Just because the Fed decided to maintain interest rates where they are doesn’t mean that a turning point for future decreases is on the horizon. On the contrary, Fed Chair Jerome Powell said cuts are unlikely for a couple of years, citing persistent inflation.
“[rate cuts] will be appropriate at such time as inflation is coming down really significantly, and again we’re talking about a couple years out, I think as anyone can see not a single person on the committee wrote down a rate cut this year, nor do I think it is likely to be appropriate…”
Watch the full statement
— Bloomberg Markets (@markets) June 14, 2023
It’s been a hectic few years on the economic front.
From the shaky first days of the COVID-19 pandemic and the havoc in the economic system still ongoing, to the supply chain shocks and Russia’s war in Ukraine, it has been a time of deep economic uncertainty.
These crises had–and continue to have–a significant impact on individuals and businesses around the world. As many lost their jobs and saw their income reduced, it is likely that a large percentage accumulated debt during this time, furthering the financial struggles up the chain as more and more businesses had to contort themselves to stay afloat, despite their outstanding receivables.
As economies begin to recover and adapt to the current moment, businesses will be looking to collect what they are owed, but it’s important to consider how debt collection practices may evolve in a post-COVID world and how individuals and businesses can manage their debt.
Debt collection practices have traditionally been viewed as harsh and unforgiving, but as the world adapts to the new normal, the collection industry will need to evolve to be more compassionate and flexible.
As collections agencies, our job is to represent the interests of our clients who are looking to collect what is owed to them and recover as much of it as possible.
Collection agencies will need to take into account the fact that many people and businesses have been hit hard by the pandemic, and may not be in a position to repay their debts in full or at the pace creditors are used to.
One way in which collection agencies can evolve is by offering some form of a settlement that would involve a more flexible repayment plan. Rather than insisting on a fixed repayment schedule, collection agencies may need to consider allowing debtors to make smaller, more manageable payments over a longer period of time. This could involve negotiating a lower interest rate or waiving fees.
Another way in which collection agencies can adapt to the current moment is by offering debtors a reduction in the overall debt if the full balance is paid in lump. This involves the debtor agreeing to pay a lump sum amount that is less than the total amount owed. In some cases, this may be the only viable option for debtors who are struggling to make payments, and the only way a business can expect to see any of their money back. Collection agencies can be the conduit and work with both sides to negotiate a settlement that is reasonable and manageable for all parties involved.
Communication is also key, and never more important than it is right now. It’s crucial for collection agencies to be transparent and open in their communications with debtors. This means providing clear information about the amount owed, the payment schedule, and any fees or penalties that may be incurred. It also means being open to questions and concerns from debtors and providing them with accurate and timely information about their debt.
For individuals and businesses struggling with debt, there are several steps that can be taken to manage their debt effectively. Proactively communicating and working with your creditors offers the best chance at a reconciliatory solution.
The first step is to assess the situation and determine the total amount owed. This can be done by reviewing credit reports and contacting creditors to obtain a full picture of the debt.
Once the amount owed has been determined, the next step is to create a budget that takes into account all income and expenses. This will help to identify areas where expenses can be reduced and savings can be made. It may also be necessary to consider increasing income by taking on additional work or selling assets.
Once a budget has been established, it is important to prioritize debt repayment. This may involve negotiating a repayment plan with creditors or seeking the assistance of a credit counseling service. In some cases, it may be necessary to consider a debt consolidation loan or a balance transfer credit card to simplify payments and reduce interest rates.
Finally, it is important to maintain a positive attitude and stay focused on the goal of becoming debt-free. This may require making difficult decisions and sacrifices in the short term, but the long-term benefits of debt freedom are well worth the effort.
With a good-faith-first approach from creditors, debtors and collection agencies, it is possible to manage and clear debt effectively, even in an uncertain economic climate, and achieve financial security for all parties.
Right now small business owners are less concerned about rising inflation, a possible recession, staffing issues, consumer demand, and public health than they were in July 2022. Those are among the findings of a recent small business survey conducted by IOU Financial. It appears the fear, uncertainty, and doubt of what the end of 2022 might bring has since subsided and even transformed into a sense of optimism!
