Business Lending
BFS Capital Joins ILPA
May 23, 2019The Innovation Lending Platform Association (ILPA), a group of online small business financing and service companies, announced today the addition of BFS Capital. ILPA is known for creating the Straightforward Metrics Around Rate and Total Cost (SMART) Box.
“We believe that transparency matters,” Ruddock told deBanked.
“BFS Capital is committed to being both a responsible and an innovative lender,” Ruddock said. “Our membership in the ILPA allows us to work with industry leaders who are dedicated to advancing standards and best practices in the critical small business lending marketplace… [and] we believe that clarity and transparency is critical in helping [small businesses] make educated and informed financial decisions.”
As a new member of ILPA, BFS will join current members including OnDeck, Kabbage, BlueVine and 6th Avenue Capital.
“We applaud Mulligan Funding and BFS Capital for committing to adopt fair and transparent disclosure best practices to ensure small businesses are well informed when seeking funding,” said ILPA CEO Scott Stewart. (ILPA announced that Mulligan Funding has joined the association as well).
BFS is also a member of the Small Business Finance Association (SBFA) and Ruddock told deBanked that BFS will remain a member of that trade association as well.
Separately, BFS announced today that it has named Fred Kauber as the company’s new Chief Technology Officer and Chief Product Officer. Kauber was previously with fintech marketplace platform CAIS Group and he served in senior roles at First Data, Dun & Bradstreet and IBM.
“I’m confident that Fred is the right person to advance both our vision and our capabilities [at BFS,]” Ruddock said.
Canada’s Alternative Financing Market Is Taking Off
May 20, 2019
Canadians have been slow out of the gate when it comes to mass adoption of alternative financing, but times are changing, presenting opportunities and challenges for those who focus on this growing market.
Historically, the Canadian credit market has traditionally been dominated by a few main banks; consumers or businesses that weren’t approved for funding through them didn’t have a multitude of options. The door, however, is starting to unlock, as awareness increases about financing alternatives and speed and convenience become more important, especially to younger Canadians.
Indeed, the Canada alternative finance market experienced considerable growth in 2017—the latest period for which data is available. Market volume reached $867.6 million, up 159 percent from $334.5 million in 2016, according to a report by the Cambridge Centre for Alternative Finance and the Ivey Business School at Western University. Balance sheet business lending makes up the largest proportion of Canadian alternative finance, accounting for 57 percent of the market; overall, this model grew 378 percent to $494 million in 2017, according to the report.
Industry participants say the growth trajectory in Canada is continuing. It’s being driven by a number of factors, including tightening credit standards by banks, growing market demand for quick and easy funding and broader awareness of alternative financing products.
To meet this growing demand, new alternative financing companies are coming to the market all the time, says Vlad Sherbatov, president and co-founder of Smarter Loans, which works with about three dozen of Canada’s top financing companies. He predicts that over time more players will enter the market—from within Canada and also from the U.S.—and that product types will continue to grow as demand and understanding of the benefits of alternative finance become more well-known. Notably, 42 percent of firms that reported volumes in Canada were primarily headquartered in the U.S., according to the Cambridge report.
To be sure, the Canadian market is much smaller than the U.S. and alternative finance isn’t ever expected to overtake it in size or scope. That’s because while the country is huge from a geographic standpoint, it’s not as densely populated as the U.S., and businesses are clustered primarily in a few key regions.
To put things in perspective, Canada has an estimated population of around 37 million compared with the U.S.’s roughly 327 million. On the business front, Canada is similar to California in terms of the size and scope of its small business market, estimates Paul Pitcher, managing partner at SharpShooter, a Toronto-based funder, who also operates First Down Funding in Annapolis, Md.
Nonetheless, alternative lenders and funders in Canada are becoming more of a force to be reckoned with by a number of measures. Indeed, a majority of Canadians now look to online lenders as a viable alternative to traditional financial institutions, according to the 2018 State of Alternative Lending in Canada, a study conducted by online comparison service Smarter Loans.
