Industry News
Sneak Peek at the Mar/Apr 2017 Issue of deBanked
April 11, 2017
In the March/April 2017 issue of deBanked magazine, we delve into the industry’s latest trend, the push back towards traditional banking. The featured story is titled accordingly as “Re-Banked” and our many sources lay out a compelling narrative. Our cover, a sketch of a young tech CEO shedding the hoodie to reveal the suit-and-tie attire of a banker underneath, was one of several pieces of art we commissioned for this issue.
And for you brokers out there, we’ve got something really special, the inside scoop on the latest way that reps are winning deals. Today’s broker is hanging up the phone and texting merchants instead and the merchants are responding in kind. Phone calls and emails are going the way of the fax machine when it comes to gathering documents and pitching offers. The lesson we learned from the several people we interviewed is that when merchants want to know what’s next, send a text.
There’s more of course, so if you haven’t already subscribed to our free print magazine, make sure you do so here. This issue has already printed and shipped so you’ll be getting it very soon.
We hope you enjoy it!
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Lights Out for New York’s Attempt to Impose Stricter Lending Rules
April 5, 2017
In a late night session on Tuesday, and days past the budget deadline, the New York State Senate voted 58-2 in favor of a key budget bill. Noticeably gone from it was Part EE, which would’ve imposed stricter licensing requirements on not only just lending, but also other forms of finance. Part EE was originally put there by the Governor’s office as an amendment to Section 340 of the State’s banking law.
Over the last two months, several trade groups used what little time they had to express concerns over the language. Their biggest frustration was that no one had consulted with them in advance. In February, Dan Gans, the executive director of the Commercial Finance Coalition (CFC) said, “They should allow all the stakeholders to have their voices heard.” The CFC, which represents many small business financing companies, did their best to do just that last month by actually making the trek to Albany.
Ultimately, the legislature did not support the Governor’s plan. Both the Senate and the Assembly removed Part EE from their versions of the budget and on Tuesday night, the Senate passed it. The Assembly passed it the day after.
This is the first time the budget deadline has been missed under Governor Andrew Cuomo. The last miss was in 2010 under Governor Paterson, which came in 125 days late.
Update in the Argon Credit Bankruptcy Case
March 31, 2017On March 28th, United States Bankruptcy Judge Deborah L. Thorne, ordered the trustee in the Argon Credit case to transfer the net proceeds and loan portfolio payments to the biggest creditor, Fund Recovery Services (FRS). That cash will be used to satisfy the approved secured claim of $37.3 million. FRS is an assignee of Princeton Alternative Income Fund, LP. Argon Credit was an online consumer lender that made loans between $2,000 and $35,000 with APRs ranging from 4.99% to 149%.
Initially, Argon Credit had applied for Chapter 11 bankruptcy after “experiencing financial difficulty,” though allegations of improprieties and mismanagement have come up in the legal filings. When FRS tried to stop their collateral from being spent, Argon argued in court that such a thing was unnecessary because they had more than enough collateral to pay off their debt to FRS, including $5.5 million worth of leads. By FRS’s calculations, the leads were worth as little as $1,500, not millions. Ultimately, the judge attributed no value to them.
The case was converted to Chapter 7 and FRS should be able to get repaid.
StreetShares Reports $2.8M Loss on Just $277,000 in Revenue For Last Six-Month Period
March 30, 2017
StreetShares, an online small business lender that is self-described as proudly veteran-run, published their most recent financial statements with the SEC earlier this week. For the six-month period ending December 31st, 2016, StreetShares recorded a $2.8 million loss on $277,883 in revenue. Over the same period in the prior year, they recorded a $1.35 million loss on $145,019 in revenue. To-date, the lender has issued $20 million in loans since they first began in July 2014.
StreetShares has so far charged off 23 loans for a combined principal balance of $380,804. Charge-off determinations are made after 150 days of delinquency.
The company made history last year by becoming the first lender in the US to be approved by the SEC to use funds from public investors to back loans to small businesses. This was done through Regulation A+ of the Jumpstart Our Business Startups (JOBS) Act. Reg A+ investors make up $656,675 of StreetShares’ liabilities on the balance sheet.
StreetShares currently makes loans to small businesses between $2,000 to $500,000 for terms of three months to three years.
The company also spent more than 5x their revenue on payroll and payroll tax for the six-month period and more than 3x their revenue on marketing expenses.
Earlier this month, StreetShares announced a partnership with Nor-Cal FDC “to assist small business and veteran business owners in obtaining funding needed to win new opportunities.”
In the release, StreetShares CEO Mark Rockefeller said, “we’re eager to provide veteran-owned small businesses with the funding solutions they need to grow.”
In Advance Capital Secures $50 Million In Additional Financing
March 29, 2017New York, NY — On March 27th, Times Square-based In Advance Capital secured a $50 million credit line to continue the rapid growth of its merchant cash advance business. The eighteen-month-old company, led by founders Shalom Auerbach and Thomas Corliss, attributes its portfolio transparency, discipline, and strong relationships with investors as the key contributing factors in securing the additional capital.
“In an industry that is increasingly difficult to access capital, we are very pleased to have earned the confidence of sophisticated investors who have provided capital that aligns their objectives with ours, which is to provide fast and flexible working capital to small business owners experiencing the challenges and opportunities of high growth,” says Shalom Auerbach, IAC’s CEO. In Advance Capital has focused on creating a more streamlined process to facilitate its own growth, including a quicker underwriting process, while seeing 220% more applications within the last two months.
