Industry News
What Did Direct Lending Investments Invest In?
March 27, 2019
When Bloomberg News reported that Direct Lending Investments (DLI) had lost approximately 25% of its portfolio value from a deal gone bad, some were surprised to learn that it had nothing to do with its core competency of online lending. VOIP Guardian Partners I, which stuck DLI with more than $190 million in unpaid loans, was in the business of lending money to smaller telecoms against their accounts receivables, Bloomberg News reported. VOIP was then supposed to be repaid the money when larger telecom companies paid the smaller ones.
On March 11, VOIP filed for Chapter 7, and limited details behind these telecom borrowers became public.
VOIP’s largest loan default was to a Hong Kong-based company formed in 2015 named Telacme, Ltd. Records indicate that $1 billion overall had been loaned to Telacme through 30-day rolling advances but that they stopped making payments in October 2018, leaving a remaining balance to VOIP and in turn to DLI, of $101.1 million. Telacme’s official website no longer exists and only a holding page by Godaddy indicating that the page has been parked free remains. (Update 4/16/19 – The website has been restored)
The second largest default at $58 million was to a company named Najd Technologies, Ltd, headquartered in the United Arab Emirates. Like Telacme, Najd stopped paying in October 2018 and their website is also no longer accessible. Internet archives show it advertised itself as a global telecom company based in Bangkok, Thailand.
The other remaining telecom loan issues spanned companies all across Europe.
A lawsuit filed against DLI in 2017 complained that DLI falsely represented to investors that it typically made loans that ranged between $5,000 and $100,000 when in fact DLI had been financing multi-million dollar telecom deals as far back as 2014. The plaintiffs went so far as to claim that at one point up to 50% of DLI’s portfolio was invested in telecom receivables.
But the claims were removed in a subsequent amended version of the lawsuit after the judge ordered them stricken because the plaintiffs themselves were not aggrieved investors, but instead unhappy former business partners alleging violations of a non-compete.
“I don’t understand why it’s in the complaint,” the judge said. “Particularly, when [DLI] says it is impacting their ability to raise money.”
The decision was prescient as DLI would not only go on to raise more money but also lose more than $190 million of investor money in telecom deals that weren’t overtly advertised.
A March 2017 DLI investor presentation obtained by deBanked touts its focus on underserved Main Street USA businesses. There is no mention of international telecom lending, nor any plans to finance telecom businesses for hundreds of millions of dollars, let alone do so in the Middle East, Asia, and Europe.
In VOIP’s bankruptcy filing, DLI is the primary secured creditor. DLI’s chief executive recently resigned and the fund has been sued by the Securities & Exchange Commission for issues unrelated to VOIP and is being placed under receivership.
The 2017 lawsuit against DLI and VOIP can be found under Index #650973/2017 In the New York Supreme Court.
WeWork, The Home Office of Small Business Finance Startups
March 20, 2019
Kunal Bhasin, owner of brokerage 1 West Finance, funded three A paper deals for companies that all happened to work out of the same Manhattan office building on the corner of 42nd Street and Third Avenue. It’s actually not as big a coincidence as it sounds because it’s the same building where 1 West Finance operated out of, along with likely hundreds of others at a midtown WeWork, the giant co-working company that has 59 offices in New York City alone.
What is remarkable is that the co-working concept (where companies work alongside each other for the benefit of all) actually works. At least it did for Bhasin. Because Bhasin’s company was expanding and needed to find space very quickly, he was unable to find a larger office at that same WeWork office. And because location was critical, he relocated to a Regus right nearby. Regus, which preceded WeWork, also rents space to companies, but focuses less on encouraging resident companies to get to know each other.
“I already miss it a lot,” Bhasin said of his old office at WeWork.
Bhasin said he met his former WeWork colleagues, who became clients, at the communal coffee stations and lunch events organized by WeWork.
Peter Graves, founder of Two Trees Funding, a one-man ISO shop, runs his business out of the WeWork office at 110 Wall Street. He said that he has gotten referrals from colleagues at other companies in his WeWork office. And he really appreciates the ability to to expand without having to change your lease.
The office culture is one of the main reasons why another company in the small business finance space loves WeWork. “Here, we engage with other people [and] we get a fresh perspective from other people, whether it’s a graphic designer or someone who works in cryptocurrencies,” a representative who asked to remain anonymous said. They also appreciate the flexibility, acknowledging that when they started with only four people, they rented month to month. Now, they have 12 people and a lease agreement for two years.
“We could have gotten a commercial space for 5 years,” they said. “But maybe we’d need a bigger space. This allows for flexibility.”
Direct Lending Fund CEO Resigns, Investigation
March 20, 2019
Direct Lending Fund CEO Brendan Ross, has resigned, according to Bloomberg News and numerous individuals identifying themselves as investors on an industry blog. The fund not only lost nearly 25% of its portfolio in a single sour investment, but it’s reported that they may have overvalued its investments in QuarterSpot’s small business loan platform.
The fund was reputed as one of the largest funds in the online lending industry and one that “historically earned investors unlevered double digit returns” by investing in online loan marketplaces.
Were there signs of problems?
In a tell-all book published by DealStruck founder Ethan Senturia in late 2017, Senturia describes how Ross’s fund had been overly dependent on his company’s success. “I am like, literally staring over the edge. My life is over,” Senturia quotes Ross as saying in Unwound when he became aware of DealStruck’s downward spiral*. Despite this characterization, Ross’s fund continued to grow relatively unscathed.
Meanwhile, James R. (“Jim”) Hedges, IV wrote an op-ed in Mid-2017 on Lend Academy of a mystery fund he refused to identify that had a Bernie Madoff-feel to it. In the comments, users point out that the monthly returns matched the ones on Direct Lending’s investor letters.
