Business Lending
Goldman Sachs-Amazon Deal to Offer Small Business Loans in the Works
February 3, 2020
Tech giant Amazon is reportedly in talks with Goldman Sachs to offer business loans to those small and medium sized merchants operating on its marketplace, according to sources that the FT describes as “two people briefed on the discussions with the online retailer.” One of these sources said that it could launch as soon as March.
The news comes after CEO David Soloman spoke at the bank’s Investor Day recently, explaining that Goldman would be pursuing a “banking-as-a-service” model this year that would see the bank white labeling their products for third parties to use. As well as this, Solomon commented on a shareholders call last week that the bank is seeking to increase revenues from new channels such as consumer banking and wealth management.
One such channel is Goldman’s partnership with Apple last summer that saw the launch of Apple Card, a credit card solely available to Apple’s +100 million users in the US. The card’s launch was lauded by Solomon; and according to Business Insider, cardholders had $736 million in loan balances by the end of September, one month after the card was released to the public.
The Apple and Amazon deals highlight how Wall Street banks are employing and partnering with Big Tech to leverage advantage over fintechs, and ultimately gain access into markets that are historically not domains of the uber rich. Traditionally a bank that catered to elites, Goldman Sachs has been edging its way into consumer and small business banking ever since the launch of Marcus, its personal banking platform.
Amazon has been offering loans to merchants on its platform since 2011, using algorithms to determine which sellers would be best positioned to receive and repay a loan. Having previously partnered with Bank of America to finance such loans, the terms of these were for 12 months or less, with amounts funded ranging from $1,000 to $750,000. According to the FT, Amazon had $863 million in outstanding SMB loans on its balance sheet as of the end of 2019.
The digital nature of Amazon’s marketplace would accommodate Goldman Sachs’ neglect of brick-and-mortars stores, which have historically been a waypoint for small- and medium-sized businesses seeking finance.
LendIt Chairman and Co-founder Peter Renton described Goldman’s progression in the fintech space as “impressive,” noting that the speed at which it has been operating isn’t to be overlooked: “I thought something like this would happen but not in such a short space of time. Apple Card was only six months ago.”
As well as this, Renton was wary of how expansive the deal would be, admitting skepticism of it being a large project for either company. Given how both Amazon and Goldman have shown themselves to be selective in who they provide financing for, this assessment may prove correct.
The Scoop Behind Sprout Funding’s Acquisition of Jet Capital
January 25, 2020
News from North Texas this month as Dallas-based Sprout Funding announced its acquisition of Jet Capital. The move comes as Sprout seeks to expand its technical operations.
“Sprout built a reputation as a group that funds a lot of its own internal deals, and Jet had spent a lot of time, energy, and money on their tech platforms,” Sprout’s CEO and Founder Brad Woy told deBanked. “So while we were really good on the sales and marketing side, they seemed to be a little bit more advanced in their tech and reporting, and we brought those two things together.”
Almost all of Jet’s employees will be joining Sprout, with the exception of one person who chose to go their separate way following the merger.
Jet’s COO Allan Thompson spoke kindly of the purchase, saying in a statement that “There is a great cultural alignment in addition to the obvious benefits of combining our technology, processes and people. The result will provide increased capabilities for Sprout and opportunity for all of our customers and partners.”
The financial terms of the acquisition were not disclosed.
Quarterspot is Shifting Its Business Focus
January 22, 2020Last week, several industry insiders reported receiving an email from NY-based company Quarterspot that said their agreement had been terminated.
The contents stated that the company is “shifting its business focus and will no longer be originating loans, but will continue to service currently outstanding loans.”
deBanked has confirmed that to be true. More information may be reported as it becomes available.
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Declined For Funding? Lack of Time in Business Beats Out Lack of Credit Worthiness
January 20, 2020
A study conducted by Square Capital and the Stevens Center for Innovation in Finance at the Wharton School at the University of Pennsylvania, pulled back the curtain on small businesses and the financing process.
Notably, the #1 reason that businesses said they had been declined for funding (regardless of the source) wasn’t credit, it was that they hadn’t been in business long enough.
#2 was (ironically) a lack of cash in the bank.
#3 was insufficient collateral.
Personal credit worthiness and business credit worthiness ranked #4 and #6 respectively.