Of the 1,160 Canadians surveyed about the loan products they have recently received, only 29 percent sought funding from a traditional financial institution, such as a bank, the study found. At the same time, interest in alternative loans has been on an upward trajectory since 2013. Twenty-four percent of respondents indicated they sought their first loan with an alternative lender in 2018. Overall, nearly 54 percent of respondents submitted their first application with a non-traditional lender within the past three years, according to the report.
Like in the U.S., there’s a mix of alternative financing companies in Canada. A number of companies offer factoring and invoicing and payday loans. But there’s a growing number focused on consumer and business lending as well as merchant cash advance.
Some major players in the Canadian alternative lending or funding landscape include Fairstone Financial (formerly CitiFinancial Canada), an established non-bank lender that recently began offering online personal loans in select provinces; Lendified, an online small business lender; Thinking Capital, an online small business lender and funder; easyfinancial, the business arm of alternative financial company goeasy Ltd. that focuses on lending to non-prime consumers; OnDeck, which offers small business financing loans and lines of credit; and Progressa, which provides consolidation loans to consumers.
By comparison, the merchant cash advance space has fewer players; it is primarily dominated by Thinking Capital and less than a dozen smaller companies, although momentum in the space is increasing, industry participants say.
“The U.S. got there 10 years ago, we’re still catching up,” says Avi Bernstein, chief executive and co-founder of 2M7 Financial Solutions, a Toronto-based merchant cash advance company.
OPPORTUNITIES ABOUND
In terms of opportunities, Canada has a population that is very used to dealing with major banks and who are actively looking for alternative solutions that are faster and more convenient, says Sherbatov of Smarter Loans. This is especially true for the younger population, which is more tech-savvy and prefers to deal with finances on the go, he says.
Because the alternative financing landscape is not as developed in Canada, new and innovative products can really make a significant impact and capture market share. “We think this is one of the key reasons why there’s been such an influx of international companies, from the U.S. and U.K. for example, that are looking to enter the Canadian market,” he says.
Just recently, for example, Funding Circle announced it would establish operations in Canada during the second half of 2019. “Canada’s stable, growing economy coupled with good access to credit data and progressive regulatory environment made it the obvious choice,” said Tom Eilon, managing director of Funding Circle Canada, in a March press release announcing the expansion. “The most important factor [in coming to Canada] though was the clear need for additional funding options among Canadian SMEs,” he said.
OnDeck, meanwhile, recently solidified its existing business in Canada through the purchase of Evolocity Financial Group, a Montreal-based small business funder. The combined firm represents a significantly expanded Canadian footprint for both companies. OnDeck began doing business in Canada in 2014 and has originated more than CAD$200 million in online small business loans there since entering the market. For its part, Evolocity has provided over CAD$240 million of financing to Canadian small businesses since 2010.
“There is an enormous need among underserved Canadian small businesses to access capital quickly and easily online, supported by trusted and knowledgeable customer service experts,” Noah Breslow, OnDeck’s chairman and chief executive, said in a December 2018 press release announcing the firms’ nuptials.
There are also a number of home grown Canadian companies that are benefiting from the growth in the alternative financing market.
2M7 Financial Solutions, which focuses on merchant cash advances, is one of these companies. It was founded in 2008 to meet the growing credit needs within the small and medium-sized business market at a time when businesses were having trouble in this regard.
But only in the past few years has MCA in Canada really started picking up to the point where Bernstein, the chief executive, says the company now receives applications from about 200 to 300 companies a month, which represents more than 50 percent growth from last year.
“We’re seeing more quality businesses, more quality merchants applying and the average funding size has gone up as well,” he says.
NAVIGATING THROUGH CHALLENGES
Despite heightened growth possibilities, there are also significant headwinds facing companies that are seeking to crack the Canadian alternative financing market. For various reasons, some companies have even chosen to pull back or out of Canada and focus their efforts elsewhere. Avant, for example, which offers personal loans in the U.S., is no longer accepting new loan applications in Canada at this time, according to its website. Capify also recently exited the Canadian business it entered in 2007, even as it continues to bulk up in the U.K. and Australia.