“When I first saw these returns, I instinctively thought of Madoff,” Hedges wrote. “The narrow band of returns is, in my experience, highly unusual and inconsistent with the returns of investments being marked-to-market. To be clear, I am not saying that this fund is a fraud. I am stating that the performance they’ve reported is, in my experience, unlikely indicative of a valuation methodology that accurately reflects the month-to-month performance of the underlying assets.”
*DealStruck announced a restructuring in December 2018
Business Loan Brokers Indicted
March 16, 2019
Five business loan brokers were named in a federal indictment in Ohio for defrauding a 69-year-old business owner out of his money and cars. In addition to being asked for hundreds of thousands of dollars in upfront fees to apply for the loan, the victim signed over the title of 55 vehicles to a broker to serve as the collateral. The vehicles included a Ford Mustang, several dump trucks, several tractors, several restored classic vehicles, a Freightliner motor home, and trailers.
In reality, there was no loan.
Text messages quoted in the indictment indicated that one of the defendants traveled from New York to Youngstown, Ohio by Greyhound Bus to begin driving the vehicles back to New York one-by-one, but their scheme faced challenges when they could not afford the gas to drive all of the cars. By the end, the victim was cooperating with the police and one of the defendants was lured back to Ohio in September to pick up a payment where he was then arrested.
deBanked discovered a message board post that appears to be published by one of the defendants months after the alleged crime. In it, she attempts to recruit other brokers to send her business with promises of high commissions, same day approvals, free leads, and a policy of no backdooring.
Why RapidAdvance Is Now Rapid Finance
February 7, 2019
RapidAdvance has officially changed its name to Rapid Finance.
“The term ‘advance’ is out of favor these days,” said founder and Chairman of Rapid Finance Jeremy Brown. “It also doesn’t reflect who we are as a company or what our brand is. We put our clients in a variety of different financing solutions including factoring, term loans and equipment leasing. ‘Advance’ is very narrow and old school. ‘Finance’ represents where the company has evolved to and where we’re going.”
The company’s logo is also new, but Brown said that they purposely retained the same color scheme to make the change as seamless as possible.
“Before we had an arrow through the word ‘rapid,’” Brown said. “I think the three squares [in the new logo] represent an arrow head so that there’s continuity with the old logo.”
Consistent with the rationale for the company’s name change, Brown said that their business is about 85% term loans and only 15% merchant cash advance, healthcare cash advance and bridge loans. Through partners, Rapid Finance also provides their customers with access to SBA loans, factoring, asset based loans, commercial real estate and lines of credit. By the second quarter of this year, Brown expects that they will offer their own line of credit product.
Rapid Finance is broadly diversified by business type, according to Brown. He said that no business category accounts for more than 25% of their business. As for acquiring new business, Brown said that 60% comes from partners/brokers and 40% comes from their internal direct marketing efforts.
Brown said that Rapid Finance, which employs about 200 people, has hired about 25 over the last six months. Most of the hires were in the technology and sales departments, both internal sales and sales reps who work with ISO partners. He also said they expect to fund between $550 and $600 million this year.
Founded in 2005, the company’s employees are divided between its headquarters in Bethesda, MD and another office in Detroit, MI, which houses Rapid Finance’s direct sales and marketing teams.
deBanked CONNECT Miami 2019 Photos
January 28, 2019
Thanks For Coming to deBanked CONNECT Miami
January 26, 2019
We would like to thank everyone that sponsored and attended deBanked CONNECT Miami. We’ll publish the photos when we have them available. If you enjoyed the event, you’ll love the upcoming full day Broker Fair 2019 conference on May 6th in New York City at the Roosevelt Hotel. It will be our biggest crowd yet. Early bird pricing is available through February 1st, so don’t delay!
Check out our video highlight reel below of last year’s Broker Fair in Brooklyn, NY.
BFS Capital Surpasses $2 Billion in Financing
January 22, 2019
BFS Capital announced this morning that it has exceeded $2 billion in financing to over 22,000 small businesses across the United States, Canada and the UK.
“This is a major originations milestone,” said Mark Ruddock, CEO of BFS Capital. “We’re incredibly proud to see these investments take root, as BFS Capital continues to solidify its position as a central source for financing small businesses and their everyday capital needs.”
BFS Capital provides business loans and MCA deals from $5,000 to $500,000 to a wide variety of merchants. In 2018, fourth quarter originations were the highest ever in the company’s 17-year history. And third quarter originations also represented the best third quarter in the company’s history.
“In 2018 we enhanced our sales and marketing programs and made significant advances in our underwriting models so that we could better serve small businesses,” Ruddock said.
Ruddock also said that they are constantly thinking of ways to be better partners to the ISOs. He said that they plan to speed up the process from lead to loan by 30% this year, so that, with continued improvements in technology, approvals can take a matter of minutes and eventually happen instantaneously. Currently, they make decisions within a matter of hours.
“We’re also trying to communicate more clearly with [our ISO partners] about what sorts of merchants we are more likely to fund than not, so that they can be more efficient themselves,” Ruddock said.
Apart from accelerating speed in approval time for certain financing, Ruddock said that BFS also excels in serving customers that he calls “diamonds in the rough,” or businesses that sometimes even other alternative lenders will reject because they don’t understand them.
“BFS will very often be in a position to look at a company that perhaps might look complicated to others, and be able to say ‘Yes, this is a deal that we will do,’” Ruddock said.
This process is a little less automated as it requires more creative thinking on the part of their underwriting team, Ruddock said. Founded in 2002 and headquartered in Coral Springs, FL, BFS also has offices in New York, California and the UK.
