Business Lending
InterNex Capital Fills Void in Higher End of Alternative Lending Market
April 6, 2018
New York-based Internex Capital is serving the higher end of the alternative lending market by providing revolving lines of credit from $250,000 to $5 million dollars, with an average deal size of roughly $1 million.
“We realized that there was not a revolving line of credit solution for small businesses,” said Simon Hermiz, a Fintech entrepreneur and one of the four founders of InterNex Capital. “This product does exist in the middle market and large corporate markets, but [didn’t] exist for small businesses.”
So the team of founders decided to fill this void, particularly in the lower-middle market, or for small businesses with revenues up to $50 million, but no less that $1 million, Hermiz told deBanked. Two members of the founding team, CEO Paul DeDomenico and COO Lin Chua, are former GE Capital veterans. The other two are Hermiz, who manages risk, and CTO Jim Miller, who has worked in credit technology for years.
Hermiz explained that there were essentially only three alternatives for small businesses in search of capital: cash advances, term loans and factoring. While banks have long provided credit to large companies based on the company’s assets, called “asset based line of credit,” there had not been a product like this for small companies.
“So what we want to do is craft an upper end kind of product in this market so that [small businesses] can feel bankable,” Hermiz said, “…because with our line of credit product, we’re not notifying all their customers that they sold their invoices. Because they’re not selling invoices.”
InterNex Capital does not do factoring, but its product resembles factoring.
“The important nuance is that we’re not buying the invoice, like a factor. We’re lending against it,” Hermiz said.
Because banks also lend against invoices, Hermiz said that the company, of 15 employees, competes with banks for business. They work mostly with ISOs, but they also have an internal sales team that handles client relations.
Founded in 2015, InterNex Capital’s proprietary platform is called Velocity and was designed in large part by the company’s partner, Genpact, a public company that was incubated in GE.
Liquid FSI Adds Key Board Member
April 5, 2018
Liquid FSI, a direct lender and creator of the Convert2Pay platform, which provides on-demand payment for medical invoices, added Barry Blecherman to its Board of Advisors.
While a few recent graduates of the NYU Tandon School of Engineering were helping the Liquid FSI team with some algorithms for their technology platform, they mentioned Blecherman, a professor of Finance and Risk Engineering at the Tandon School.
“I looked him up and I contacted him and he turns out to be one of the leading guys for risk [and] financial engineering in the country,” said Frank Capozza, CEO of Liquid FSI. “We had a bunch of lunches, and at one of the lunches [Blecherman] said to me, ‘Don’t even give me a presentation. My wife is a pediatrician. I’m on board.’ He totally got it.”
Why did Blecherman relate more quickly to Liquid FSI given that his wife is a pediatrician? Because the company’s main product, Convert2Pay, allows medical practitioners, such as doctors, to get paid early for their medical claims that can otherwise take insurance companies months to pay. This sounds like factoring because it is like factoring. However, there are some significant differences.
“There are a number of things in factoring that we wanted to disrupt,” Capozza said.
The first is notification to the payer that someone else now owns the invoice. In the case of a doctor, that means notifying the insurance company that Liquid FSI now owns the doctor’s invoice.
“We said ‘that’s an insult to the doctor,’” Capozza said. “The doctor thinks, ‘I want to sell these claims, but I don’t want the insurance company to know that I’ve assigned them to someone else.’”
Capozza said that practitioners, which also include medical labs or hospice care companies, are less likely to sell their claims if they know that the insurance company will be notified.
In addition to not notifying, Capozza said that Liquid FSI differs from a traditional factor in that they will generally end up paying a medical practitioner more of what they are owed because they have access to more precise information. Liquid FSI calculates how much money the practitioner will likely receive by analyzing data from medical billing companies, whereas Capozza said that traditional factors will take the anticipated amount and give the practitioner 75% of it, to cover for potential underpayment.
Practitioners, who pay Liquid FSI a transaction fee and an origination fee, are not the company’s only clients. In fact, other lenders make up a big percentage of the business. Lenders pay a licensing fee to Liquid FSI to use its proprietary software.
Until the Convert2Pay platform was launched in November 2016, Capozza maintains that, given the complexity of the medical billing system, lenders had a big dilemma.
