Business Lending
Confidence in MCA and Online SMB Lending Industry Ticks Up
September 26, 2017The latest industry CEO survey conducted by Bryant Park Capital and deBanked showed that confidence in the continued success of the SMB lending/MCA industry is coming back. Confidence had a hit a low of 73.8% in Q1 of this year, the lowest point since the survey started in 2015. In Q3, the number jumped up to 81.3%.
Confidence in being able to access capital at a reasonable cost to grow ticked up only slightly to 79.9%, up from its lowest point in Q1 this year at 78.7%.
The first quarter of 2016 holds the confidence record since the surveying began. Coincidentally, that period is widely considered to be the peak of the online lending bubble. An April 2016 blog post published during that year’s annual LendIt Conference declared an end to the euphoria.
While respondents to the most recent survey were not asked to explain their confidence level, factors like a steady regulatory climate and some recent competition-reducing consolidation likely played a role in the boost.
How LendingTree and SnapCap Crossed Paths
September 25, 2017
LendingTree in recent days revealed the acquisition of online platform for small business lending SnapCap’s non-lending assets in a $21 million deal, including $12 million upfront and $9 million in contingency payments. The deal gives online lending marketplace LendingTree more scale in the small business market ahead of what could shape up to be recovery in 2018.
J.D. Moriarty, LendingTree Chief Financial Officer, told deBanked that SnapCap’s 20 employees will stay in Charleston, and the brand will remain intact. “For them, their employer just got both a whole lot more stable and scalable. As with anything we acquire, we will keep the brand in place and test it to see what is most effective,” said Moriarty.
LendingTree has been connecting small businesses with lenders since 2014, and the latest deal reflects a strategy to add scale.
“It’s a bit of what you might call an acqui-hire. LendingTree is growing quickly and scaling. We hired a really good team in SnapCap that will basically be our way of scaling in small business,” said Moriarty.
LendingTree is lifting its profile in the small business segment amid an industry transformation that is thinning the pack and has seen some players shifting gears entirely.
“Small business lending might do very well in 2018. And we are investing now to grow the base of our business. On a macro level, we expect our business to do well in 2018 regardless. But if small business lending recovers and suddenly you see companies like OnDeck doing well, we will benefit from that. But we position any acquisition assuming that the market doesn’t recover and the deal still must be attractive to us, even if the market continues to struggle.”
Moriarty went on to provide a glimpse into the financial structure of the deal.
“Last year, SnapCap set up a special purpose vehicle (SPV), which was funded by outside capital with which they would actually make loans. There’s a balance sheet aspect to that business we are not acquiring. But it was a small percentage of their business,” Moriarty explained.
Inside the Marketplace
LendingTree is largely known as a marketplace for mortgage loans where they represent about 50 percent of comparison shopping for mortgages. “That is how people think of us for sure,” said Moriarty. The revenue drivers have expanded in recent years, however.
For instance, mortgages used to account for 90 percent of revenue. Today, based on the most recent quarter, less than half of business originates from mortgages while the balance is in personal loans, credit cards, home equity, small business and auto loans.
LendingTree is no stranger to acquisitions, having done five such deals since June 2016. “What we’re trying to do is to build other marketplaces where people want to comparison shop,” said Moriarty.
But growth by acquisition is not their only growth strategy. “We’re growing period,” said Moriarty, adding that organic growth has been very good but small business in particular is a tough market to scale.
One of the recent deals, the acquisition of CompareCards a year ago, led them to gain market share in the credit card space. That deal also led LendingTree to SnapCap. CompareCards founder and president Chris Mettler and his wife own more than a one-third equity stake in SnapCap.
“SnapCap was introduced to us through Chris. He’s now a LendingTree employee. The introduction was absolutely from him. But it’s very consistent with our strategy, which we have conveyed to the market. We will continue to make small, accretive acquisitions and that will help us to gain scale in certain businesses and diversify,” said Moriarty.
