Industry News
MCA Funder Says Debt Settlement Company Operating Illegally Without a Budget Planning License
July 11, 2018
Merchant Cash Advance companies are on the warpath against debt settlement companies. In the latest legal offensive, High Speed Capital alleges that Corporate Debt Advisors’ debt settlement business is really just an unlicensed Budget Planning operation, a misdemeanor criminal offense in New York.
High Speed’s petition cites New York General Business Law § 455. “So-called ‘debt negotiation’ and ‘debt settlement’ companies that negotiate settlements between debtors and creditors on behalf of the debtors and which may coordinate or supervise payment by the debtors to the creditors in exchange for fees from the debtor are engaged in Budget Planning,” they say. “Budget Planning agreements with unlicensed entities are void for illegality and cannot be upheld by the Court.”
At issue in this action is that the transfer of funds from the merchant to Corporate Debt Advisors is allegedly fraudulent. High Speed won a judgment against the merchant in October 2017 and believes those funds belong to it. Corporate Debt Advisors has refused to send the funds in its possession to High Speed and has instead tried to negotiate. High Speed’s petition before the Court asks that Corporate Debt Advisors turn over the funds immediately to High Speed.
The case can be found in the New York Supreme Court, Erie County under Index #: 810673/2018. You can view the petition here.
Lendistry Becomes a Member of the Federal Home Loan Bank of San Francisco
July 11, 2018
Lendistry announced yesterday that it has been approved for membership by the Federal Home Loan Bank of San Francisco. This will allow the lender to expand its commercial real estate loan business, which Lendistry launched in January.
“It’s an honor to be a member of the Federal Home Loan Bank of San Francisco, an organization committed to community development by expanding availability of credit,” said Lendistry CEO Everett K. Sands. “We look forward to leveraging our unique business model of being a hybrid of a community bank and a fintech company to expand access to capital to all.”
Lendistry offers SBA loans (up to $250,000), traditional small business, or term, loans (up to $1 million), bridge and short-term loans (up to $500,000), and most recently, commercial real estate loans (up to $2 million). Sands told deBanked that about 65 percent of its business is derived from SBA loans, about 30 percent comes from term loans, and the remainder is a mix from the other loan types. Of the term loans, Sands said that the average is a four year loan with a 12 percent interest rate.
About 70 percent of Lendistry’s business comes from a combination of bank referrals and commercial loan brokers, or ISOs. Otherwise, Lendistry obtains customers from affiliate partners, like Lending Tree, and from its own direct efforts. Out of a 22 person team, Lendistry employs eight salespeople. And Sands said that about 70 percent of the team has a banking background.
Lendistry customers come from a variety of industries including healthcare, restaurants and home improvement. Sands said that the bulk of its business comes from merchants in the medical and manufacturing industries because these are the types of companies that their bank partners have been sending them lately. The lender also makes a fair amount of loans to restaurants, Sands said.
Lendistry has a partnership with The Center, a nonprofit that provides small business owners with educational resources, such as workshops, training videos, coaching sessions, and networking opportunities. Founded in 2015, Lendistry is based in Brea, California, outside of Los Angeles.
Australian Lenders Commit to Best Practices Code
July 10, 2018
Six small business fintech lenders operating in Australia, including OnDeck, have signed a self-imposed “code of best practice lending principles,” according to a recent statement from Prospa, one of Australia’s largest online small business lenders. This comes shortly after Prospa paused its June IPO, having received a letter from the Australian Securities and Investments Commission (ASIC) requesting information.
Possibly in response to ASIC’s inquiries into the Prospa IPO, what has emerged is a code of best practices signed by Prospa, OnDeck, Capify, GetCapital, Moula and Spotcap. This set of self-imposed rules, referred to as the Code, has not yet been solidified, but it already includes a number of constituents in a highly collaborative effort.
The six small business signatories will be contributing to the Code, along with a trade group for the Australian finance sector, the Australian Finance Industry Association (AFIA), the Australian Small Business and Family Enterprise Ombudsman, Kate Camel, the Bank Doctor, an SME advocate, and FinTech Australia, an industry association. According to the Prospa, the Code will be fully operational and enforceable by December 31, 2018.
“Our Online Small Business Lender Group members have embraced the sentiment of improving transparency and disclosure and took proactive action to come together quickly and collegiately to develop a Code,” said Helen Gordon, CEO of AFIA.
