Industry News
Rapid Finance Resumes Funding
July 29, 2020Rapid Finance is funding again, according to posts made by the company on social media.
“Now that most states are in the process of beginning to function normally, many small businesses are back in operation and we’re excited to announce that we have resumed accepting NEW financing applications!”
Shopify Originates $153M in MCAs and Loans in Q2
July 29, 2020
Shopify had a monster 2nd quarter. The e-commerce giant generated $36M in profit on $714.3M in revenue. As part of that the company originated $153 million worth of loans and merchant cash advances, only slightly down from the $162.4M in Q1. Still that figure was up by 65% year-over-year (and was more than 2x the volume originated by OnDeck).
The company has offered capital to its US merchants since 2016 and recently begun doing the same with its UK and Canadian merchants starting this past March and April respectively, the company revealed.
Shopify CFO Amy Shapero said that company had maintained loss ratios “in line with historical periods,” despite COVID. “Access to capital is even tougher in times like these, which makes it even more important to continue lowering this barrier by making it quick and easy so merchants can focus on growing their business,” Shapero stated.
Enova & OnDeck: Behind The Biggest Deal of 2020
July 29, 2020
Enova CEO David Fisher kicked off his company’s 2nd quarter earnings call on Tuesday and one could tell from the pitch in his voice that he was excited. And why shouldn’t he be? Despite the catastrophe that gripped the nation over the months of April, May and June, Enova still manages to report a consolidated net PROFIT of $48 million.
But that’s not even it. After a long introduction about a major acquisition, a rather familiar voice is asked to deliver some prepared remarks.
“Thanks David, I am equally excited…”
It’s Noah Breslow, the CEO of OnDeck. Less than an hour earlier it was revealed that Enova had bought 100% of OnDeck’s outstanding shares for $90 million in a deal paid for almost entirely with stock. And now suddenly he’s here on this call talking about how great it is that the companies are combining forces.
“Following an extensive review of our strategic options, we believe this is the right path forward for our customers, employees, and shareholders,” Breslow says.
That OnDeck has been acquired is no surprise. The devastating impact of COVID in Q1 reveals weaknesses in the company’s business model and the share price drops by 80% from the period of February to July. This all while two of their competitors in the small business lending space, Square and PayPal, experience enormous gains of more than 40%.
In May, Forbes reported grim news, that OnDeck is being shopped around in “what amounts to a fire sale.”
The rumor creates further despair in an industry that is preoccupied with survival. If this can happen to OnDeck, then…?
The truth is, OnDeck’s momentum had stalled long before COVID. The company walked away from a sale to Wonga in 2012 that had valued them at $250 million and they went on to have a successful IPO in 2014 at a value of $1.32 billion on the selling point that they were a tech company.
But by mid-February of this year, the company’s market cap is down to less than $250 million, turning the clock backwards by about eight years. After losing the partnership with Chase in 2019, OnDeck seemed to have lost its swagger and direction. They planned to pursue a bank charter and do a stock buyback. Then the news pretty much stops.
COVID happens and it hits them hard. The company stopped lending entirely, although they still recorded originations of $66 million in Q2.
As a standalone entity, OnDeck’s upside had greatly diminished. Getting back to where it was pre-COVID may not have been an entirely enticing prospect for investors. Its market cap recently plummeted to less than $50 million and so by the time the Enova price of $90 million is announced, it sounds almost generous. (Knight Capital sold for $27.8M in November).
Enova says that the acquisition increases their concentration in small business lending from 15% to 60%. That puts consumer lending, their historical core business, now in the minority. This is not by accident. On the earnings call, Enova executives say that they believe that “there will be strong demand for capital from small businesses as the economy begins to open back up.” They even believe the opportunity is better than the consumer lending market right now, particularly from a regulatory perspective, they say. Therefore it makes sense to “double down or triple down” on the small business side, they contend.
Enova’s small business lending business was largely spared by COVID. Unlike OnDeck’s brutal Q1, Enova had reported something “very much manageable” thanks to not having “large exposures to entertainment, hospitality and restaurants.”
“Our portfolio has been extremely stable,” Enova says on the call. With the acquisition of OnDeck, the company appears to be gearing up for the opportunity they believe awaits in small business lending right around the corner.
Michael Scalise Passes Away
July 27, 2020Michael Scalise, an early entrant in the MCA industry, passed away on July 22nd. He was 40 years old. A gofundme has been set up to help his children pay for the funeral expenses.
New York State Legislature Passes Law That Requires APR Disclosure On Small Business Finance Contracts (Even If They’re Not Loans)
July 24, 2020
Factoring companies and merchant cash advance providers may be in for a rude awakening in New York. The legislature there, in a matter of days, has rammed through a new law that requires APRs and other uniform disclosures be presented on commercial finance contracts… even if the agreements are not loans and even if one cannot be mathematically ascertained.
The law also makes New York’s Department of Financial Services (DFS) the overseer and regulatory authority of all such finance agreements. DFS can impose penalties for violations of the law, the language says.
