $16B.
PayPal’s Lending Increases
November 8, 2021
PayPal was mum about its working capital loan products in the latest quarterly earnings report, but clues lie in an important line item, Loans and interest receivable. The figure has historically been closely correlated with originations. PayPal reported $3.7B in those receivables at the end of Q3, up from $3.2B in Q2 and up from $2.77B at the end of Q4 2020.
The number was close to $4B at the end of 2019 so the figures represent a return to previous levels.
In the earnings call, PayPal CFO John Rainey said “growth in our short-term installment pay portfolio was the primary driver of this increase.” Rainey appeared to be referring to its Buy-Now-Pay-Later product.
Separately, PayPal announced that Venmo users should be able to pay for purchases on Amazon beginning next year.
This page has been updated to reflect the CFO’s statements that the increase was driven by short-term installment lending.
It’s Time to Check That ISO Agreement and Balance the Broker/Funder Relationship
November 8, 2021
The fine print of ISO Agreements, long a thorn in the side of brokers when it’s worked against them, is an area that is ripe for change. All too often the price of a referral relationship is a take-it-or-leave-it contract that is not up for negotiation. So says Jared Weitz, CEO of United Capital Source and Co-Chairman of the Broker Division at the SBFA. He told deBanked that he’s gotten major pushback from some funders for redlining deals prior to inking them.
Aware that he is not alone in dealing with this, Weitz is looking to push out uniform agreements to the industry that would align both sides, creating a fair arrangement and providing for mutual indemnifications.
“I want to explain the importance of it on a broker’s side because I think that what is happening is that there are funders who solicit business [by saying] that they are broker and customer-centric, us being the customer, and [then] we get handed an agreement that literally signs [our] business away,” said Weitz.
“If you don’t know any better, you’re totally screwed.”
Weitz spoke in detail about how the concept of redlining an agreement is a part of doing business with large financial institutions, but when it comes to funders, it’s an entirely different situation.
“In most industries, it’s such a normal thing to redline an agreement. We were [working] with AMEX, a huge company, and it was understood like ‘hey, shoot this over to your lawyer, let us know,’ it was already understood that we were going to redline it. In [small business lending] if you want to redline something, it’s almost like the funder gets offended.”
When it comes to mutual indemnification, Weitz talked about how this is the biggest issue in these types of deals, especially as new laws are creeping into certain states that are going to change the way many funders do business. In response to some of these new laws, funders are not only trying to put all of the legal responsibility on the brokers, but forcing them to give up their book of business in order to get deals done.
“Now that there are new laws popping up in different states and being enforced differently, funders have come out with new agreements, and look, that’s okay to do right, any broker worth their salt is going to say ‘hey, we agree to not lie and mislead, we agree to follow the TCPA laws, to follow the CAN-SPAM email laws,’ that stuff is easy. What is with these agreements is that you have funders that say to a broker in the [contract], we want the right to come and fully audit your books.”
After the implementation of his own mutual agreement, Weitz claims that a quarter of the funders he worked with prior to his agreement no longer want to do business with him.
“There is a large 25 percent, and were talking about big name funders that I have stopped working with over the last twelve to eighteen months because they have literally tried to hit me with the most onerous agreement you could ever see, and when I spoke to them about it, they said ‘you know what Jared, most people just sign this and send it back.’ And that made me afraid for the broker industry.”
Although a positive relationship with a funder is imperative to being a successful broker, Weitz believes that some type of mutual agreement will protect people like him from being taken advantage of when things don’t go as planned for the funder.
“The guy that doesn’t let you redline his agreement, you should run away from that guy, because I have been in that scenario, where I’ve hugged, I’ve eaten at a man’s house with his family, and I’ve had that same man when things are down do what he has to do.”
Weitz talked about how the relationship with a funder can start a business relationship, but stressed that a fair agreement keeps it going. “Everyone’s friends when they’re making an agreement. Everyone’s [all] smiles, everyone is handshakes and hugs, but when things are bad in the world, and those smiles turn into straight faces, people look to that agreement, and say ‘okay what can I do?’”
When asked about losing deals to brokers who are willing to sign their lives away to get a deal done, Weitz said that those types of brokers are the ones that even if they do make a quick deal, they will never survive long enough to make a legitimate impact on the industry.
“I think funders will say ‘listen, you sign this agreement we will give you XYZ,’ and let me tell you, that’s the funder that is going to take your lunch from you, and that’s real,” said Weitz.
“The guy that offers you everything to just sign without a redline, is the guy that will crush your business, mark my words.”
Square Loans Originated $594M in Business Funding in Q3
November 5, 2021
Square Loans, formerly known as Square Capital, originated $594M in small business funding in Q3, bringing the company to $1.6B originated YTD. Square had already been recognized among the largest small business lenders this year so far.
The Q3 figure boils down to 83,000 individual loans.
Overall, Square Loans was mentioned very little in the company’s quarterly earnings call. Company CEO Jack Dorsey said “…there’s still a lot of opportunity for us to open more of our products in more of the markets that we’re already in, such as Square Loans in more of the places that we already exist.”
The coming of Hyperinflation, a prediction made by Dorsey on Twitter just weeks prior, went completely unmentioned in Square’s official reports.
On October 22, he tweeted, “Hyperinflation is going to change everything. It’s happening.”
Mississippi Fintech is Innovating Small Business Lending with Brokers in Mind
November 3, 2021
Vergent, a loan management software, is creating a space where brokers and lenders alike can manage all aspects of a deal in one place. Based in Ridgefield, Mississippi, Vergent is trying to innovate the industry with brokers in mind, pairing the small town values of interpersonal engagement and getting to know your customer with the big city ideas of fintech and automation.
“Really what we provide is the technology infrastructure for lenders to reach their end user,” said Bradley Tompkins, Chief Information Officer at Vergent. “Whether that be a small business looking for a loan, we facilitate that acquisition, the origination of that loan, and the servicing of that loan. That could mean recurring payment setups, based upon the lender’s requirements, communication with that customer via email, text, however that is facilitated, and all the different payment options.”
Tompkins talked about how his software is one of the few that brokers in his area are already utilizing to start making deals smoother. With access to all aspects of the deal, Vergent provides an all-in-one suite of options that can turn the process of analyzing a deal or checking out a deal post-funding into a couple of clicks.
“We actually have brokers who use our software to accept applications, originate loans, and then we can either transfer that to a separate portfolio that the lender then manages for servicing, or sometimes we have brokers that service the loans themselves,” Tompkins said. “So there are really a lot of options on how to set that up in the platform, so the lender can have a separate site where they accept applications from multiple brokers, or really any combination of those things.”
The value of a direct relationship with the customer is top-tier according to Tompkins, as he spoke about the next great innovations in fintech not being how to weed the human interaction out, but finding its role that will find the balance between human touch and AI power. “Once you know your customer, you can give them the option to pay you back in the easiest way possible. Understanding how they get paid, their pay cycles, when they have money and being flexible to accept that money when they have it, and giving them those repayment options is the next great innovation.”
When talking about the ability to market his product to a wide audience, Tompkins acknowledged the difficulty due to the size of the industry itself, but touched on the value of networking events like Money 20/20, where Tompkins was pitching Vergent to an international audience.
“We’ve been pleasantly surprised by the amount of lenders we’ve seen, and the amount of opportunities that have come our way from [Money 20/20]. We came here pretty open minded, maybe talk to some payment processors and other vendors that may be able to integrate to us and kind of help expand our network, but really it’s just getting our name out, seeing a little bit of a different segment than what we normally see, and looking at other market opportunities.”