Hybrid Model
While LendingTree and SnapCap both facilitate loans to the small business community, they take slightly different approaches to get there. “SnapCap’s core business is not unlike ours, meaning they are essentially finding high quality leads for lenders,” said Moriarty.
SnapCap uses a concierge model in which customers have a broker experience. They talk to someone at the company who helps them to identify a lender.
“LendingTree will be bigger and more scalable through both the traditional LendingTree model and SnapCap’s concierge approach. We will simply be able to serve lenders more effectively. If I’m a lender making small business loans, this is a pretty good thing.” he said.
SnapCap, meanwhile, is looking forward to the very same scale that LendingTree is targeting.
“The mission of SnapCap has always been to serve small business owners with access to funding. LendingTree’s leading online lending marketplace combined with SnapCap’s successful concierge model will enable us to serve an even wider range of business owners,” Hunter Stunzi, co-founder of SnapCap, told deBanked.
Bizfi Survives, Thanks to World Business Lenders Asset Purchase Deal
September 22, 2017
The Bizfi marketplace is slated to live on, according to Stephen Sheinbaum who joined World Business Lenders (WBL) as a managing director in July. On Wednesday, WBL purchased several assets from Bizfi including the brand, the marketplace, the Next Level Funding renewal book, and other related pieces of the company, he says. Sheinbaum founded Bizfi (then Merchant Cash and Capital) in 2005.
WBL, a Jersey City-headquartered small business lender will also be a lender on the platform.
Other key Bizfi personnel have joined WBL including former Managing Director of Renewals John BellaVia, VP of Sales Michael Caronna, and Sales Manager Ryan Bressler.
The asset purchase does not affect the deal forged with Credibly to service the $250 million portfolio, Sheinbaum explains, which is separate.
While lesser known among the mainstream fintech media, WBL has been a stalwart player in the non-bank lending industry for years. Their ambitions and size became more apparent when deBanked attended their invite-only annual shareholder meeting at the Waldorf Astoria in NYC in 2015. The company went on to open a massive office in Jersey City in July 2016 that was attended by Jersey City Deputy Mayor Marcos Vigil, Councilwoman Candice Osborne, Archbishop David Billings and Mitchell Rudin, the CEO of Mack-Cali. At the ceremonial ribbon cutting, WBL CEO Doug Naidus said that he wanted to build a company that lasts, one that he can look back on and be proud of.
Now with the Bizfi brand and marketplace in tow, the company is uniquely positioned.
“[It’s a] game changer here,” Sheinbaum said. “2.0 here we come!”
The Top Small Business Funders By Revenue
September 14, 2017Thanks to the Inc 5000 list on private companies and earnings statements from public companies, we’ve been able to compile rankings of alternative small business financing companies by revenue. Companies that haven’t published their figures are not ranked.
| SMB Funding Company | 2016 Revenue | 2015 Revenue | Notes |
| Square | $1,700,000,000 | $1,267,000,000 | Went public November 2015 |
| OnDeck | $291,300,000 | $254,700,000 | Went public December 2014 |
| Kabbage | $171,800,000 | $97,500,000 | Received $1.25B+ valuation in Aug 2017 |
| Swift Capital | $88,600,000 | $51,400,000 | Acquired by PayPal in Aug 2017 |
| National Funding | $75,700,000 | $59,100,000 | |
| Reliant Funding | $51,900,000 | $11,300,000 | Acquired by PE firm in 2014 |
| Fora Financial | $41,600,000 | $34,000,000 | Acquired by PE firm in October 2015 |
| Forward Financing | $28,300,000 | ||
| IOU Financial | $17,400,000 | $12,000,000 | Went public through reverse merger in 2011 |
| Gibraltar Business Capital | $16,000,000 | ||
| United Capital Source | $8,500,000 | ||
| SnapCap | $7,700,000 | ||
| Lighter Capital | $6,400,000 | $4,400,000 | |
| Fast Capital 360 | $6,300,000 | ||
| US Business Funding | $5,800,000 | ||
| Cashbloom | $5,400,000 | $4,800,000 | |
| Fund&Grow | $4,100,000 | ||
| Priority Funding Solutions | $2,600,000 | ||
| StreetShares | $647,119 | $239,593 |
Companies who were published in the 2016 Inc 5000 list but not the 2017 list:
| Company | 2015 Revenue | Notes |
| CAN Capital | $213,400,000 | Ceased funding operations in December 2016, resumed July 2017 |
| Bizfi | $79,000,000 | Wound down |
| Quick Bridge Funding | $48,900,000 | |
| Capify | $37,900,000 | Wound down |
Square Wants to Become a Bank
September 6, 2017
Square is expected to apply for an Industrial Loan Company (ILC) bank charter this week, according to American Banker and other sources. Like SoFi, who is busy trying to do the same thing, their attempt will also face competitive resistance.