Eighty-eight percent of respondents, for example, now project that their business will be somewhat better or much better by the end of the first half of 2023 than they are right now. Sixty-one percent say they even plan to invest in their business over the next 6 months.
The improvement in sentiment seemingly stands in stark contrast to news coming out of the large tech companies that were plagued by layoff announcements all last quarter. The small business sector is looking a little more resilient by comparison, although it still has fears of its own. Seventy-three percent of respondents are still concerned about rising inflation but that’s down from 84% in July and 44% are concerned about consumer demand but that’s down from 62% respectively.
While the circumstances of the economy aren’t exactly great and the impact of rapidly rising interest rates has yet to be determined, this survey at least suggests that small businesses are getting used to this reality.
2022 has been a rough year for many fintech employees. The year started out with just a few layoffs but had an exponential increase totaling in at 219,959 layoffs from 1,405 tech companies.
Financial services company Plaid, for example, recently announced plans to lay off 20% of employees, which is about 260 staff members.
“Today, I’m announcing the most difficult change we have had to make at Plaid to date,” wrote Plaid CEO Zachary Perret in a Dec. 7th website post. “I made the hard decision to reduce the size of our team, and in doing so, to say goodbye to approximately 260 talented Plaids.”
Perret alluded to over-hiring as a result of the surge in business during covid. They are not alone. Companies including Klarna, Coinbase, Kabbage, and Amazon have laid off substantial amounts of staff. January started off low with 631 employee layoffs and that later increased to over 6,000 in February. November tallied 59,785 layoffs, weighing in with the highest number of employees laid off compared to any other month this year.
Eighty-nine percent of respondents projected that their small business will be doing the same, better, or much better by the end of the year, according to a recent survey conducted by IOU Financial. The majority of those polled actually selected better (39%) or much better (21%). Twenty-nine percent said they expected to be about the same.
The sentiment is significant given that 84% said that they were somewhat concerned or very concerned about rising inflation and 85% said that they were somewhat concerned or very concerned about a possible recession.
This data is in line with responses found from other surveys like the recent NFIB study that determined that inflation was the single most important problem that business owners were facing. But even that study revealed a sense of persistent optimism, similar to the IOU survey, when respondents said that financing and interest rates ranked the lowest on their selected list of problems.
All of which means that the biggest challenge small businesses are facing right now is not viewed as a mortally perilous one. Indeed, 74% of respondents to the IOU survey said that they plan to invest in their business in the next six months.
“They plan to fund expansion, make equipment or inventory purchases as well as put money into staffing and marketing,” the IOU report states. Only 5% flat out said that they do not plan to invest in their business in the next 6 months. The rest said that they might invest.
The optimism that is there is cautious, however. Seventy-five percent of respondents said that the covid pandemic is not fully over and 32% said that they would rate the current state of their business as somewhat negatively or very negatively.
The damage from the last two years lingers on but business owners are looking at what’s ahead of them and signaling that it’s onward and upward regardless.
The full IOU Small Business Survey can be downloaded here.
Two years ago, Kevon Chisolm and son Kamari Chisolm paired together to create Junior Wallstreeter, a component of Black Wallstreeter, to empower the youth on financial wellness. The Virginia-based father-son duo are on a mission to give minority kids from disadvantaged backgrounds an opportunity at education in financial literacy.
“I strongly believe that regardless of your financial situation you deserve a financial education,” said Kevon Chisolm, Esq., Executive Director at Junior Wallstreeter.
Junior Wallstreeter offers a virtual camp in the summer on financial literacy and investing, allowing kids to learn skills in banking, budgeting, credit ratings, and more. The two-week summer camp ranges between $300 and $325, and for kids who may not be able to afford it they can potentially obtain a scholarship.
“So, for 10 days, kids are learning how to track their investments,” said Chisolm, “and we try to get the kids to understand and how to become investors more than consumers. So, I like to say rather than buy a pair of Nike, invest in Nike.”
