Business Lending
NYIC – IFA Northeast – AFBA – deBanked Conference Recap
October 17, 2018
Yesterday, the New York Institute of Credit (NYIC) hosted a conference in Manhattan with attendees from several segments of the commercial finance industry, including factoring, MCA, and asset based lending. Approximately 100 registrants gathered at Arno Ristorante in the garment district section of midtown. In addition to local New York firms, attendees travelled from as far as Chicago and California to be at the event.
“By all accounts, it was a big success,” said Harvey Gross, Executive Director of the NYIC, which recently celebrated its 100th anniversary. The half-day conference was a collaboration of the NYIC, the Alternative Finance Bar Association (AFBA), the IFA Northeast, and deBanked.
“The joint conference was truly groundbreaking,” said Lindsey Rohan, a cofounder of the AFBA, who also moderated a legal panel. “Having the various business models that make up the alternative finance space in the same room created an opportunity for honest and impactful conversation. While we only scratched the surface and I have many new questions, I’m confident that new business relationships were created and this will open the door to a continued exchange of ideas.”
Nineteen panelists, many of them executives at financial companies and lawyers, contributed to four panels that filled the afternoon with lively and thoughtful conversation. Regulations coming out of California and just recently from New Jersey, were hot topics of discussion.
deBanked founder Sean Murray moderated a panel on Best Practices. “These type of collaborative events are necessary as commercial finance offerings continue to expand. Education and debate create a more fluid marketplace,” Murray said.
Andrew Bertolina, whose company Finvoice offers factors and asset-based lenders a sleek software solution, said it was “great to see everyone at the Lending Conference and cross-pollination of MCA, factors and fintech players. Most cross-pollination at this IFA NYIC event than in prior factoring events.” Bertolina is the co-founder and CEO.
Robert Zadek, an attorney with Buchalter said, “that was a great meeting. It was so instructive to hear intelligent, honorable representatives of factoring and of alternative finance, who share clients and have overlapping products cordially comparing notes and sharing somewhat different views of the marketplace and the future of SMB financing. It is fascinating to see how much each can learn from the other, and to witness how such different financial products are moving towards each. The lesson – adapt or perish.”
The conference was sponsored by Change Capital, Finvoice, law firm Platzer, Swergold, Levine, Goldberg, Katz & Jaslow LLP, Aurous Financial, and Financial Poise.
Lendio Surpasses $1 Billion in Originations
October 16, 2018
Lendio announced today that it has facilitated $1 billion in financing to more than 51,000 small businesses across the U.S. since it was founded 2011. It reached the $500 million mark just a little over a year ago in July 2017.
“We are a marketplace, not a lender, which means we can help a lot more small business owners,” Lendio co-founder and CEO Brock Blake told deBanked. “We can say ‘Yes’ more often because we have more options.”
Brock attributes the company’s recent growth to its marketplace business model, its team and all of its business partners. Lendio works with over 75 lenders on its platform and it also operates a turndown program where participating lenders refer to applications to Lendio that they have declined, but which might be funded by a different lender that Lendio works with.
Lendio also has about 30 franchisees that operate in 50 markers in the U.S. A market could be a single city or a handful of counties, and some franchisees cover multiple markets, according to Blake. Franchisees work with accountants, attorneys and chambers of commerce to inform local business owners about Lendio and ultimately get them to use the Lendio platform when looking for a small business loan.
Lendio has over 150 employees split between its headquarters in the Salt Lake City, Utah area and an office on Long Island.
Prior to co-founding Lendio, Blake created a company called Funding Universe, which connected entrepreneurs to venture capitalists in what he described was like speed dating. But he said that he soon realized that most American businesses need smaller amounts of capital, so he pivoted into small business lending.
“Across 75 lenders and 15 different loan products, it [can be] a challenge to really figure out which business owner fits with which loan product and to help that deal get funded,” Blake said. “But feel like over the last 18 months to 2 years we really have that process down. And now we’re gaining that flywheel effect. We’re continuing to gain more and more momentum. The ceiling is much higher and I’m really excited about the future in front of us.”