“A lender says ‘Well, we don’t really know how much this [claim] is worth,” Capozza said. “That’s number one. Number two, ‘We don’t know whether the medical billing company is doing their job properly. And if they mis-code [the claim], it’s going to go back into the system and could be delayed another 30 days.’”
Founded in 2014 and based in New York, Liquid FSI gets its practitioner clients through partnerships with companies that sell consumer products to doctors’ and dentists’ offices. While a salesperson is pitching a product, they will also mention Liquid FSI’s on-demand payment product.
Capozza is no stranger to the funding business. In fact, he is among the original players in the MCA industry and was the first to bring the MCA concept to Europe.
Experian To Stop Reporting All Tax Lien Data
March 24, 2018
According to a March 19 letter sent by Experian to its clients, the company will remove all remaining tax liens from its consumer credit reporting database beginning the week of April 16.
This finalizes the move by credit bureaus (including Equifax and TransUnion) to stop including civil judgments and tax liens on consumer credit reports.
When Experian started to omit this information last summer, many funding companies were in shock.
“The IRS could come in and seize credit card processing accounts and prevent the lender from getting paid,” David Goldin told deBanked last summer in regards to the potential risk of lien data being hidden. (Goldin is the CEO of Capify, a funding company with offices in the UK, Australia and formerly the US.) “Once you have a judgment, a creditor could come in and freeze bank accounts.”
Yellowstone Capital CEO Isaac Stern also expressed concern last summer. But fears about this have mostly been mollified as funding companies have found other ways to obtain the same information. By last fall, Yellowstone started using the Clear platform, provided by Thomson Reuters, in more thorough ways in order to obtain the same information that was no longer available to them on Experian.
“You have to dig through it,” Stern said of the vast data to be found on Clear.
Experian did not respond to requests for comment.
SBFA Braved Snow Storm for Spring Fly-In
March 23, 2018
The Small Business Finance Association (SBFA) had their Washington DC Spring fly-in earlier this week. SBFA members met with Karen Kerrigan, the President and CEO of the Small Business & Entrepreneurship Council, on Tuesday afternoon, and Congressman Josh Gottheimer (D-NJ) in the evening.
Despite the blizzard, a handful of members continued to meet with members of Congress on the Hill on Wednesday.
Founded ten years ago, The SBFA is a non-profit advocacy organization dedicated to ensuring Main Street small businesses have access to the capital they need to grow and strengthen the economy.
How A New Hampshire Teen Launched A Lending Company And Climbed Into The Inc. 500
March 17, 2018Josh Feinberg was not a complete newbie when he started in the lending business in 2009, but he also had a long way to go to find success. His dad had been in the business for 15 years and shortly after graduating high school, Josh started to work in equipment financing and leasing at Direct Capital in New Hampshire, his home state. He then had a brief stint working remotely for Balboa Capital, but he wasn’t sure that finance was for him.
He was 19, with a three year old daughter, and he took a low paying job working at a New Hampshire pawn shop owned by his brother and a guy named Will Murphy.
“I was making $267 a week at the pawn shop and I was having to ask friends to help me pay my rent for a room,” Feinberg said. “So at that point, I realized that something needed to change.”
One day, while working at the pawn shop, Feinberg saw a Facebook post from a restaurant owner in search of financing for equipment. With a background in financing, he said to himself: “I wonder if I could take an application and bring it to one of the sources I know and they could pay me a commission?’”
That question prompted Feinberg to present to his brother and Murphy the idea to start a finance company. Feinberg said he drew up a business plan in a day and a half and his brother and Murphy agreed to give him $3,000 to start the company. That was November of 2012.
“They gave me a spot down in the basement of their shop, which was anywhere from 47 to 52 degrees,” Feinberg said. “I had my jacket, my computer and I was making 400 calls a day.”
After three months of not funding any deals, Feinberg said he almost gave up. He was also focused mainly on the equipment finance market because that’s all he really knew.
“Then come to find out that I talked to somebody that had a need for working capital and I realized that I could find sources [for] capital,” Feinberg said.
So he worked with a few different sources to find capital for this client. The deal went through in 24 hours and it paid about $7,000 in commission.
“I didn’t have any money and I was like, ‘this is awesome,’” Feinberg said. “So I [kept] making 400 calls a day, knowing that this could potentially change my life.”
And it did. After a year, Feinberg’s company, Everlasting Capital, made $110,000 in commissions and $3.5 million in volume. Within that first year, he also hired three people and moved from the basement of the pawn shop in Rochester, NH to a 600 square foot office in the same town. (The current office is also in Rochester, but in a larger space.)
This lightning fast trajectory is by no means common. That’s why Everlasting Capital made it onto 2017’s Inc. 500 list, the iconic list of America’s fastest growing private companies. By year two, Everlasting Capital earned $640,000 in commissions, generating $14 million in volume, and by year three it earned $1.6 million in commissions with $18 million in volume. Ultimately, over a three year period ending in 2016, Everlasting Capital experienced 1,361 percent growth, placing them at No. 323 on the Inc. 500 list.
How did they do it? Feinberg said that creating a company and an office environment that employees enjoy is really critical, as is recognizing employees for their hard work.
“As long as we hit our goals which we have every year,” Feinberg said, “we take our company on a trip at the end of each year.” (Trips have included Las Vegas and Puerto Rico.)
More specifically, Feinberg said that the company’s success had a lot to do with building relationships with senior level people at top funding companies like Pearl Capital and BFS Capital. These relationships gave them higher [approved] volume, better buy rates and the ability to pay out good commissions to ISOs.
“This opened up a whole new aspect of our company,” Feinberg said. “Now, in addition to working with direct clients, we had an ISO division as well.”
But Feinberg said he wanted to create a reputable company to ensure that ISOs could feel comfortable working with them, knowing that Everlasting Capital was not backdooring their deals. So they created a portal for ISOs, called EverHub, which allows them to track their deals at every step along the way.
“We had to think outside the box to come up with a platform that was completely transparent and made it viable to work with another broker to get deals done,” Feinberg said.
There have definitely been hurdles along the way – most notably, employee retention.
“We hired and fired about 20 people in the second year,” Feinberg said. “We wanted to see if quantity would increase sales. Come to find out, it’s more quality than quantity.”
Partnership has been another challenge. The leadership team at Everlasting Capital is now Feinberg and Murphy. Feinberg’s brother, who was Murphy’s initial partner at the pawn shop (which has since been sold), is no longer involved in it.
Feinberg said that what makes for a good partnership is communication, early and often. And being able to hold partners accountable for different responsibilities.
“Partnerships are tough in business – they tend to get a little hairy, a little crazy at times,” Murphy said.
“Like myself and Josh, we have some different views on a lot of different things, but we take our different views and we meld them together to provide the best outcome for our employees and all the people we work with. Some may see that as a downside, but it’s actually a real strength.”
2017 Small Business Financing Leaderboard
March 14, 2018Thanks to several companies filing their annual earnings statements and Funding Circle disclosing their USA origination figures for 2017, we’ve been able to put together a leaderboard in the small business financing space. This list is not comprehensive and omits key players like PayPal Working Capital and Amazon Lending.
| Company Name | 2017 Originations | 2016 | 2015 | 2014 |
| OnDeck | $2,114,663,000 | $2,400,000,000 | $1,900,000,000 | $1,200,000,000 |
| Kabbage | $1,500,000,000 | $1,220,000,000 | $900,000,000 | $350,000,000 |
| Square Capital | $1,177,000,000 | $798,000,000 | $400,000,000 | $100,000,000 |
| Yellowstone Capital | $553,000,000 | $460,000,000 | $422,000,000 | $290,000,000 |
| Funding Circle (USA only) | $500,000,000 | |||
| BlueVine | $500,000,000* | $200,000,000* | ||
| National Funding | $427,000,000 | $350,000,000 | $293,000,000 | |
| Strategic Funding | $393,000,000 | $375,000,000 | $375,000,000 | $280,000,000 |
| BFS Capital | $300,000,000 | $300,000,000 | ||
| RapidAdvance | $260,000,000 | $280,000,000 | $195,000,000 | |
| Credibly | $180,000,000 | $150,000,000 | $95,000,000 | $55,000,000 |
| Shopify | $140,000,000 | |||
| Forward Financing | $125,000,000 | |||
| IOU Financial | $91,300,000 | $107,600,000 | $146,400,000 | $100,000,000 |
*Asterisks signify that the figure is the editor’s estimate
Thinking Capital Acquired by Canadian Finance Firm Purpose Financial
March 12, 2018
Thinking Capital, a leader in the fintech lending industry in Canada, was acquired last week by Canadian finance company, Purpose Financial, based in Toronto.
“Under the Purpose Financial umbrella, our time to market on product innovation and funding capacity will be greatly amplified,” said Jeff Mitelman, CEO and co-founder of Thinking Capital.
Mitelman, who co-founded Thinking Capital in 2006, has long been an advocate for improving the way small business credit is evaluated and communicated in Canada.
“The challenge in Canada is that our lending institutions historically either don’t lend to small business or don’t lend to enough of our small businesses,” Mitelman told deBanked. “And that’s driven by the fact that so many of the measures of small business credit worthiness simply don’t exist. Our credit bureaus don’t report on it, there aren’t metrics or scores unique to small business, and most significantly, small business credit has never been attached to retail or institutional conduits for funding.”
This is where Purpose Financial comes in. Mitelman believes that Purpose Financial’s investment arm and its relationship with Omers, a large Canadian pension fund, will provide small businesses with “access to conduits that historically small businesses have never been able to access.”
Thinking Capital provides an MCA product, which it calls Flexible, as well as a term product, which it calls Fixed. It also helps power loans provided by large companies like Staples.
Purpose Financial has three verticals: Investment Management (retail and institutional), Digital Technology, and Capital / Funding.
“Thinking Capital is a clear leader in the small to medium-sized business lending space…” said Som Seif, CEO of Purpose Financial. “[And] this acquisition brings together leading origination, asset management, and technology platforms as a unified entity, and enables us to bolster our product capabilities and optimize the technology, distribution, and funding model of our combined business.”
I Got Funded, Again
March 1, 2018
One year after I received a 12-month loan from Square on fixed monthly ACH, I logged onto my dashboard to renew. I was pre-approved to do it all over again, the screen indicated, but the monthly ACH payment option had disappeared. In its place, Square offered to withhold a fixed percentage of my credit card sales going forward until the balance was paid in full.
Known as a “split,” diverting a percentage of the card payment proceeds to a financial company is straight out of the merchant cash advance playbook. Square, however, structures their transactions as loans. That means that regardless of how my sales ebb and flow, I must pay off my balance in full in 18 months.
I was okay with that. I had to be. It was that time of year when working capital is very important, the holidays. Not to mention, deBanked was in the process of moving, again. If you recall in December of 2016, we moved to a slightly larger office in the same building on Wall Street. In December of 2017, however, we moved from Manhattan to Brooklyn, a process that was a little more involved.
But this loan had no monthly payment, just a 15.75% split. Others may refer to this as the holdback, withhold, or specified percentage. Square’s application process this time around was slightly more rigorous than a year ago, a few more buttons, a couple more disclosures, and even a notice that a review could take between 1-3 days. I was still approved the same day, however, and had funds the next. There were no hidden fees or closing costs.
Six days after being funded, I ran a charge, Square took their split, and I netted the different minus the interchange fees. I noticed, but in a way I didn’t. I didn’t have to worry about how much the monthly payment would be and when. The loan was being repaid all by itself. That was how I processed it psychologically anyway, as I imagine many other small business owners have as well.
And the feeling of relief from impending monthly payments is not entirely mental. Seven weeks later, I was already 17% paid off. That’s real progress, especially with a 65-week window remaining to pay off in full.
Had the same transaction been structured as a merchant cash advance, the timeframe would’ve been unlimited. But hey, I guess sometimes you can’t have it all. It was a 1.10 factor rate, decent by industry standards, certainly not the most expensive, but not the least expensive either. It was fast, it was helpful, and best of all, it was free from the burden of fixed monthly payments.
I got funded again and loved it. What are you still waiting for?
Editors Note: deBanked did not collaborate with Square in the writing of this editorial. Square did not even contact us after I published my first experience with their product one year ago. It is unclear if they are even aware that I wrote anything at all. Square is not an advertiser nor have they sponsored any of our events. I did not attempt to interview them for this write-up or tip them off that I would be writing anything. To my knowledge, we did not receive any special benefit or pricing. deBanked chose Square for funding in part to avoid the conflict of writing a review about a paying advertiser or sponsor.