Learning about finances between ages 10-11 from his dad, Kamari has been well-educated on the importance of financial intelligence. He tries to help his friends with their decision-making on spending and saving money so they can be just as equipped in financial literacy as he is.
“It’s helped me a bunch of different ways. It’s helped me see things on TV from a different perspective,” said Kamari Chisolm, “and it’s helped me teach my friends different things. […] But I think that with the financial literacy knowledge I’ve learned, I’ve helped my friends save money and hopefully encourage them to invest in the stock market so they can make more of their money.”
Unlike other programs, after camp is over kids are able to be a part of Junior Wallstreeter Alumni to make sure kids are practicing the skills they learned. Alumni campers meet throughout the year from September to April-May with different topics to continue this ongoing learning experience.
“We just want to make sure that the kids are still applying the information, that it didn’t just go out the window for the summer camp, so we have this ongoing,” said Chisolm.
Chisolm believes that the biggest misconception people have today about loans is the fact that they are tied to credit ratings.
“I don’t think we really understand the importance of credit and how that plays a role in obtaining a loan, house, car, student loans, anything. I don’t think we understand that,” said Chisolm.
Along with misconceptions on loans, even standard terminology when taking out a loan such as APR, Fixed Interest Rate and Variable Interest Rate may not be common knowledge to the youth and even adults. The 12 year-olds attending the camp may not necessarily need to know how to take out a loan just yet but they do receive a handbook from the program that they can refer back to when the time comes.
“No, [people don’t understand APRs] and that’s why we go over credit card applications. We teach the kids that. So if they’re following along and we give them a student workbook that lets them understand comparing different credit cards, like a credit card loan offer APR, ‘if they offer a higher loan, if they can offer you this,’ this is a how do you determine which credit card is the best,” said Chisolm.
The power of knowledge allows Kevon and Kamari to pass along the information they possess to the youth and adults throughout their journey of making financial education accessible to all.
“This is passionate to me,” said the elder Chisolm. “My love for our people and making a difference and just giving back, right, just work on giving back with the knowledge and tools that I have. We’re not perfect, but we’re just trying to make a difference.”
“I can tell you that in the US that originators are starting to adjust their underwriting policies,” said David Goldin, CEO of Capify and Head of Originations at Lender Capital Partners, “I don’t know about pricing. I haven’t heard that yet.”
Goldin, who has been a small business finance chief executive for 20 years, believes that the economy, inflation, and interest rates are front-and-center issues that the industry should be thinking about right now. In the UK, one region that Capify operates in, Goldin said that several small business finance executives there are already talking about raising margin and doing shorter term deals to prepare for the increased risk.
“Some originators are smart enough to be proactive and others are saying, ‘oh we’ll just watch it.’ So it’s either going to take trickling down through the economy globally or defaults to go up for these adjustment to happen,” he said.
During the Great Recession of ’08/’09, Goldin was right in the thick of it as the CEO of AmeriMerchant, one of the first MCA companies in the US. He explained that there’s a notable difference between now versus then.
“One of the things that didn’t exist back then, someone doing a second [position] was like unheard of in 2008,” he said. “Now, what is it now? first, 2nd, 3rd, 4th, 5th? 6, 7, 8, 9. It’s like a horse race. Ten horses in the race in some cases. […] You have to be careful, right? You have to make sure you’re covering your margin by charging enough and going shorter.”
But in a competitive environment where nobody wants to reveal their cards or risk losing business, not every funder is keen to start making changes right now. Goldin said that many funding companies will wait to see if their competitors start tightening up first especially if they’re driven by their ISOs and brokers. The downside of becoming more conservative is that brokers might just decide to take all of their business elsewhere.
But a looming recession isn’t all bad. “There are some positives,” he said. “The positives are the banks do tighten up. It’s just a question of when not if. So, you may get applicants that come to alternative financing that may have never taken or considered these types of products because they got bank financing.”