OnDeck Launches New Subsidiary
October 16, 2018
OnDeck announced today that it has created a new subsidiary, called ODX, which will help banks become more efficient online lenders. OnDeck’s CEO Noah Breslow told deBanked that ODX is an expansion of OnDeck’s successful partnership with JPMorgan, which started in 2016.
“We created what at the time was I think a pretty groundbreaking partnership with the largest bank in the country,” Breslow said. “Now today, we’re funding loans very efficiently using our platform and [Chase’s] marketing and their balance sheet. And it really is sort of the promise of a fintech working with a bank. So we decided strategically this year to really make a big bet in this area…[and create] a company that’s going to support many banks.”
OnDeck has chosen Brian Geary to serve as president of ODX. Breslow said this is because Geary launched and oversaw the collaboration with Chase, whereby OnDeck built a digital bank originations platform for the bank.
“Geary has really been the focal point of that entire effort,” Breslow said, “so he was a very natural choice to head this up.”
OnDeck has drawn talent from among its existing employees to create this company, but it also hired Raj Kolluri to serve as Head of Product and Technology for ODX. And Geary said they are actively hiring to build the team. Kolluri comes from SS&C Primatics, a software company, where he served as Vice President of Product and Engineering, helping to build the company’s software as a service analytics platform for banks.
When asked if helping banks to become faster online lenders is a way of aiding OnDeck’s own competitors, Geary said he didn’t see it that way.
“We don’t view it as competitive,” Geary said. “The banks and OnDeck are playing in different segments of the market. [Banks] have a tighter risk tolerance and certain customers they can serve. So we’re enabling them to serve those customers more efficiently.”
Breslow said that ODX, which he described as “a company within a company,” will soon be announcing its next bank partnership.
ODX will operate within the offices of OnDeck, including its offices in New York, Arlington, VA and Denver, CO.
Sean Murray to Moderate Best Practices Panel at New York Institute of Credit Event
October 15, 2018deBanked President and Chief Editor Sean Murray will be moderating a best practices panel at the New York Institute of Credit Event on October 16th. The event is also supported by the IFA Northeast, the Alternative Finance Bar Association, and deBanked.
The subject of the panel is to discuss best practices when dealing with different financial firms, namely ABL, factoring, and merchant cash advance. The panelists are:
- Bill Gallagher, President, CFG Merchant Solutions
- Bill Elliott, President, First Business Growth Funding
- Raffi Azadian, CEO, Change Capital
- Dean Landis, President, Entrepreneur Growth Capital
How Dealstruck Arrived, “Disrupted,” and Died – A Cautionary Online Lending Tale
October 14, 2018Dealstruck just wanted to be loved.
When Dealstruck popped up on the online lending scene in 2013 with promises of long term loans and low interest rates, some industry insiders rolled their eyes at the naïveté. “It’s not about disintermediating the banks but the very high-yield lenders,” Ethan Senturia, chief executive of Dealstruck, told the New York Times in March 2014.
A self-described member of the “lucky sperm club,” a not-even 30-years-old Senturia went on to successfully raise $30 million of investor capital to fund his business, enough to fuel his rise and price-shame his competitors for years. But it wouldn’t last, as he detailed in book, Unwound, about the behind-the-scenes chaos that ravaged Dealstruck until the company closed for good in late 2016.
“We had taken to the time-honored Silicon Valley tradition of not making money,” Senturia recalls. “Fintech lenders had made a bad habit of covering out-of-pocket costs, waiving fees, and reducing prices to uphold the perception that borrowers loved owing money to us, but hated owing money to our predecessors.” The use of italics are his own.
During Dealstruck’s rise and fall, a journey that reads like an ever-frantic race to raise more money before collapsing, Senturia actually pauses to self-reflect if Dealstruck was becoming a Ponzi scheme. “When does a business go from legitimate but unsustainable to being a Ponzi?”, he pondered before rationalizing that he had not and would not cross that threshold.
At times, the company resigned itself to being a technology play for would-be-acquirers, one of whom included CAN Capital in 2014 when Dealstruck was only originating $3 million a month in loans. Senturia recalls, “For an unprofitable company that had raised $3.5m of equity and whose systems capabilities hadn’t evolved far beyond processing payments on term loans, it would have been tough to make a financial argument that we were worth much more than the capital we invested–$10m soaking wet. But CAN was doing different math. They were trying to go public.”
In Senturia’s view, CAN was trying to check the technology box on the way to an IPO. The offer was $33 million, $13 million in cash and $20 million in pre-IPO stock. Dealstruck first accepted the offer and then ultimately turned it down. CAN never had their IPO.
Dealstruck continued on, rapidly expanding while dealing with major defaults, one of which included an $800,000 loan, the largest deal they ever did at the time, that turned out to be completely fraudulent. One of their early investors never forgave the hiccup and by May 2016, when the online lending bubble was bursting, due in part to the Lending Club scandal, Dealstruck became a poster child for the overheated market.
Case in point, Senturia was mocked during an investor presentation as one individual stood up and asked who in the room would even invest $10,000 into Dealstruck let alone the millions they were seeking. Nobody raised their hand. It was a sign of the times.
At the end, Dealstruck’s dire situation had become entwined with a hedge fund that could not afford to let Dealstruck fail. Senturia referred to their predicament as “mutually assured destruction.” When Senturia warned the hedge fund manager that the game was finally over, it did not go well. “I am like, literally staring over the edge. My life is over,” the hedge fund manager tells him. Dealstruck died. The hedge fund survived.
What Senturia left in his wake were dozens of lost jobs, unpaid vendors, and a cautionary tale he feared nobody would even remember. His book makes sure that nobody will forget.
Though Dealstruck’s failed business could be summed up by bankers as an 180-page “I told you so,” Senturia, concedes throughout that he was learning major lessons along the way. After all, he was only in his twenties and all too self-aware that his family relationships, education (Wharton), and luck played a role in making Dealstruck possible in the first place. Besides, Senturia could easily be telling the tale of many other online lenders of that generation; Lose money, scale, raise capital, shame the competition for their high rates or slow speed, and hope that someone buys you up or you go public.
While it’s a quintessential Silicon Valley story, there are plenty of nuggets of wisdom Senturia sprinkles in along the way that would be valuable to any entrepreneur. It’s also a must-read for anyone interested in lending or fintech. If you were in the business during those years, you probably know some of the characters firsthand. You can buy the book on Amazon here.
The Broker: How Andy Savarese Changes Collars and Closes Deals
October 12, 2018
Title:
I’m the Managing Partner at JustiFi Capital, a brokerage in Farmingdale, Long Island. I started it September 2017 with my cousin, who’s the owner and my best friend. We do mostly MCA, but also some term loans.
His schedule:
I have a part-time/full-time job in the mornings. I work in sanitation for the town of Oyster Bay on Long Island. I typically wake up at around 3:37 a.m. I get into my yard at 4:15 a.m. and I go right into my route. My job is task completion. So the faster you work, the faster you get to go home. You get paid the same. I was fortunate to get on a fast truck, so I’m usually done between 7:45 a.m. and 9:30 a.m.
I go home, I take a quick shower, and I change my outfit. I go from blue collar to white collar. I get into the office around 10:30 a.m. and I start doing more of a mental hustle compared to a physical hustle.
At around 12:45 p.m., I take my lunch and I go to the gym for about 45 minutes. I get back to the office and I keep up the closing, the pitching, the selling, the prospecting. At around 5:30 p.m., I leave the office, I pick up my son from daycare, and since my wife works evenings, I take care of him at night until around 7:30 p.m., and get him ready for bed. The second he hits his crib, I hit my bed and I call it a day.