The bill was passed through so quickly that unusual jargon remained in the final version, increasing the likelihood that there will be confusion during the roll-out. One such issue raised is the requirement that a capital provider disclose whether or not there is any “double dipping” going on in the transaction. The term led to a rather interesting debate on the Senate Floor where Senator George Borrello expounded that double dipping might be well understood at a party where potato chips are available but that it did not formally exist in finance and made little sense to have it written into law.
Senator Kevin Thomas, the senate sponsor of the bill, admitted that there was opposition to the “technicalities” of it by some industry groups like the Small Business Finance Association and that PayPal was one such particular company that had opposed it on that basis. Senator Borrello raised the concern that a similar law had already been passed in California and that even with all of their best minds, the state regulatory authorities had been unable to come up with a mutually agreed upon way to calculate APR for products in which there is no absolute time-frame. Thomas, acknowledging that, hoped that DFS would be able to come up with their own math.
APR as defined under Federal “Regulation Z”, which the New York law points to for its definition, does not permit any room for imprecision. The issue calls to mind a consent order that an online consumer lender (LendUp) entered into with the Consumer Financial Protection Bureau in 2016 after the agency accused the lender of understating its APR by only 1/10th of 1%. The penalty to LendUp was $1.8 million.
Providers of small business loans, MCAs, factoring and other types of commercial financing in New York would probably be well advised to consult an attorney for a legal analysis and plan of action for compliance with this law. The governor still needs to sign the bill and New York’s DFS still has to prepare for its new oversight role.
Passage of the law was celebrated by Funding Circle on social media and retweeted by Assemblyman Ken Zebrowski who sponsored the bill. The Responsible Business Lending Coalition simultaneously published a statement.
Bitty Advance Has Been Acquired By Industry Veteran Craig Hecker
July 23, 2020
There’s new management over at Bitty Advance. The Fort Lauderdale-based funding company has been acquired by long-time industry veteran Craig Hecker. Hecker, who years ago founded, grew, and sold Rapid Capital Funding had originally acquired a stake in Bitty earlier this year, but in the following months purchased the remainder of the business from founders Eddie Siegel and Lenny Duvdivani.
Hecker told deBanked that under his management Bitty has committed capital that will allow the business to fund up to $10 million per month.
“I’m very excited to take my industry experience and knowledge and apply it to this segment of the MCA space,” he says.
As part of the takeover, Hecker says that he has “re-assembled his dream team of technologists and ops” that have been part of his inner-circle for nearly a decade and “were critical in building out the platform” that had made Rapid Capital Funding successful.
Bitty has historically focused on micro-advances and the company plans to really scale up its efforts in the $2,500 – $12,500 small merchant market segment with the aid of automated technology. In addition to this, Bitty has launched a new sales partner portal for ISOs. “That way [ISOs] will always know what’s going on with merchant applications,” hecker said.
Ascentium Capital Reports $2.5 Billion in Managed Assets
July 23, 2020Ascentium Capital announced it has reached $2.5 billion in managed assets, a new record for the Kingswood, Texas-based alternative funder. The news comes after the firm finished Q2 of 2020 with a funding volume of $225 million. Being a subsidy of Regions Bank, Ascentium has been funding businesses since 2011.
“Ascentium’s executive team has successfully weathered several periods of economic uncertainty and we are leveraging this to respond to the current situation as the US faces unexpected uncertainty for an unexpected duration,” Executive Vice President Tom Depping noted in a statement. “Our specialized finance platform incorporates process flexibility which enables us to adjust quickly. We have a strong team in place that is dedicated to meet market demands while managing risk.”
Kabbage Launches Checking Accounts for SMBs
July 22, 2020
Today Kabbage announced the launch of its latest service, business checking accounts. Targeting small-sized businesses and offering no monthly fees, 1.10% APY, and a Kabbage debit card; Kabbage Checking is available now and is part of an effort by Kabbage to transition from being a pure SMB-funding company into a cash-flow management company.
“Kabbage is a full financial services platform that’s focused on solving on cash-flow management for small businesses.” President Kathryn Petralia explained in an email. “A business checking account is a core function of how they manage their money, and we saw an opportunity to build them a solution specifically designed for them – while simultaneously reducing their costs and increasing their yield.”
Launched in the wake of a study which reports that over 40% of small businesses are looking to change their bank following struggles with their Paycheck Protection Program applications, Kabbage is optimistic that fintechs an online lenders will benefit from a wave of interest following the failures of financial institutions in the face of the coronavirus.
“Amidst one of the largest financial crises in history, we helped over 225,000 small businesses access services many of their long-time bank partners would only provide to their largest customers,” the President said in a statement. “We believe in the businesses too often left out, overlooked, and underestimated. Kabbage Checking is a new banking service built to give those small businesses an upper hand to earn more, save more, and grow their business faster without sacrificing anything they expect from a bank.”