Complicating the landscape now, however, is that funding companies are wrangling with new state regulations. Goldin is aware of several originators that have temporarily paused business in Virginia, for example, where a disclosure requirement went into effect just last week. The soon-to-be implemented New York and California laws are also causing rumblings about funding suspensions respectively. In each of those states it was “sales-based financing” products that were specifically targeted, a trend that looks sure to continue as states like Maryland, Connecticut, and others are determined to reintroduce disclosure legislation next year.
“I think more and more originators will eventually get away from the MCA model,” Goldin said, “and go more towards the business loan model by partnering with a bank. I think you’re going to see more companies trying to implement bank programs to become full business loans and not deal with all the nuances of a state by state and MCA program.”
Goldin’s point of view, wisdom, and predictions are aggressively sobering. Only three months ago, industry sources were telling deBanked that their outlook for 2022 was optimistic and that the end of covid-era government stimulus suggested that there would be growth for non-bank finance companies. Suddenly the tone has shifted, the stock market has plummeted, and interest rates are rising.
“I think if you resurveyed originators now, I think you’d get a different response than you did eight weeks ago or even four weeks ago,” Goldin said. “I can tell you right now that capital providers are asking their originators about how they’re making adjusments in this environment…”
Indeed, deBanked did speak with several players just last week and did notice that the general sentiment had shifted to one of concern and caution.
“I think funders should be thinking about redundancy,” Goldin said. “More than ever the best time to raise capital is when you don’t need it. And I don’t know if [funding sources] will pull lines, yes if defaults go up, but they may not be as inclined to enter into new relationships in this environment.” Because of that, now might be the last best opportunity to secure additional credit sources even they’re not necessarily needed, he suggested.
With that, he said that funders should be thinking about tightening up the bottom of their credit profile, increasing their margins, doing shorter term deals, looking for more mature businesses, and working with businesses with higher credit scores.
“I think that those that don’t make credit adjustments, raise margin, and go shorter are going to have their you-know-what handed to them,” he said. “I’ve seen this movie too many times. It doesn’t have to be called a recession. […] It’s all about affordability to repay, and the more debt [the customers] have, and the more their margins are squeezed, or the more their sales go down. That’s when problems begin. You’re less likely to have a problem if you’re only out six months instead of eighteen months. I’ve used this saying a million times: ‘When the ships are too far out to sea and it’s a tidal wave, you can’t get them back.'”
“I think what’s really important is just the same for our businesses and any business, is being able to make sure that as things change, you’re updating and changing what you’re doing,” said Seth Broman, Chief Revenue Officer at Yardline.
With the constant changes in the economy, inflation being on the rise, and a rumored recession, businesses providing financing are analyzing whether or not their customers will be able to withstand challenging times ahead.
“For us a big factor is the increased costs of being able to source goods from overseas, for example, the challenges around getting those goods in a timely fashion,” said Broman. “That’s the first thing we saw. And then similarly, in the e-commerce space, you’re seeing brands that aren’t able to sell at the same level as they were beforehand.”
Like Broman, John Celifarco, a Managing Partner at Horizon Funding Group, acknowledges that inflation is directly affecting his customers.
“It’s definitely going to have an effect on the industry as a whole in terms of our clients, I’d say it’s going to affect certain ones more than others, depending upon how their business is structured, and what type of relationship they have with their customers,” said Celifarco.
And with recent concerns for a recession, Celifarco believes this won’t affect a client’s willingness to borrow but rather the ability to get them approved.
“Having seen this in the past, there have been times where the economy has slowed or there’s been a recession, and the customers still want money, but because of the trouble the businesses are having it’s a lot harder to get people approved on the lending side,” said Celifarco.
Not being able to access credit for customers is also an area of concern for Luis Hernandez, CEO of CapLadder.
“There are going to be more cash constraints in a recession. Obviously, funding companies won’t want to take on certain risks so they’ll obviously be more careful on how they disperse those funds just to make sure they’re getting paid back,” said Hernandez.
Hernandez suggests companies should limit hiring and expenses to better weather the storm.
“With the recession looming, and pretty much it is going in this direction, the best practices right now are what’s always been tried, which is, hold on to your reserves. Cash is definitely better in your pocket than out there,” he said.