His background in the business:
About three years ago, I was driving oil trucks after sanitation, and my cousin, who is also my best friend, gave me a call. He knew I was breaking my butt all day. He had a friend that was starting his own ISO. So I did that for a year and I learned the industry. It didn’t really work out there, so I convinced my cousin to open up our own shop, which is JustiFi.
His process:
At JustiFi, we’ve been growing. We’re just grinding it out and things are going really well. We have four brokers and we keep it tight. We keep it small so that everybody is inundated with files and everybody’s making money and everybody’s happy. We don’t have any processors or chasers. We do it all on our own. We’re working the deal from beginning to end. My cousin has devised a pretty strategic marketing plan that inundates us with leads all day. I disperse them and I follow up with my guys and see how I can help. I overlook all of the closings and make sure that everything than can get worked is getting worked.
His biggest challenge as a broker:
A lot of people will say getting good leads and keeping your brokers happy. What I found is the most challenging part of being a broker in this industry is keeping a really level head and keeping your emotions out of the game. It’s a very tumultuous industry. One day, you could have 12 deals in the funding chute, the next day, your pipe could be dry. You could have a deal you think is going close and something happens on the funding call and it gets derailed. The point is that you’ve got to stay positive, you’ve got to stay confident, and you’ve got to roll with the punches. If not, you’re going to lose it and you’re going to get eaten alive. Because it’s a battlefield out there. You’ve got to keep your composure, no matter what the size of the deal. You’ve got to just keep pushing through. Because if not, you’re not going to make it.
His largest deal funded:
$250,000. And I made $38,000.
His advice for brokers:
When I go to close a good sized deal, or a tough deal, I don’t like to come off as a salesman. I’ll never do that. I’m going to come off as an advisor. I’m going to come off as a partner with you where I’m going to explain the ins and outs of the deal. I’m going to explain how it benefits you. I’ll never put on pressure or talk slang. I’m going to be a professional. You’ve got to kind of put yourself in [the merchant’s] shoes and you’ve got to see that it really makes sense for them. Because when it makes sense to you and it makes sense to them, you’re going to close the deal and you’re going to move forward.
But there are always deals that will never close, deals that you can’t sell. So you can’t be too hard on yourself. You’ve got to stay positive. You can’t beat yourself up if you don’t sell something. You’ve got to just do your best, stay neutral, and just talk to clients how you want to be talked to.
What he does to pump himself up for a deal:
If I know my day is bringing a big deal that I have to sell and I’m a little uneasy about it, I have an advantage. I’m on the back of a garbage truck all morning and I focus on what’s in store for me that day. If I have a big deal, I recite in my head [from the truck] how I’m going to report to my client. So when I get into the office, I dial up and I already know how the conversation is going to go. I have my rebuttals in my head, I have the direction, I have everything ready to go so that when I get on the call, I’m fully prepared.
Will you quit your morning job?
No. When my pension kicks in, I’ll leave. But I told myself the day I started this and the day I started seeing the return, “I’m never leaving sanitation. I won’t.” I made that promise to myself. There’s been days when I’ll have a five figure commission day and the next morning it’ll be pouring rain out, and I’ll say to myself, “Man, I just want to take the day off.” But no, I made a promise. I go in.
Why?
It keeps me grounded, it’s a stress relief. It’s what I am. It’s what I do.
Funding Circle Stays Global; Goes Public in London
September 29, 2018
Funding Circle became a public company yesterday on the London Stock Exchange, listed as FCH. Founded in 2010, the peer-to-peer lending platform for small and medium-sized businesses, was initially priced at 440 pence (£4.40), which was on the low end of the 420-530 pence per share price range. But it opened at 460 pence, placing the value of the tech company at roughly £1.5 billion, or $2 billion, according to a Reuters report. In conjunction with the company’s IPO, it raised approximately £300.
The stock price dropped below the initial 440 pence per share on Friday to 435 pence, but went back up by the end of the day. The company was founded by Samir Desai, James Meekings and Andrew Mullinger, who all met at a pub in Oxford, England, according to a University of Oxford publication. Desai and Meekings were both studying Economics and Management at the university.