One of the challenges alternative lenders face in Canada is distrust of change. Since Canadians are so used to dealing with only a few major financial institutions to handle all their finances, they are skeptical to change this behavior, especially when the customer experience shifts from physical branches to online apps and mobile devices, says Sherbatov of Smarter Loans. He notes that adoption of fintech products in Canada has lagged in recent years, partially because there has been a lack of awareness and trust in new financial products available.
One way Smarter Loans has been working to strengthen this trust is by launching a “Smarter Loans Quality Badge,” which acts as a certification for alternative financing companies on its platform. It is issued to select companies that meet specified quality standards, including transparency in fees, responsible lending practices, customer support and more, he says.
The Canadian Lenders Association, whose members include lenders and merchant cash advance companies, has also been working to promote the growing industry and foster safe and ethical lending practices. For example, it recently began rolling out the SMART Box pricing disclosure model and comparison tool that was introduced to small businesses in the U.S. in 2016.
Another challenge that impacts alternative lenders in the consumer space is having restricted access to alternative data sources. Because of especially strict consumer privacy laws, access is “substantially more limited” than it is in any other geography,” says Jason Mullins, president and chief executive of goeasy, a lending company based in Mississauga, Ontario, that provides consumer leasing, unsecured and secured personal loans and merchant point-of-sale financing.
From a lending perspective, goeasy focuses on the non-prime consumer—generally those with credit scores of under 700. Mullins says the market consists of roughly 7 million Canadians, about a quarter of the population of Canadians with credit scores. The non-prime consumer market is huge and has tremendous potential, he says, but it’s not for the faint of heart.
Another issue facing alternative lenders is the relative difficulty of raising loan capital from institutional lenders, says Ali Pourdad, co-founder and chief executive of Progressa, which recently reached the $100 million milestone in funded loans for underserved Canadian consumers. “The onus is on the alternative lenders to ensure they have good lending practices and are underwriting responsibly,” he says.
What’s more, household debt to income ratios in Canada are getting progressively worse, with Canadians taking on too much debt relative to what they can afford, Pourdad says. As the situation has been deteriorating over time, there is inherently more risk to originators as well as the capital that backs them. “Originators, now more than ever, have to be cautious about their lending practices and ensure their underwriting is sound and that they are being responsible,” he says.
On the small business side of alternative lending, getting the message out to would-be customers can be a challenge in Canada. In U.S. there are thousands of ISOs reaching out to businesses, whereas in Canada, most funders have a direct sales force, with a much smaller portion of their revenue coming from referral partners, says Adam Benaroch, president of CanaCap, a small business funder based in Montreal.
He predicts this will change over time as the business matures and more funders enter the space, giving ISOs the ability to offer a broader array of financing products at competitive rates. “I think we’re going to see pricing go down and more opportunities develop, and as this happens, the business is going to grow, which is exactly what has happened in the U.S,” he says.
Generally speaking, Canadian businesses are still somewhat skeptical of merchant cash advance and require considerable hand-holding to become comfortable with the idea.
“You can’t wait for them to come to you, you have to go to them and explain what the products are,” says Pitcher of SharpShooter, the MCA funding company.
While Pitcher predicts more companies will continue to enter the Canadian alternative financing market, he doesn’t think it will be completely overrun by new entrants—the market simply isn’t big enough, he says. “It’s not for everyone,” he says.
Small Business Finance Broker Wins Entrepreneur Of The Year
May 17, 2019Sonia Alvelo, CEO of Newington, CT-based Latin Financial LLC, has been awarded Entrepreneur of The Year by the Latinas & Power Symposium. The event, incubated in Hartford, Connecticut in 2004, is the largest of its kind in New England and has reached upwards of 8,000+ women since its inception.
Alvelo’s company markets and brokers business loans and merchant cash advances throughout the mainland United States and Puerto Rico.
Connecticut Secretary of State Denise Merrill presented the award to Alvelo, who referenced the moment on social media by writing, “I was deeply honored to present the Entrepreneur of the Year Award to Sonia Alvelo at the 16th Annual Latinas & Power symposium today. Her small business is bolstering the Newington economy and her leadership serves as an example for women across the state.”
Alvelo has been an oft-quoted source in deBanked on the state of the small business finance market in Puerto Rico, most recently in the May/June 2018 magazine edition.
“I’m here today because of the merchants and clients from Puerto Rico and the US,” she told deBanked on Thursday, adding that this is just the beginning for what she and her company will accomplish.
I was deeply honored to present the Entrepreneur of the Year Award to Sonia Alvelo at the 16th Annual Latinas & Power symposium today. Her small business is bolstering the Newington economy and her leadership serves as an example for women across the state. pic.twitter.com/POwlvx0XkA
— Denise Merrill (@SOTSMerrill) May 16, 2019
How To Scale Your Broker Shop
May 15, 2019When it comes to hiring, it’s quality over quantity. That’s what the co-founders of Everlasting Capital Josh Feinberg and Will Murphy told a packed room at deBanked’s Broker Fair last week. They presented a panel called “How to Scale Your Broker Shop,” where they shared tips on how to do just that.
“We wanted to scale so badly and throw bodies in seats,” Murphy said.
And that’s what they did until they realized that they were doing just as much volume when they had fewer people.
CEO of National Funding Dave Gilbert, who spoke on a different panel at Broker Fair, said that he’s a fan of small brokers. He later explained to deBanked that when brokers get too big, they can get stuck with legacy staff. Instead, he said that when they stay lean and spend money on high quality salespeople, they can be much more effective with five or fewer people than with 10.
“It’s not the amount of bodies in the office, it’s the processes you have in place,” Murphy said.
Processes like hiring, training employees and organizing data, which they said should be as simple as possible. Bigger isn’t better and perfect isn’t realistic, they conveyed.
“Don’t worry about trying to create the perfect website or business card,” Feinberg said.
Instead, he said to think about five elements when trying to scale a brokerage shop:
- Focus on cash flow.
- Know that you will fail.
- Don’t quit before the miracle happens.
- Be different than your competition.
- Think bigger.
Meanwhile, Murphy presented concrete actions to take to grow a broker shop:
- Get customers.
- Build relationships.
- Be transparent.
- Find a mentor.
- Ask questions.
- Specialize in two programs (products)
- Brand yourself / your company
Everlasting Capital, which now has 19 people on staff and is based in New Hampshire, facilitates MCA funding and equipment financing.
On Diversification: Acknowledging that MCAs have an uncertain future, Feinberg said it’s important to diversify. He said that three years ago they were doing exclusively MCA deals and now they do 50% MCA and 50% equipment financing.
On social media marketing: “Be consistent. It’s not about the likes. It’s about [good] content and consistency,” Murphy said.
On broker performance: Brokers are given a six month training program at Everlasting Capital. After the six month period, they’re expected to fund four deals a month.
They also said it’s important to make friends with people in the industry.
Merchant Relationship Status: It’s Complicated
May 14, 2019
Brokers will often say that building strong relationships with their merchants is critical to their success. John Celifarco, Managing Partner at Horizon Financial Group, a five person ISO in Brooklyn, said that the advantage they have over larger competitors is the relationships they’ve developed with their merchants. Celifarco’s office is even in a streetfront store, where a number of their merchants are actually neighboring stores. Celifarco sees this as a strength.
But Michael Bernier, Vice President of 1 West Finance, a 14-person brokerage based in New York, said that things have changed as competition has increased in the space.
Customers gravitate towards companies that can provide them with not only the best pricing, but also the best user experience, which is why we believe so many new players in the space have achieved scale so quickly.