Acknowledging that small business lenders are already subject to rules from a number of regulatory bodies, the Prospa document stated:
“This Code is a proactive move to pull the obligations of online small business lenders together into one document. This makes it easier for current market participants and will also help new entrants understand their obligations.”
Already, some of the central elements agreed upon in the Code include:
- The introduction of a pricing comparison tool providing key metrics that will allow customers to compare the cost of unsecured loans from the signatories (including the total repayment amount, APR, simple annual interest rate)
- An easy-to-understand loan summary
- A glossary of key terms in accessible language that applies directly to online small business loans
- Signatories must attest their compliance with the Code on an annual basis
According to the Prospa statement, the Code was modelled after best practice examples and feedback from the US and UK, where the online lending industry is more developed.
This list of tenets already seems quite progressive, or onerous, depending on who you ask. The notion of introducing or requiring a price comparison tool is a hot button topic here in the US. Requiring that loans and merchant cash advance products be labeled with an APR or an Annual Cost of Capital (ACC) is what the state of California is moving towards with a highly contested bill that passed in the state assembly committee in June.
Proponents of the bill SB 1235, introduced by California State Sen. Steven Glazer, want to make certain that all small businesses can easily understand and compare the cost of loan and finance products. Opponents of the bill, many in the merchant cash advance industry, insist that a requirement like this amounts to shutting down their industry because a precise APR or ACC cannot be applied to a cash advance product given that the product depends on the duration of the deal, which is variable.
While not as formal, some efforts in the U.S. are also being made by alternative finance industry players to self-regulate. In May, the Small Business Finance Association (SFBA) announced the launch of an initiative called the SFBA Broker Council, which has a mission to create standards and best practices for brokers.
Thinking Capital, Equifax Create Canadian Small Business Credit Grades
July 10, 2018
Equifax and Thinking Capital today announced the launch of BillMarket, a service that will now provide Canadian small businesses with a credit grade, A through E. CEO and cofounder of Thinking Capital Jeff Mitelman told deBanked this is revolutionary because, up until now, a Canadian small business’ creditworthiness has usually been based on the personal credit score of the small business owner.
“BillMarket creates a new language of credit for small business in Canada,” Mitelman said. “For the first time, there is a practical way to talk about and put a dollar value on small business credit in Canada. BillMarket expands the purchasing power for Canadian SMBs and eliminates friction in the supply chain.”
Equifax offers this new credit grade for free, and simultaneously, a small business owner is offered a supply chain financing deal by Thinking Capital. Specifically, if a small business owes money to a vendor in 30 days, Thinking Capital can turn that 30 day invoice into a 120 day invoice. Thinking Capital pays the small business’ vendor and the small business has 120 days to pay Thinking Capital. There are fees associated with this, which are based on the small business’ credit grade, but a small business can simply use Equifax’s credit grade and seek funding elsewhere.
“BillMarket represents a cash flow revolution for the Canadian small business market,” he said.
Traditionally, Thinking Capital provides an MCA product, which it calls Flexible, as well as a term product, which it calls Fixed. The company provides funding up to $300,000 to small to medium sized Canadian businesses. Clients must be in business for at least six months and have average monthly sales of at least $7,000. The funder was acquired in March by Toronto-based Purpose Financial, but it still uses the Thinking Capital name.
Founded in 2006, Thinking Capital employees roughly 200 people and has offices in Montreal and Toronto.
PayPal Completes Sale of Consumer Credit Receivables to Synchrony
July 6, 2018Yesterday, PayPal (NASDAQ: PYPL) announced the closing of its sale of $7.6 billion of consumer credit receivables to Synchrony (NYSE:SYF) for roughly $6.8 billion. At the end of 2017, PayPay announced that it had agreed to sell consumer credit receivables to Synchrony Financial as a part of an expanded relationship between the two companies.
The completion of yesterday’s transaction means that PayPal and Synchrony have extended their existing co-brand consumer credit card program agreement, and Synchrony is now the exclusive issuer of the PayPal Credit online consumer financing program in the U.S., through 2028.
“We’re pleased that we’ve completed the sale of our U.S. consumer credit receivables portfolio,” said President and CEO of PayPal Dan Schulman. “Our agreement with Synchrony accomplishes every goal we set out for our asset light strategy. We look forward to working with Synchrony to double down on our innovative consumer credit experiences for our customers and profitably grow the portfolio over time.”
The relationship between PayPal and Synchrony is not at all new. The two companies have partnered to offer PayPal-branded consumer credit cards to consumers since 2004. Synchrony will update the financial impact of this transaction in its second quarter 2018 earnings call.
