Business Lending
Secretary Clinton Spoke About Small Business Lending in Goldman Sachs Speech, Wikileaks Reveals
October 16, 2016
On October 29th, 2013, former Secretary of State Hillary Clinton said that one of the biggest complaints she gets as she travels around the country is “how do we get more access to credit in today’s current system for small businesses?” This comment was made at a private Goldman Sachs event hosted at the Ritz-Carlton Dove Mountain in Marana, Arizona, according to a transcript published by Wikileaks.
As a contender to become the President-elect in just a few weeks, she appears to understand that small businesses lack access to capital and the shortcomings of the current system. Transcript excerpt below:
ATTENDEE: Secretary Clinton, I’m Patty Greene from Boston College’s Goldman Sachs 10,000 Small Businesses. And first off, thank you for all the work you’ve done with women entrepreneurs both domestically and globally over your career. That’s really meant a lot.
My question is more domestic based. We have the rather unusually organized Small Business Administration, we have the Department of Commerce, and we have programs for entrepreneurs with small business pretty much scattered across every single other agency. How do you see this coming together to really have more of a federal policy or approach to entrepreneurship and small businesses?
SECRETARY CLINTON: I would welcome your suggestions about that because I think the 10,000 Small Business Program should give you an opportunity to gather a lot of data about what works and what doesn’t work. Look, neither our Congress nor our executive branch are organized for the 21st Century. We are organized to be lean and fast and productive. And I’m not — I’m not naive about this. It’s hard to change institutions no matter who they are. Even big businesses in our country are facing competition, and they’re not being as flexible and quick to respond as they need to be.
So I know it wouldn’t be an easy task, but I think we should take a look at how we could, you know, better streamline the sources of support for small businesses because it still remains essential. You know, one of the things that I would love to get some advice coming out of the 10,000 Small Businesses about is how do we get more access to credit in today’s current system for small businesses, growing businesses, because that’s one of the biggest complaints I hear everywhere as I travel around the country. People who just feel that they’ve got nowhere to go, and they don’t know how to work the federal system. Even if they do, they don’t feel like they’ve got a lot of opportunities there. So we do — this is something we need to look at.
You know, I don’t think — I don’t think our credit access system is up to the task right now that is needed. I mean, there are a lot of people who would start or grow businesses even in this economic climate who feel either shut out or limited in what they’re able to do. So we need to be smarter about both private and public financing for small businesses.
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More recently, Clinton’s campaign has publicly stated that she wants to “harness the potential of online lending platforms and work to safeguard against unfair and deceptive lending practices.”
UK Banks Will No Longer Be Allowed to Decline Small Businesses For Loans as Alt Lending Wins
October 10, 2016UK Banks better have a strong reason to turn down loan applicants, and if not, turn them over to another lender.
In an attempt to break the might of the big banks and back the thriving alternative finance industry, the UK Treasury will make it obligatory for banks to refer rejected small businesses to other lenders. Nine of the country’s largest banks including Royal Bank of Scotland, Lloyds, Barclays and HSBC will be legally obligated to do so when the plan goes into effect in the next three months, The Times reported.
The applicants will be referred to three loan marketplaces — Funding Options, Funding Xchange and Bizfitech that will make referral fees for loans funded on their platforms.
Online lending across the pond operates differently. The UK online alternative finance sector grew 84 percent in 2015, with support from the government and was one of the first countries to establish a regulatory framework where The Financial Conduct Authority (FCA) defines and categorizes crowdfunding, P2P lending and online lending. The UK is home to many early starters in the industry like Zopa and RateSetter.
Merchant Alleged To Have Forged Partner’s Signature On Merchant Loan Charged Criminally
October 9, 2016
It’s not a good idea to forge your partner’s signature, Troy Milbrath has learned, after being arrested on Thursday and charged with 16 felonies and three misdemeanors.
According to the Wisconsin State Journal, Milbrath, an owner of Mullen’s Dairy Bar & Eatery in Watertown, WI, took out loans and opened credit cards in his partner’s name and his partner’s wife’s name, in addition to taking out a merchant loan that his partner didn’t sign for.
His business partner, Todd Narkis, “found a business agreement with his name and Milbrath’s that allowed a financial company to take 35 percent of all credit card swipes at the business in order to pay off a loan,” the Wisconsin State Journal reports.
The business closed last month after the landlord refused to renew the lease. Just days before Milbrath’s arrest, he was reportedly looking to relocate. The business had been open since 1932.
The case number is 2016CF000392 in Jefferson County.
Loan Brokers Have it Easy in Alternative Lending
October 6, 2016
On a panel at the NACLB Conference in Las Vegas, Tom Zernick, the President of SBA Lending at First Home Bank explained that signing up a broker isn’t so simple. They have to conduct due diligence on them in advance, he said, because ultimately all their broker partners have to be reported to the SBA. Brokers can receive a 1% commission for completing a deal and also charge a separate fee to the merchant on their own but the merchant has to be aware of all of it and all the amounts reported to the SBA, he said.
And even that might not be enough on its own, according to the panel that Zernick was part of. Brokers should be keeping a log of the services performed to earn those fees and the hours spent on each task, like an attorney would.
Contrast that with alternative lending where brokers and fees are not reported to any agency.
One good thing about SBA lending these days though, according to Zernick, is that when he started in the business about 30 years ago, he joked it could take about a year to fund a loan but that today in reality it takes less than 30 days on average to fund.
Brief: PE Giant Warburg Pincus to Acquire Texas Funder Ascentium Capital
October 6, 2016New York-based private equity firm Warburg Pincus agreed to acquire Texas-based equipment financing company Ascentium Capital. The details of the deal remain undisclosed.