In June, Richard Hunt, president and CEO of the Consumer Bankers Association (CBA), told deBanked that in the case of SoFi, “The whole world is evolving, fintech is evolving. This was inevitable one way or another.” It is therefore not entirely surprising that Square is following SoFi. Others may wait to see how the regulatory debate plays out before putting in applications of their own, however.
“No one envisioned when they wrote the ILC charter that we would have fintech companies that finance mortgages and student loans from private equity capital and not deposits. It’s a new world. Like with all rules and regulations, federal regulators should periodically review longstanding policy,” Hunt said.
Several people from the banking industry argue that the ILC charter route is a loophole and that if fintech companies exploit it and screw up, they could put the entire banking system at risk.
Christopher Cole, executive vice president and senior regulatory counsel at the Independent Community Bankers of America (ICBA), previously said, “We have been fighting the ILC charter for over a decade. When Walmart tried to apply for an ILC charter in 2006 we objected at that point. And that resistance was part of the reason why they never got a charter.”
On August 25th, Congresswoman Maxine Waters requested that a hearing be held on ILC charters to weigh all the concerns before acting on new ILC applications.
Until then, just because Square wants to become a bank, doesn’t mean they will succeed in doing so.
No, Able is Not Going Out of Business, Company Says
September 5, 2017
An industry blog appears to have stretched the truth, again.
On September 1st, Lending Times published a story that relied on an anonymous source to suggest that Austin,TX-based Able Lending is going bankrupt and selling their portfolio. No other compelling evidence is offered other than Lending Times not having their messages returned. No clues as to what kind of knowledge the source might have and why they have it is provided.
Another blog piled on top of that story by circulating an email this afternoon with “Able Lending closing down?” in the subject line. That blog also wrote that their messages were not returned.
I personally reached out to Able and received an immediate response. Company CEO Will Davis pointed out a flaw with Lending Times’ anonymous source. “This anonymous source doesn’t seem to be anyone close to Able, because Able does not own a portfolio of loans (it originates and distributes loans to direct lenders, who then hold those loans on their balance sheet) and therefore has no portfolio to sell,” he said.
Davis also speculated that there could be an ulterior motive. “We believe this story originated by the fact that we’ve been in active discussions with a number of originators to acquire Able, and there’s a non-zero chance this story was placed in order to throw an interested party off the trail,” he explained.
“In any event, we have no plans to go out of business and no plans to declare bankruptcy,” he concluded.
deBanked Golf Outing 2017 Photos
August 29, 2017Thanks to Marine Park Golf Course in Brooklyn, NY for having us! And thanks to all who came and sponsored!
Why BFS Capital’s Glazer Is Passing the Torch
August 22, 2017
Marc Glazer co-founded BFS Capital in the early 2000s and has remained at the helm all this time – until now. Glazer has passed the torch over to Michael Marrache, effective last week. He isn’t going too far, as the former chief executive will remain chairman of the board working alongside Marrache on the next chapter for the MCA and small business lending company. Meanwhile the executive pair points to a future not only where there is sustainability but where there is growth.