What Will Happen to HomeZen After the Breakout Capital Deal?
July 3, 2018
With today’s announcement of Breakout Capital Finance’s acquisition of HomeZen’s technology, deBanked wondered what will happen to HomeZen after the acquisition of its technology.
HomeZen’s co-founder and Head of Technology Mike Spainhower will work with Breakout Capital to help integrate the HomeZen technology into Breakout Capital’s system, Breakout Capital Chief Operating Officer Mendelsohn told deBanked. But Spainhower will not be joining Breakout Capital as an employee, nor will any other former HomeZen employees. HomeZen will still service its existing clients, but will no longer seek additional clients or operate under the HomeZen name. HomeZen, which provided software tools for home sellers to more efficiently sell their homes, was founded in 2016 in the Washington D.C. area.
Mendelsohn said that prior to this acquisition, BreakOut Capital founder and CEO Carl Fairbank and HomeZen co-founder and CEO Kevin Bennett knew each other as part of the Washington D.C.-area tech community.
The HomeZen website is currently down, which is not an error. Mendelsohn said that the transaction between the two companies meant that HomeZen would cease offering its technology, and website, to new customers.
While Mendelsohn acknowledged the real estate technology company Zillow as a potential competitor of HomeZen, he said that HomeZen’s offering was quite uncommon.
“They were pretty unique in offering sellers a suite of [real estate] tools to do it themselves really be empowered to direct the sales process yourself.”
Breakout Capital has grown its loan originations throughout the year and also obtained a $15 million facility at the end of May that has allowed it to build out a factoring product, called FactorAdvantage.
Of the acquisition, Mendelsohn said:
“You have to take the long view with this and say ‘They’re serving real estate sellers, we’re serving small business owners.’ This may seem a little discontinuous, but what they’re doing is the same thing we’re doing. They’re providing great tools, calculators and other ways to evaluate offers. And that’s exactly what we do. This will allow us to give our applicants and borrowers access to that high quality experience.”
Founded in 2015 by CEO Carl Fairbank, Breakout Capital is based in McLean, Virginia.
Yellowstone Capital Funded $68M in June
July 2, 2018Yellowstone Capital originated $68 million in funding to small businesses in June, according to the company. The figure topped their previous month of $64.5M.
Kalamata Capital Merges with Kings Cash Group
June 28, 2018
Kalamata Capital announced today that it has entered into an agreement to merge with Kings Cash Group, effective July 1. The new entity will be called Kalamata Capital Group, or KCG, retaining the Kalamata Capital brand. Together, the new entity and its affiliates will provide approximately $300 million of capital annually to over 5,000 small businesses.
Michael Jaffe and Albert Gahfi have been designated the co-Presidents of Kalamata Capital Group LLC, the direct funding and operating entity, and they will run the day-to-day operations. Steven Mandis, Brandon Laks, Carlos Max, and Connor Phillips will be the Chairman, Chief Operating Officer, Chief Financial Officer, and Chief Credit Officer, respectively, of the holding company, Kalamata Holdings LLC. All are members of the Executive Committee of Kalamata Holdings LLC.
“With this partnership we become the preeminent one stop solution for merchants and strategic partners in the industry,” Gahfi said. “Strategic partners can submit one application, and we will quickly develop competitive, actionable solutions.”
Laks, Chief Operating Officer of KCG told deBanked that employees of both companies will be retained and the former Kalamata Capital offices, both in Bethesda and New York, will remain in place. The Manhattan office of Kings Cash Group will also remain and all products that the two companies used to offer separately, will now be offered by KCG, including small business loans, SBA loans, factoring, equipment leasing and merchant cash advance, among others. Kalamata Capital offered all of these products while Kings Cash Group focused on merchant cash advance.
“With no debt, Kalamata Capital has one of the strongest balance sheets in the industry,” Jaffe, co-President of the newly formed KCG said. “Their Chairman Steven Mandis worked at Goldman Sachs, was a Senior Advisor to McKinsey, has a PhD from Columbia University and teaches at Columbia Business School. He has utilized that experience to build a distinctive partnership culture, established brand, and institutional-grade processes and procedures.”
Mandis, Chairman of KCG, said: “We know and value KCG’s technology platform and people, and we believe their talent and capabilities will further strengthen our overall merchant value proposition. The partnership will enable us to better serve more small businesses by enhancing our underwriting capabilities to provide access to affordable business financing solutions to help them and their communities grow and thrive.”