Among the company’s investors are Union Square Ventures, Blackrock and Index Ventures, in addition to a £150 million investment from Danish billionaire Anders Holch Povlsen.
According to the company’s September 2018 prospectus, Funding Circle’s total revenue has steadily increased over the past few years with $32 million in revenue in 2015 and $50.9 million and $94.5 million in 2016 and 2017, respectively. The company has facilitated £5 billion in loans its inception in 2010.
In August, Funding Circle rebranded with a new logo, and in June, the company expanded its partnership with Kansas-based INTRUST Bank, strengthening it presence in the U.S. market. Funding Circle offers small business financing from $25,000 to $500,000 with repayment options up to 5 years. While headquartered in the UK, the company also services customers the U.S., Germany and the Netherlands. Its headquarters is in London and it also has an office in San Francisco.
The Broker: How Elana Kemp Turns Values into Value
September 26, 2018
Title: Broker at Fundomate, a commercial finance brokerage in Los Angeles.
Background in business:
I started four years ago when I was living in Israel and I was working American hours. It was tough because I have four kids…A [non business] opportunity brought me to LA where my dad lives and where I’m from originally. So I jumped on that and continued doing brokerage part-time as a one man show for about a year. I met some people in the industry here in LA and started working with them. From there I went to Fundomate, then somewhere else. And then I came back to Fundomate.
What’s the difference between working for yourself and for a brokerage company?
Generating leads is so challenging to do on your own. If it wasn’t for that, I’d be a one man show all day long. I have to admit, though, that after a year, I did miss the infrastructure of working with people and the energy.
Why is it so hard to find leads?
It’s hard to find an honest lead generator. They promise you a lot, but at the end of the day, you don’t get much. I tried many different avenues [when I was working alone.] And I had one lead guy who I was really happy with and then he ended up in the hospital. So there went that. But otherwise, most of them didn’t perform the way they promised.
What’s your morning like with four kids?
Well, I’m not the first in the office. I work for someone who’s very understanding of my situation. I have a kind of cart blanche in terms of my hours. Of course, though, I’m awake at 6 / 6:30, and the second I’m awake, I’m on my phone, checking my emails. So [while] I’m not physically in the office, the second I’m awake, my workday starts. So I don’t make it to the office until 8:15 / 8:30.
Is there any ritual you have to close a deal?
If I have a big deal pending, like a $250,000 deal, I definitely take the time to envision the funding email and kind of manifest that. I definitely believe in the power of energy. If I don’t make a deal, I try not to take it home with me. I believe it’s meant to be and I’ll get the next one. I do believe there’s enough out there for everyone.
I recently read a fun fact – that elephants eat 400 lbs of food a day. It blew me away. And I thought “if an elephant can find 400 lbs of food to eat a day, then I can find enough deals to fund and support my family.”
Largest deal funded:
$325,000. Commission was $26,000.
Her style:
I get really close to my merchants. Some people think I get too close to them. Everybody has a different [style]. Sometimes [getting very close to a merchant] will make me win a deal. Sometimes it will make me lose a deal. Everybody has a different vibe that they feel comfortable with.
I get close to people very quickly. It’s just who I am. And in my opinion it works to my advantage because I have merchants that renew with me multiple times a year. And I know, no matter how many calls they get [from other brokers], they’re going to turn to me. I know that they trust me. I’ve had one merchant come over for dinner at my house. I have some merchants I check in with every few months and sometimes we don’t talk about money at all. We just talk about life.
On honesty:
I try to imagine that the merchant is like my dad. I want to treat them properly. And I believe in karma. I also say that if I get a deal funded but it was not 100% honestly done, then I like don’t want to feed my kids with that money.
Advice for brokers:
Don’t give up on your values for a deal. Values are more valuable than one deal funded. You can always fund another deal…a [reputation] can be broken down in like 2 minutes.