These findings were one of many in the report published by Square last week. Among other key details were that healthcare & fitness businesses were the most likely to receive all the funding they sought whereas leisure & entertainment businesses were the least likely to receive all the funding they sought.
Black/African American business owners were more likely to apply for financing in the last 12 months than any other ethnic/racial group. A chart in the report shows that they were more than twice as likely to apply to an online lender or credit union than white business owners.
Nav Co-founders Step Down From C-Level Positions
January 14, 2020
Levi King, a co-founder of Nav Inc., resigned as the company’s CEO on Tuesday. In a two-part explanation on LinkedIn, King wrote. “To be clear, I’m not burned out on Nav. I’m not aspiring to do something elsewhere, and I’m not leaving the company. I’m still dedicated and passionate about helping Nav succeed. And, I will – just in a different capacity moving forward.”
King will do that by serving as the executive chairman of the board of directors. President & COO Greg Ott will take over as CEO.
On LinkedIn, King further wrote that the company needs “a more qualified leader” to take Nav to the next level after he and co-founder Caton Hanson have successfully grown the company to the right point.
Hanson, who served as the company’s Chief Legal & Compliance Officer, also stepped down and updated his job role with Nav to that of being “Of Counsel” on a part-time basis. Unlike King’s message on LinkedIn, Hanson’s reads as a farewell.
“Thank you for believing in me and our dream,” he wrote. “Thank you for your part in helping Nav achieve what some have called ‘impossible’. I am grateful to know you, have had the opportunity to work alongside you and to call you friends (and for many of you — co-owners). I look forward to Nav’s next chapter – and mine.”
Greg Ott, the new leader of the company, is said in a Nav press announcement to have served as a strategic and organizational leader in both startups and Fortune 1000 corporations. Prior to joining Nav, Ott served as Vice President of Marketing for Intuit QuickBooks.
“Nav’s founders created a company that is truly unique in its ability to revolutionize how small business owners navigate and access capital to grow their business,” Ott commented. “I look forward to building upon Nav’s successes and furthering the company’s vision of aligning financing qualifications, predicting needs, and facilitating transactions between data providers, lenders, partners and small businesses.”
New Jersey Firms Up Its Confession of Judgment Bill
January 13, 2020The New Jersey State legislature strengthened its Confession of Judgment (COJ) bill last week by adding language that grants the Attorney General power to enforce monetary penalties against violators.
S3581 would prohibit any provider of business financing from extending financing with a COJ. Business financing is defined as a loan, line of credit, cash advance, factoring, or asset-based transaction for a business purpose.
The bill still needs to pass the Senate and Assembly and be signed off by the Governor in order to become law. The bill’s sponsor, Senator Troy Singleton, is a Democrat, increasing the likelihood that the Democrat-controlled legislature and Democrat Governor Phil Murphy will move it forward.
Dodd-Frank’s Small Business Lending Data Collection Rule Could Still Take Years to Implement
January 12, 2020
Small business lenders: Are you ready to regularly submit loan application data to the Consumer Financial Protection Bureau? No? Good, because almost ten years after Dodd-Frank passed, the provision that requires the CFPB to collect small business lending data still hasn’t been implemented.
And apparently we’re still years away.
Section 1071, as it’s known, modified the Equal Credit Opportunity Act and defined a small business lender as any company that engages in any financial activity. So if you’re wondering if this thing even applies to whatever you do in your corner of small business finance, it probably does.
The rule has taken so long to implement that consumer advocacy groups have actually sued the CFPB over the delay. The CFPB took note followed by initiative and hosted a symposium late last year to discuss how it might go forward. The next steps from here are to convene a panel of small business lenders, have that panel issue a report, propose what the rules on collection will be, collect feedback on the proposal, formulate a final rule, issue a rule, and then set a time for when it will go into effect. That process could mean that the earliest that data collection takes place is in 2023, possibly even longer as the entire financial services industry may need time to develop the infrastructure and human resources to comply.
Beyond that, advocates and critics of Section 1071 do not even entirely agree on what purpose data collection will even serve. Some believe the intent is merely for the government to have access to data it otherwise might not have while others believe that the CFPB could use statistics it deems discriminatory to bring enforcement actions against financial institutions. Sounds like we could use a few more years to get on the same page…
A recording of the 2019 Symposium is below:
