Business Lending
It’s Official, The Confession of Judgment Era is Over
June 19, 2019
The New York State legislature passed a bill (S06395) late Thursday night that effectively eliminates Confessions of Judgment (COJ) in the small business finance industry.
The Senate voted in favor 61-1.
The Assembly voted in favor 83-43.
The new law which goes into effect immediately after Governor Andrew Cuomo signs it, prohibits anyone from filing a COJ against a party that does not reside in New York State. That means if a small business or individual resides in any state that isn’t New York, you cannot file a COJ against them in New York. This matters greatly because 99% of all COJs industry-wide were being filed in New York due to the incredible ease and speed that New York Courts offer to turn those into valid judgments.
Debtors that reside in New York can still be subjected to New York COJs.
A particular sensational story series published by Bloomberg Businessweek created the impetus to change how such New York judgments by confession might impact out-of-state residents. The names of the Bloomberg reporters are written into the Bill’s official memo in the footnotes, memorializing for all time how this law came to be.
Within the small business finance industry, the percentage of funders that required a Confession of Judgment as a condition of their financing was relatively small. And their usage has been limited since COJs were only first introduced as a potential risk mitigation tool on merchant cash advances five years ago in 2014. However, Bloomberg News estimated that COJs have resulted in more than $1 billion in collective judgments over the years, mostly against non-New York businesses.
deBanked has received numerous inquiries regarding what this new law means for COJs already signed but not yet filed. That is a question for an attorney.
Michele Romanow to Keynote deBanked CONNECT Toronto
June 18, 2019Michele Romanow, a TV star on Dragon’s Den and Co-founder of Clearbanc, will be the keynote speaker at deBanked CONNECT Toronto on July 25th. She joins other industry executives speaking at the event from across the business finance industry in Canada.
Tech titan Michele Romanow is an engineer and a serial entrepreneur who started five companies before her 33rd birthday. A “Dragon” on CBC’s hit show Dragons’ Den, Michele is the co-founder of Clearbanc, which in 2018 gave entrepreneurs more than $100 million in funding; SnapSave, which was acquired by Groupon; and Buytopia.ca, ranked #3 on the Profit Hot 50 list of fastest growing companies. Named in WXN’s “100 Most Powerful in Canada” and listed as the only Canadian on Forbes’ “Millennial on a Mission” list, Michele brings her incredible entrepreneurial savvy to every stage.
Michele has driven new digital solutions to many of the world’s leading brands, including P&G, Netflix, Starbucks, and Cirque du Soleil, and she has advised Fortune 100s and governments on innovation, AI, blockchain, and the new economy. She was a finalist for the EY Entrepreneur of the Year Award; the RBC Canadian Women Entrepreneur Awards; and was a Cartier Women’s Initiative Award global finalist.
Awarded Angel Investor of the Year by the Canadian Innovation Awards, Michele is a prolific angel investor who has also co-founded the Canadian Entrepreneurship Initiative with Richard Branson to encourage more women entrepreneurs. Michele In the media, Michele’s work has been profiled in Forbes, The New York Times, Entrepreneur, The Globe and Mail, and Chatelaine.
During her Civil Engineering undergrad at Queen’s University, Michele founded The Tea Room, the first zero-consumer-waste coffee shop. She was also given the Queen’s Tricolour — the highest honour awarded by the university — and, after completing her Queen’s MBA, she founded Evandale Caviar, a vertically integrated commercial fishery.
Michele is currently a director for Vail Resorts, Freshii, League of Innovators, Queen’s Business School and Shad Valley, a transformational program that develops the entrepreneurial potential of exceptional Canadian youth.
Other great executives speaking at deBanked CONNECT Toronto:
That’s All Folks! COJ Ban in New York May Pass on Wednesday
June 17, 2019
The New York legislature has until Wednesday night to pass two bills that would prohibit the use of COJs, one on out-of-state debtors entirely and the other from being used as a condition in a financial contract. Either or both would effectively outlaw their use in the small business finance industry in New York State. If they do not pass a Floor vote by Wednesday night, the clock on the debate would reset until 2020 and the bills would have to be reintroduced in January.
Both bills have momentum. Both bills have a Democrat sponsor. The Democrats control the Assembly, the Senate, and the Office of the Governor. The bills have at least some support from Republicans. By all counts, at least one of these bills should pass this week.
Bill A07500 would prevent COJs being filed against Non-New York parties by requiring that they only be permissibly filed in a county in which the debtor party “resides.” This bill has already sailed through three committees, the most recent of which had unanimous bipartisan support. Its counterpart in the Senate is S06395.
A03636 is targeted specifically at small business lenders and merchant cash advance companies. “This bill will protect small businesses from predatory lenders that often offer loans and cash advances on the pre-condition that they sign a confession of judgment,” it says.
It’s possible the bills could also be reworded at the last minute.
There is no doubt where the impetus for these bills stems from. A07500’s official memo, for example, cites the controversial Bloomberg story series authored by Zeke Faux and Zachary Mider in its footnotes.
If either or both bills pass by Wednesday night, they would still require the signature of the governor. That step, a technicality, would probably provide clarity on the official date of which the amended law would go into effect.
Long Island Business Loan Brokers Arrested in Bust
June 13, 2019
The owner of a Long Island based ISO/loan brokerage and several employees have been arrested, Newsday reports. Demetrios Boudourakis, whom deBanked has previously reported on, is charged with grand larceny, money laundering and other crimes for his role in an advance fee loan scheme. Boudourakis allegedly led a fraud ring that stole more than $2 million from small business owners nationwide. Six other defendants have also been charged with related crimes. They include Nadim Afzali of Hicksville, Tanya Balbi of Farmingdale, Christopher Looney of Bethpage, Joseph Johnson of Brentwood, Jude Brun of Elmont, and Michelle Soccodato of Hicksville.
The investigation began last year and involved numerous agencies, including the Suffolk and Nassau police and sheriff’s departments, New York State Police, the FBI and the Drug Enforcement Administration.
According to Newsday, “Boudourakis and his associates, through the dark web, obtained the names of people who had been denied loans. They would then call those people to tell them they had qualified for loans but would have to pay interest and fees upfront.”
According to Long Island Business News, law enforcement agents who executed search warrants at several locations recovered electronic equipment, three handguns, a sawed-off shotgun and a pill press. The investigation leading up to the bust included court-authorized eavesdropping and audits of financial records and physical and electronic surveillance.
Previously, deBanked reported that JTT Funding, Boudourakis’ company, had been accused of forging a Confession of Judgment and impersonating rival companies. Those were civil cases, not criminal cases. Court records show that those cases remain ongoing.
Among the company names the ring used in the alleged scheme were Federal Business Lenders, Federal Business Funding, JTT Funding, JTT Global Holdings, Inc. Blackrock Funders, Inc. and Blackrock, Inc. It is possible that some of those names closely resemble names of competitors and the actual companies have not been accused of any wrongdoing.
Boudourakis is a retired MMA fighter. His nickname in the ring was “The Tyrant.”
Prospa, An Online Business Lender, Goes Public In Australia
June 10, 2019
Another online small business lender has gone public. This time it’s Australia-based Prospa, a company founded in Sydney in 2012. Prospa offers daily and weekly payment business loans with terms from 3-24 months and competes with companies like OnDeck and Capify.
Earlier this year Prospa surpassed $1 billion in loans funded to 19,000 small businesses. In a 2015 interview with deBanked, cofounder Beau Bertoli said, “The market in Australia has been very ripe for alternative finance. We see an opportunity for the alternative finance segment to be more dominant in Australia than it is in America.”
Prospa was slated to go public on the Australian Securities Exchange last June but it was cancelled in dramatic fashion 15 minutes before being listed as rumors swirled that the Australian Securities and Investments Commission (ASIC) had questions about their business practices. By September, Prospa agreed to revise its loan disclosures to be more fair. Those revisions were published by ASIC.
Prospa’s IPO raised AUS $110 million and was valued at AUS $610 million. The share price jumped nearly 20% in early trading on Tuesday.
ForwardLine, One of the Original Funding Companies, is Back
June 5, 2019
Steve Carlson, CEO, ForwardLineForwardLine Financial originated well over $65 million in loans in 2018, according to CEO Steve Carlson. ForwardLine would not share its origination numbers, but Carlson said the company is comfortably on the deBanked list of top originators. ($65 million is the lowest origination number on the list).
Last week, the company announced that it secured a $100 million credit facility from Credit Suisse AG and Neuberger Berman private equity funds. This is the company’s largest credit facility to date. Its previous credit facility was with East West Bank and that relationship is still in place.
