Business Lending
Canadian Lenders Summit Recap
November 23, 2019
The Canadian Lenders Association’s largest annual event brought together hundreds of executives from the fintech and lending industries. It was hosted at MaRS, a dedicated launchpad for startups in Downtown Toronto that occupies more than 1.5 million square feet and is home to more than 120 tenants, many of which are global tech companies.
After OnDeck Canada CEO Neil Wechsler was introduced as the new chairman of the association, the day kicked off with a presentation by Craig Alexander, the Chief Economist of Deloitte Canada. Alexander explained that after some major warning signs sounded off late last year and early this year, Canadian growth and positive economic indicators have returned. He opined that politics in Canada and the United States will play a strong role in the economic outcomes of both countries going forward.
Panels on a variety of topics dominated the rest of the day with an interlude keynote from author Alex Tapscott who spoke about the financial services revolution.
The sessions concluded with an award ceremony focused around the Top 25 Company Leaders in Lending and the Top 25 Executive Leaders in Lending. The Canadian Lenders Association will make videos of the sessions available online. deBanked was in attendance.
IOU Financial Originated $41.4M in Loans in Q3, Continued Profitability
November 14, 2019IOU Financial originated $41.4M in business loans in Q3, according to the company’s latest published financial statements. The figure is a modest increase over Q2’s $38.5M. IOU also kept up its trend of profitability with net income $1M.
Shares of IOU, which trade on the Toronto Stock Exchange, are valued at around (CAD) 14 cents and equate to a market cap of approximately (CAD) $14M.
Costs, Losses Soar At StreetShares
November 12, 2019
StreetShares increased revenue by nearly 40% year-over-year, according to the company’s latest fiscal year 2019 filing, but costs soared and increased by almost 90%.
StreetShares reported a staggering $12.3M loss on only $4.4M in revenue. That loss was much wider than the previous year’s loss of $6.5M on $3.2M in revenue.
Whereas startups may spend heavily on sales and marketing as they prioritize growth and scale, StreetShares’ primary cost, as in prior years, continues to be payroll. The company spent approximately $7 million in payroll and payroll taxes in fiscal year 2019.
The margin by which payroll exceeds revenue is increasing (157% in FY ’19 vs 144% in FY ’18). For comparison purposes, payroll expense makes up less than 25% of revenue for StreetShares rival IOU Financial.
StreetShares’ source of funds has shifted away from institutional investors and professional investors to retail investors. Retail investors only provided 43.89% of funds in FY ’18 but provided 86.72% of funds in FY ’19.
Retail investors, permissible under Regulation A, do not invest in individual loans but rather they lend money to StreetShares for which the company can use for lending or for “general corporate purposes” or “other products at the discretion of the company.” In return retail investors receive a fixed 5% annual return.
As of May 2019, the company reported that 80% of funds they lend out go to US veteran small businesses. A veteran small business is defined as “a company that is at least 25% owned by a veteran or military spouse or has a veteran or military spouse as the co-guarantor.”
Factoring for Freelancers
November 8, 2019
The number of freelancers in America is quickly growing year on year, with a recent study indicating the percentage of full-time freelancers has increased from 17% of the workforce in 2014 to 28% in 2019. Representing a host of fields, from writing and photography to marketing and programming, the incomes and needs of such workers vary as much as their roles do, however a commonality between them is their difficulties with financing.
Being infamous for the difficulties involved in getting paid, freelancers have historically had trouble with the timings of payments. With 59% of freelancers reporting that they live pay check to pay check, missing a payment or waiting until an untimely employer responds to an invoice may not be possible for many; and beyond payments, banks have yet to catch up with the needs of freelancers.
“There’s this great big area in between consumer banking and business banking that freelancers fall into and the big banks aren’t dealing with that,” George Kurtyka of Joust explained. “They have strategies but it’s not really something they know how to do.”