“In Advance is a testament that you can build and grow a company in a competitive industry if you concentrate on hiring top talent, servicing, and listening to your customers,” Corliss says.
“It’s all hands-on deck at In Advance which also makes our work environment a special place to work.”
In Advance is also please to announce its recent Executive Management addition to staff, Keith Nason as Chief Operating Officer. Keith Nason brings over 10 years of expertise to driving operational leverage, streamlining process and data science analytics.
About In Advance Capital
Founded in 2015, the company provides working capital to small business owners. To learn more, visit http://www.inadvancecap.com or call 646-412-3303.
In This Online Lender’s Earnings Report, Profits, MCAs and Term Loans
March 22, 2017Limited details were offered when Enova, a publicly traded company, acquired The Business Backer (TBB) in June 2015. For one, the Cincinnati Business Courier had the exclusive, which one might not describe as the typical go-to source for online finance news. But TBB was not typical. Based in Blue Ash, Ohio as opposed to New York City or San Francisco, the company had originally focused on offering merchant cash advances before eventually expanding their suite of solutions to include other products.
According to Enova’s earnings report, TBB had been purchased for $26.4 million with an estimated contingent $5.7 million of that being based on future earn-out opportunities. There was a caveat though. If future operating results exceeded expectations, that contingent amount could increase over time, but not beyond where the total consideration paid for the company exceeded $71 million. As of 2016’s year-end, that contingent amount had increased by $3.3 million.
Enova’s report makes several mentions of their merchant cash advance business or as they call them, receivable purchase agreements (RPAs). For the most part, they obscure the financial metrics of this aspect by lumping it in with installment loans. These installment loans are described as “multi-payment unsecured consumer installment loan products in 17 states in the United States and in the United Kingdom and Brazil” with repayment periods of two to sixty months, so yeah, they’re pretty different.
Their RPA customers, however, “average approximately $1.5 million in annual sales and 10 years of operating history while those who obtain an open line of credit account average approximately $450 thousand in annual sales and 7 years of operating history,” the report says. These lines of credit are primarily offered through a business lending subsidiary called Headway Capital.
While companies like Lending Club and OnDeck grab all the headlines, Enova describes itself as a “leading technology and analytics company focused on providing online financial services.” And in 2016, they extended nearly $2.1 billion in credit to borrowers and had a net income of $34.6 million.
On the company’s Q4 earnings call in February, Company CEO David Fisher said, “There currently seems to be a bit of a shakeout occurring in the non-bank small business lending and financing industry. A number of our competitors have either ceased funding or completely shut down over the past several months. From the intelligence we were able to gather, this is largely due to credit issues and their portfolios. As we mentioned last quarter, we have taken a more methodical approach than some to growth for our small business products. And we’re now seeing the benefits of that approach. Recent advantages of our small business book are performing well and the unit economics continue to improve especially as acquisition costs have dropped following the shakeout I just mentioned.”
Enova’s small business financing portfolio only constituted 12% of their loan portfolio at the end of last year. And at $13.70 a share, the company’s current market cap is larger than OnDeck’s.
Prosper Lost A Whopping $119 Million in 2016
March 20, 2017
Prosper might be the online lender for the who’s who of Wall Street these days, but the company still lost $119 million in 2016. To add perspective, Prosper only had $136 million in revenue for the year, meaning that for every dollar it earned it spent almost two. The loss was also more than 4x greater than the loss in 2015 even though the company earned significantly less revenue in 2016.
| Year | Revenue | Profit (Loss) |
| 2012 | $7.6M | ($16.0M) |
| 2013 | $18.3M | ($27.0M) |
| 2014 | $81.3M | ($2.6M) |
| 2015 | $204.2M | ($26.0M) |
| 2016 | $136.0M | ($118.7M) |
General and Administrative was the largest line item expense at $102.7M, which consisted mainly of employee compensation. The second largest expense was Sales and Marketing at $70.1M.
The company originated more than $2.2 billion in loans for the year, down from $3.7 billion last year.
“The decrease in originations we experienced during the year ended December 31, 2016 were primarily driven by a number of our largest investors pausing or significantly reducing their purchases of Borrower Loans beginning in the second quarter of the year,” their earnings report said. “We believe these investors have paused or reduced their investment activity because of an increase in their cost of capital; negative actions and publicity at competitors; and our limited use of investor rebates, which have become more prevalent in the industry.”
To try and correct course, Prosper offered to sell up to 35% of their company to a consortium of Wall Street’s elite who have the right to buy up to $5 billion of their loans over the next 2 years.
WebBank Releases Earnings, Market Valuation
March 20, 2017
WebBank, a Salt Lake City-based bank commonly used by online lenders such as Avant, CAN Capital and Prosper to make loans nationwide, reported year-end figures last week through an SEC filing. The company is 91.2% owned by Steel Partners Holdings L.P (NYSE:SPLP). The bank reported net income of $29.2 million for 2016.
“Despite significant declines in a number of WebBank’s key programs, caused by capital market disruptions, WebBank successfully added new partners, new products and began holding more assets to maturity in 2016,” the report read.
Although Steel Partners also owns businesses in energy, defense, logistics, food products and more, WebBank is its most valuable segment with a market valuation of $319.4 million. That number, according to the release, is 12x the company’s after-tax net income.
Steel Partners got in on WebBank early, making their initial investment in the bank more than 20 years ago in 1996.
“WebBank offers revolving and closed-end credit to consumers and small businesses nationwide, partnering with nonbank finance companies, financial technology platforms, retailers and manufacturers to offer access to WebBank’s products,” the report says.”Revenue is largely derived from these loans, which provide fee and interest income.”