ForwardLine is a direct marketer that provides working capital loans of up to $200,000 to small businesses.
Carlson told deBanked that ForwardLine, which was founded in 2003, has been scaling its business dramatically over the past year and a half. This is no coincidence. Instead, Carlson said this is the result of years worth of planning following a majority investment in ForwardLine in 2015 by a private equity firm called Vistria Group.
“We spent 2016 and 2017 very thoughtfully building out a technology platform, a data infrastructure, and a management team to scale the business,” Carlson said. “We’re now actioning on that plan. So this is all part of a multi-year strategy.”
A company statement said that the company’s loan performance in 2018 was record-breaking. ForwardLine increased year-over-year total originations by over 300% in the first quarter of 2019.
Carlson said that the new facility will be used primarily to grow the business. ForwardLine is located in Woodland Hills, CA, and it employs 110 people, more than half of whom work in the sales department. Other employees include underwriters and data and analytics people.
CFA Report Shows Increase in US Factoring Volume
May 30, 2019The Commercial Finance Association (CFA) recently published a report on asset-based lending and factoring which showed a 10.4 % increase in domestic factoring volume in 2018 compared to 2017. While the increase isn’t enormous, it is consistent with a gradual growth in factoring, according to Jeff Goldrich, CEO at Princeton, NJ-based North Mill Capital, which provides invoice factoring.
“It’s not a hockey stick, it’s gradual growth,” Goldrich said.
Goldrich attributed the growth, albeit moderate, to two factors. One is that, while not everywhere, he said there’s been some tightening of credit with banks, which leads companies to consider factoring.
The other is that he said large sized companies are increasingly using factoring as a financing option. While factoring is generally more expensive than taking out a bank loan, companies don’t have to worry about having stellar financial history because factors are less concerned with the financial health of the borrower and more concerned with the strength of the receivable.
Another finding in the CFA report is that Recourse factoring increased by roughly 11% in 2018 compared to 2017. Recourse factoring is when a factor has recourse if a company fails and is unable to pay a receivable to a factor’s client, according to Harvey Gross, Executive Director of the New York Institute of Credit. This is unlike the more common Non-Recourse factoring, where the factor can do nothing if the company that the owes the receivable goes out of business. Gross says that Recourse factoring is becoming more common as factors don’t want to take on as much risk.
Gross said that the older, traditional factors (which often cater to the apparel and toy industries, for example) are still Non-Recourse factors. They shoulder the loss if a company can’t pay its invoices. But at the same time, Gross said that these factors want clients with a large volume of invoices and invoices from solid companies.
BlueVine is one of the few companies that offers factoring online, where a company can get funded online without first interacting with a company representative.
“I see a continuation of factoring marrying fintech,” Goldrich said. “That’s where the big backers have interest.”
Funding These Franchises? Read This First
May 29, 2019
United States Senator Catherine Cortez Masto is concerned with the abilities of four major franchises to repay business loans, according to a letter penned to the Small Business Administration. They include Subway, Complete Nutrition, Dickey’s Barbecue, and Experimac. The issues raised should be on the radar of every provider of capital.
For Subway, Cortez Masto cites a New York Post article that alleged Subway Restaurants is plotting to put its own franchisees out of business through the enforcement of minor handbook violations. A whopping 1,108 Subway stores closed last year alone.
For Complete Nutrition, the franchisor is reportedly dismantling its own franchise. Cortez Masto says it first raised the prices of goods, wiping out franchisee profit margins. Following that, it eliminated its franchise model altogether, took away their franchisees’ POS systems, removed their locations from the Complete Nutrition website, and informed Complete Nutrition customers that the stores had been sold and to order online going forward instead of from the stores. At least 12% of SBA loans made to Complete Nutrition locations have been charged off.
For Dickey’s Barbecue, the franchise is experiencing more stores closing than opening. Cortez Masto suspects that the franchisor is providing misleading and inaccurate information to potential franchisees, resulting in failed stores and bankrupt business owners. A franchise blogger says, “The Dickey’s business model seems odd, continually selling new franchises to replace closed units, but seemingly doing little to fix the profit structure so existing franchisees survive.”
For Experimac, Cortez Masto says that most of the SBA loans made to Experimac were originated by Celtic Bank and that to-date 23% of these loans have failed.