Kurtyka, after a period of jumping between phone services, payments, and the fintech end of banking, is now COO and Co-founder of Joust, a financial services company occupied with providing for those freelancers ill-suited to traditional banking, which has been operating since 2017.
How are they going about it? Following a conversation Kurtyka had with a friend who told him over half of freelancers don’t separate their business and personal finances, he figured the best place to start was with bank accounts, which became the first product available from Joust. Next was the issue of non-payment, a problem his team thought was suited to underwriting. Offering guaranteed payment within 30 days for 1% of the invoice or instant payment for 6%, factoring, via its PayArmour product has become a large part of Joust’s business model.
“It feels almost like an insurance product,” Kurtyka observed. “When you send an invoice, we’re doing risk assessment on you, we’ve onboarded you and given you a bank account so we know about you.”
And so, after an early partnership with the Freelancers Union, Joust has been offering its cocktail of banking, invoicing, and alternative financing services to freelancers and self-owned businesspeople across America, with eyes on expanding its products further down the line.
“As you can imagine, we can start with just invoice factoring, but we can move into working capital and lines of credit … We’ve heard stories of freelancers losing houses and apartments because they were paid late. The next step is income smoothing. If you can predict how much you’re going to earn, we can smooth your income and then work with one of our bank partners to prequalify you for a loan. We’re obviously not a chartered institution but we work with a host of chartered banks and payments companies and we sit on top of them and the great news is we work with a lot of partners who want access to this burgeoning market of freelancers who may not qualify for a FICO score because their income is like this … Down the line we’d love to offer loans and mortgages. We think the underwriting models we’re building could be like the next FICOs for freelancers.”
Selecting a Third-Party Commercial Collection Agency
November 8, 2019
It’s said that anyone can lend money out but the hard part is getting paid back. The latter part is full of nuance, a 32-page white paper authored by Minnesota-based Dedicated Commercial Recovery (Dedicated) reveals.
“Choosing a third-party commercial collection agency is a matter of comparing potential returns and risks in order to achieve an optimal balance of both,” the report opines. “The purpose of this paper is to present one possible outline for making such a balanced choice.”
While it may be views that Dedicated espouses, the report stops short of self-promotion while raising valuable questions that anybody contracting with a commercial collection agency would benefit from considering. After all, even if third-party collections inherently suggests that relations between the original parties have broken down, the collections experience can set the final tone on how a customer feels about your brand.
That’s just the tip of the iceberg, according to the report. The collections process can have legal implications, present operational challenges, and ultimately impact the efficient orderly flow of business.
David Goldin is BACK – The Scoop Behind His Return
November 7, 2019
“When I started, the term merchant cash advance didn’t even exist. There really were no business loans back then, the word ‘fintech’ didn’t exist, ‘alternative lender’ didn’t exist … Back in the day it was all about getting a credit facility, and that was like the iPhone 5, and now we’re the iPhone 11. There’s more ways to be a lot less stressful, a lot more productive, and a lot less time consuming. There’s other financial instruments to really help companies excel.”
This is how David Goldin speaks of the difference between the early days of the alternative funding industry, a marketplace which he helped form in the pre-crash years of the noughties, and now, a moment which sees the CEO’s return to the market after years abroad.
Having founded Capify, an alternative finance company, in 2002, Goldin had worked in the space for over a decade before he exited the US market in January of 2017, choosing to instead focus his efforts on the UK and Australia.
Over two years later, Goldin is back in the States with Lender Capital Partners, offering capital to commercial finance companies, with a priority given to those who deal in MCAs and business loans. “It’s very exciting, I’m coming in from a different perspective,” noted Goldin. “It’s still a great industry. I’m just coming at it from a different angle which I think could be a lot more productive and scale a lot faster.”
And as well as funding the funders, this new angle includes forward flow programs, a commitment to participate in deals up to $1 million, credit facilities in the range of $20-100 million, a system by which point of sale providers are able to provide merchant financing via their software, and the Broker Graduate Program. The last of these being LCP’s in-house channel open to brokers who originate a minimum of $500,000 a month, and who want to receive capital and advice from LCP in order to become a direct funder.
When asked why he chose to return via this more top-down approach to the industry, Goldin explained that “there’s enough good players here that are trying to originate on the merchant side, so rather than try to reinvent the wheel I thought I’d come in with my years of experience running a MCA alternative lending platform in the US, knowing what the pain points are.”
Made possible through a partnership with Basepoint Capital, LCP is there to help MCA and business loans companies through both the good times and the bad, according to its founder, saying that what was a lesson for him partly informs LCP’s model.
“The time to raise money is when you don’t need it. If you run into trouble where your lender gets spooked or either has their own financial issues, or it’s a regulatory or macroeconomic condition, you just can’t bring in a new lender within 30 or 60 days, and if you do it’s not going to be on favorable economic terms. It’s really going to be a desperate attempt to get it … It’s almost like having more than one internet connection in your office, if one goes down you have a backup with no downtime.”
GoDaddy Now Offers Kabbage Business Lines of Credit To Its Customers
November 4, 2019
A curious thing popped up in my Godaddy account dashboard on Monday. Underneath the section to manage my domains, a “Deals from GoDaddy Partners” box offered me $300 in Free Yelp Ads on one side and a business line of credit from Kabbage up to $250,000 on the other.
The Kabbage offer is brand new, according to a joint announcement that came out the same day publicizing a “strategic partnership” between the two companies.
By clicking on it, I found that GoDaddy customers can transmit their account information to Kabbage by clicking a button to begin the loan application process. If a loan is approved, GoDaddy customers save up to $100 on their first monthly loan fee, the website states.
While a simple web domain may only cost around $10 a year, Kabbage has suggested that funds be used for other purposes like staffing up for the busy holiday season, purchasing additional inventory or equipment, or applying it toward digital marketing initiatives.
Borrowers will be able to access the Kabbage dashboard from their Godaddy accounts, an FAQ says.
Below are some screenshots:
Shopify Capital Originated $141M Of Loans And MCAs In Q3, Says It’s a Meaningful Part Of The Shopify Business
October 29, 2019
Shopify Capital, Shopify’s small business funding division, originated $141 million in loans and merchant cash advances last quarter, an 85% increase over Q3 last year.
The company has now cumulatively originated $768.9M since it began funding in April 2016.
On the earnings call, Shopify COO Harley Finkelstein commented on the company’s recent initiative to fund non-Shopify payment merchants by saying that “while it’s still early, we’re seeing strong adoption from those merchants.”
“We started Shopify Capital to help solve another playing field for entrepreneurs, access to capital to grow their businesses,” he explained. “This is especially true as merchants gear up for their busiest selling season of the year.”
When asked about how funding would play a role in the company’s long term expansion and retention plans, Finkelstein said the following:
[P]art of this is making sure that we have merchants in the entirety of their journey to success, certainly things like having additional cash for things like inventory and marketing are very important to them. And there’s not too many place to get that with capital. So we think we’re helping merchants by doing this. It also serves of course as a way to retain merchants because we’re not only now their e-commerce platform or the point sale provider or the payments provider, we’re also now in some cases playing the role of their capital provider.
So this is a meaningful part of our business, and it keeps growing, and it’s certainly something we’re very proud of. And in terms of managing the risk, it’s something we keep a close eye on. We do a ton of trade forecasting and ensuring that we look at the data to update our models as we see trends changing. That being said, it’s important to remember that most of the capital that we put out there is insured by our partner EDC.
So we think that we continue to grow the capital business at the same time manage the risk and so we’re not doing anything that is outside of that loss ratio and risk exposure comfort zone that we think we have right now.
Shopify CEO Tobi Lutke later added how their Capital division adds to their Gross Merchandise Value (GMV) because merchants use funds to build their businesses.”What happens is a lot more businesses, that otherwise would not have access to loans get them and therefore actually continue building their business.”