While customer relationships are important, funders in the space that are improving their speed, efficiency, and pricing are going to win the deals.
“In general, if [end users] find a better price on Amazon, 9 times out of 10 they’re going to buy that product on Amazon, regardless of the sales person on the phone” Bernier said.
Bernier suggests that rate or speed may win the customer but another more legally-binding circumstance may guide the relationship accordingly.
Kapitus CEO Andy Reiser served as moderator.
“Contractually, we own the customer,” said National Funding CEO Dave Gilbert on a panel at Broker Fair. “But we work in conjunction with the broker.”
Fellow panelist and Chairman of Rapid Finance, Jeremy Brown, said that he used to say what Gilbert said, but now says: “We own the loan. [And] we have the right to first renew the customer.”
Brokers seeking a very cozy relationship with their clients should therefore consider what rights and responsibilities are afforded to them under their referral contracts so that there’s no confusion with actions taken by either party with the customer down the road.
“I get close to people very quickly, it’s just who I am,” Kemp, a broker, told deBanked in an interview last year. “And in my opinion it works to my advantage because I have merchants that renew with me multiple times a year. And I know that no matter how many calls they get [from other brokers], they’re going to turn to me. I know that they trust me.”
Likewise, Chad Otar, CEO of Excel Capital in New York, has said that building trust with merchants is very important and is what leads to renewal business. Otar introduced one of his merchants, a marketing company, to his other clients. A few of them ended up working with the marketing company, which was a win for everyone and led to even stronger word of mouth from Otar’s merchants.
“I don’t think anyone owns the customer,” said CEO of BFS Capital Mark Ruddock on the panel alongside Gilbert and Brown. “Customers are a privilege, not a right.”
Broker Fair 2019 Makes Major Splash in the Heart of Manhattan
May 10, 2019If a tiny ray of light were created from every conversation about small business financing, then the Roosevelt Hotel in midtown Manhattan would have been tantamount to the sun on May 6th. It was the site of deBanked’s 2nd annual Broker Fair and the grand old lobby was abuzz with brokers, funders and vendors from across the industry. And it wasn’t only the lobby. The hallways and ball rooms and bathrooms were filled with people in jackets or dresses with colorful conference badges hanging from their necks. You could not open your eyes without seeing a Broker Fair attendee.
The day kicked off with an address to the crowd by deBanked’s founder and president Sean Murray.
He spoke to a packed audience in one of the hotel ballrooms that was actually the site of a famous scene in the 1987 movie, “Wall Street,” starring Charlie Sheen and Michael Douglas. It was in this scene where one of the most well-known lines, “Greed is good,” was delivered in a speech by the character Gordon Gekko, a ruthless businessman played by Michael Douglas.
In Murray’s speech, he acknowledged the classic financial thriller, but gave it a twist.
“Funding small business is good,” Murray said. “It’s not greed that’s good. Aligned interests are good.”
This very room was a marriage of old and new. The 1924 room with soaring ceilings and crystal chandeliers was packed with mostly young faces in a still relatively new industry. The stage was simple, the chairs sleek, and colored strobe lights circled the ceiling in what created a fresh energy.
The first panel of the day, called “The Great Debate,” was dominated by discussion of technology among the CEOs of some of the largest companies in the small business funding industry: National Funding, Rapid Finance, BFS Capital, and Kapitus.
“Technology is an inevitability and a powerful way for brokers to stay relevant,” BFS CEO Mark Ruddock told deBanked. “The question is, ‘Does that preclude the small [brokers] who don’t have the money to invest in technology?’”
He sees great opportunity for software platforms that can connect an individual broker to lenders, similar to how Shopify connects small mom and pop retailers to a wider consumer audience.
One of the other CEOs on the panel said he was bullish on digitally savvy brokers and all of them seemed to agree that brokers should offer more products.
“Having a broader set of products benefits brokers because they become the go-to person for merchants rather than simply serve a transactional function,” Chairman of RapidAdvance Jeremy Brown told deBanked.