Ascentium Capital, with $1.1 billion in assets provides vendor financing, partnering with distributors, resellers to fund their small business customers. And in March this year, it started lending to ISOs and retail merchants directly. The company will be continued to run by CEO Tom Depping who will roll over his stake in the business.
“We see a compelling market opportunity to continue to build Ascentium to become a multi-product capital provider to small businesses through both organic growth and complementary acquisitions,” said Arjun Thimmaya, Managing Director, Warburg Pincus in a statement.
The five year old firm has financed over $2 billion since inception, and funded $225.4 million during Q2 this year. Ascentium’s financial advisor was Goldman Sachs and Vinson & Elkins LLP served as legal counsel.
Personal Network Lender Able Lending Raises $100 Million As Debt
September 28, 2016
Austin, Texas-based small business online lender Able Lending has secured $100 million in debt financing from San Francisco-based investment firm, Community Investment Management (CIM).
Able prefers lending to entrepreneurs who raise part of the funds from their personal network of family and friends that Able calls ‘Backers.’ These ‘backers’ typically fund as much as 10 percent of most Able loans whose term loans go up to $1 million with rates starting at 8 percent for companies with revenues over $100,000.
In June this year, the startup committed to deploy $5 million to fund companies in the Dallas-Forth Worth area right about the time when its rival San Francisco-based Vouch Financial closed shop. Vouch made personal loans based on a ‘vouching network’ of sponsors.
“During a time when investors’ confidence in alternative lending has plunged, this investment is a vote of confidence in our loan model and our team,” said Able Lending CEO Wills Davis in a statement. The company estimates that it will fund approximately 500 small businesses from the CIM deal.
Entire Industries Still Unbankable Despite Big Data Boom
September 28, 2016
The use of data and technology for assessing risk shows promise for new borrowers, safer bets and fewer delinquencies. Big data has been credited for overhauling traditional lending models and ushering in a new crop of lenders that do not shy away from risky businesses and low credit scores. But has it been successful in narrowing the list of industries previously ineligible to even be considered? And perhaps there’s a bigger story, that some lenders still maintain a list of industries they cannot or will not lend to despite the boom in data. deBanked checked the temperature on restricted lending practices today with three lenders and here’s what we found.
Jersey City-based World Business Lenders whose average loan size is $150,000 does not lend to startups. According to chief revenue officer, Alex Gemici, startups usually don’t have revenues to justify payments. “Startups fail the ‘ability to pay’ test,” he said.
The restricted industries for WBL are the usual-suspects that fall in the federal legality grey areas like Marijuana related businesses and adult entertainment websites and weapon manufacturers that the company takes a moral stance against. Gemici said that the company has never lent to these industries and will evaluate the policy only if the need arises.
Apart from these WBL also classifies certain establishments as ‘high risk,’ either prone to defaults or without a steady cash flow like car dealers, childcare services, gas stations, real estate speculators, stock brokers, insurance brokers etc. which the company lends to with increased scrutiny and tighter checks.
Often, the risk appetite of a company depends on how long it has been in business and its funding track record. For instance, San Diego-based National Funding is 17 years old but is gun shy when it comes to lending to auto dealerships, thanks to sustained losses. “We don’t lend to auto dealerships because they already have enough MCA plans out there,” said CEO Dave Gilbert. “It’s too risky to be in that environment without being tied to actual assets, we have had too many losses.”
Government agencies, membership organizations (usually, non profit), insurance brokers, online dating services, weapon manufacturers, credit repair services, gambling and ticket sales websites are also industries the company does not lend to.
However, construction companies, oil companies, transportation and industries with high subsidies like solar businesses are what National Funding considers high risk and will finance cautiously, by tightening the credit window, advancing smaller amounts, demanding higher FICO scores and increasing scrutiny on cash flows.
Irrespective of whether a company automates underwriting, few contest the need for rich and varied data for calculating risk and approving a loan. Kennesaw, Georgia-based IOU Financial, which recently started lending in Canada, has a proprietary ‘Risk Logic’ score for underwriting which includes credit data, financial and non-financial accounts, public records, transactional data and a business owner’s personal credit information.
Despite this, it restricts lending to businesses with seasonal cash flow like tax prep services, industries that invoice out for larger orders including manufacturing, and marijuana dispensaries. IOU also does not lend to industries where it has faced high delinquencies in the past, like oil refinery service related industries and supply chain service providers that are subject to fluctuations in commodity prices.
And if OnDeck, the touted leader in deploying big data for underwriting prohibits 60 industries in five different categories including blood and organ banks, payroll companies and its own kind — non-bank financial companies, has big data really changed underwriting?
Shark Tank Star Barbara Corcoran Stars in OnDeck TV Commercial
September 27, 2016Real estate mogul Barbara Corcoran is going beyond Shark Tank to help small businesses, this time by appearing in TV commercials for OnDeck.
“All small business owners have grit and perseverance. That’s a given. What they sometimes lack is access to capital. That’s where OnDeck becomes so valuable. OnDeck has the services and solutions that entrepreneurs need to meet daily challenges and grow their business,” said Ms. Corcoran in an OnDeck announcement. “I’m delighted to communicate the good news to small businesses that, thanks to OnDeck, financing their dreams is easier and faster than ever.”
See both versions of the commercial below:
Corcoran isn’t the only Shark Tank star to promote a small business lender. Kevin O’Leary, for example, is a spokesperson for IOU Financial, Lori Greiner is a spokesperson for Kabbage, and Kevin Harrington actually co-founded Ventury Capital.