“We’ve obviously grown the company year after year over the last 15 years, and as with every other type of business and industry there were ebbs and flows. Over the last couple of years with a significant amount of challenges going on, we as a company decided we want to continue to grow but we want to grow in a way that benefits the company from a profitability standpoint as well as serves our customers,” said Glazer.
In April 2017, BFS Capital surpassed $1.5 billion in financings since inception. The company expects to fund more than $300 million in new financings in this calendar year.
“We’ll increase our reliance on algorithmic solutions, transparency in the ISO and customer experience and we will increase the number of financing solutions. Culture is significant for us and we will continue to build on the legacy Marc created,” said Marrache.
Marrache takes the reigns at a time when the industry is at a crossroads that will leave some alt lenders in the dust while other rise to the occasion.
“The stories that were challenging in 2016 look good in 2017,” said Marrache, pointing to OnDeck’s forthcoming profitability, Kabbage’s lofty valuation, CAN Capital’s return to funding, PayPal’s acquisition of Swift Financial and Prosper looking good.
“We think alternative and non-bank lending are in a good place. And yes, some of the folks that are no longer operating in this space were overextended or may have exhibited irrational behavior for pricing or customer acquisition costs. We think what we’re witnessing is the normal lifecycle of the industry. There were lots of participants earlier. Now to participate the industry must show a bit more control and sophistication. If you execute well, the tomorrows will be better than 2016,” said Marrache.
And according to Glazer, because of the changes in the business environment over the last couple of years, it’s going to require a different skillset to take BFS Capital to the next level.
“There are clear differences between starting a company, growing a company and becoming a billion-dollar small business financing platform. We’ve needed to evolve at each stage and now again with Michael’s leadership,” he said.
For Glazer, Marrache was almost always the succession plan.
“To be fair, hiring Michael four years ago, maybe succession planning was in the back of my mind somewhat. But as our relationship developed and as he was COO for three-plus years and then president, it became apparent that Michael’s skill set, passion, desire and how he looked at culture were all similar to myself. Let’s grow, but let’s watch our numbers. Make sure we treat people fairly. And for the businesses we are financing — provide thoughtful capital to help them versus creating problems for them,” said Glazer.
More Funding
BFS Capital’s business model is comprised both of MCAs and small business loans. Alternative funding company CAN Capital does both MCAs and loans and had to pause lending until recently. For BFS, however, it’s all systems go. And that means unequivocally continuing to fund small businesses.
“Absolutely, yes. And there’s no quizzicality in mind. I would say we are going to continue funding small businesses and fund more of them this year than we did last year. And we will fund even more the year after. So absolutely,” Marrache said.
BFS Capital sells through both ISOs and directly to merchants, the former of which is where most originations derive. “There are a number of solutions we are putting together to benefit that network,” said Marrache, adding he doesn’t believe algorithmic solutions will replace underwriters.
“We have a strong legacy of customer underwriting. We believe lower level transactions can be significantly more automated. Above a certain level and certain amounts of origination, we think algorithms and data solutions at that point are a facilitator, not a replacement of our underwriting,” Marrache said.
The Legacy
There was a time when BFS Capital’s growth plans included debuting in the public markets. Those plans have since been sidelined amid a chilly investor reception for alternative lender stocks.
“We spent a lot of effort in our filing,” said Glazer. “But at the end of the day, the market for the space had softened. Going forward I think it’s really going to be a question of what the markets look like and what makes sense for our company. We will evaluate that as the situation warrants.”
IPO or not, it appears Glazer’s legacy is still being written.
“I co-founded the company 15-plus years ago. Before finance and accounting, at heart, I’m an entrepreneur. That’s what I do, what I enjoy. I love starting companies, having the vision and creating things,” he said.
As chairman of the board and a major stakeholder, Glazer will continue to be active in BFS Capital.