For brokers looking to expand their product offerings, there was a well-attended session called “Commissions with Factoring and Leasing” that was led by factoring and leasing professionals, Phil Dushey and Edward Kaye, respectively.
Meanwhile, the co-founders of the successful brokerage Everlasting Capital, led a session called “How to Scale Your Broker Shop” which included advice on everything from hiring to customer acquisition and social media marketing. One of the founders, Josh Feinberg, had his marketing person follow him around with a video camera throughout the day.
There were also sessions on regulations affecting the industry, plus a session called “Operating with Integrity: Why Ethics Matter.”
“The speakers are very relevant,” said Dexter Bataille, a broker at Pivotal Funding in Florida who attended Broker Fair. “And the panels are really good too.”
“deBanked always finds ways to make the shows more professional,” said Senior Sales Leader at Reliant Funding Nicolas Marr, who flew in from California to attend the conference. “The details really count.”
In another hotel ballroom, Broker Fair attendees meandered around high tables where event sponsors had representatives talking about their products and handing out free t-shirts and pens. As the day wound down and Broker Fair’s “networking happy hour” approached its end at 6 p.m., the figurative sun (created by small business finance conversations) began to set at the Roosevelt Hotel. But a crowd of about 100 lingered at the hotel bar, buzzing away, eager to make just a few more connections.
The small business financing sun will rise again on July 25 at deBank’s next event, deBanked CONNECT in Toronto. Tickets are already available.
Broker Fair 2019 Photos
May 10, 2019If you share any of these on social media, please remember to include #brokerfair
Enjoy!
Amazon Now Among The Top Online Small Business Lenders in The United States
May 8, 2019Amazon has joined PayPal, OnDeck, Kabbage, and Square as being among the largest online small business lenders. On Tuesday, Amazon revealed that it had made more than $1 billion in small business loans to US-based merchants in 2018. Amazon says the capital is used to build inventory and support their Amazon stores.
By selling on Amazon, “SMBs do not need to invest in a physical store or the costs of customer discovery, acquisition, and driving customer traffic to their branded websites,” the company says. Small and medium-sized businesses selling in Amazon’s stores now account for 58 percent of Amazon’s sales. More than 200,000 SMBs exceeded $100,000 in sales on Amazon in 2018 and more than 25,000 surpassed $1 million.
You can view the full report they published here.
Company Name | 2018 Originations | 2017 | 2016 | 2015 | 2014 | |
PayPal | $4,000,000,000* | $750,000,000* | ||||
OnDeck | $2,484,000,000 | $2,114,663,000 | $2,400,000,000 | $1,900,000,000 | $1,200,000,000 | |
Kabbage | $2,000,000,000 | $1,500,000,000 | $1,220,000,000 | $900,000,000 | $350,000,000 | |
Square Capital | $1,600,000,000 | $1,177,000,000 | $798,000,000 | $400,000,000 | $100,000,000 | |
Amazon | $1,000,000,000 | |||||
Funding Circle (USA only) | $792,000,000 | $514,000,000 | $281,000,000 | |||
BlueVine | $500,000,000* | $200,000,000* | ||||
National Funding | $494,000,000 | $427,000,000 | $350,000,000 | $293,000,000 | ||
Kapitus | $393,000,000 | $375,000,000 | $375,000,000 | $280,000,000 | ||
BFS Capital | $300,000,000 | $300,000,000 | $300,000,000 | |||
RapidFinance | $260,000,000 | $280,000,000 | $195,000,000 | |||
Credibly | $290,000,000 | $180,000,000 | $150,000,000 | $95,000,000 | $55,000,000 | |
Shopify | $277,100,000 | $140,000,000 | ||||
Forward Financing | $210,000,000 | $125,000,000 | ||||
IOU Financial | $125,000,000 | $91,300,000 | $107,600,000 | $146,400,000 | $100,000,000 | |
Yalber | $65,000,000 |