Industry News
Letter From the Editor – November/December 2015
November 1, 2015
Somehow 2015 is already over. It started off as the year of the broker but it ended up as a culmination of many things. It was the year of capital raising and rebrands, the year of regulatory interest and RFIs, the year of unicorns and leaderboards. 2015 solidified alternative lending’s place across multiple continents. Bankers started talking like technologists and technologists like bankers.
In 2015, we introduced William Ramos who went from working at a Lowes Home Improvement store to driving a Maserati after he landed a temporary job as a financial cold caller. We also showed you Jared Weitz, who went from working as a plumber to running a financial company that’s now on pace to originate $100 million in small business funding a year.
As we close out 2015 here, we’ll introduce you to the man whose company is producing billions (that’s billions with a ‘b’) of small business funding. Daniel DeMeo is the CEO of CAN Capital, a company who has weathered both the dot-com bust and the financial crisis and still manages to be one of the industry’s top players. DeMeo shared what he’s all about and the story of CAN you haven’t read anywhere else.
That’s the good stuff, but there’s some bad stuff too. While critics have broadcast some of the not so flattering stories in alternative lending’s rise, there’s a darker side that no one has dared write about, bad borrowers. Perhaps a byproduct of rapid technological change, merchant fraud has become an all too common occurrence. These predatory merchants are causing chaos, damaging margins, exploiting underwriting weaknesses and potentially driving up the cost for the good guys. In this issue, we explore the reality of bad guys and their tactics.
And that’s not all we have of course. In 2015, we compiled the first report on merchant cash advance and small business lending in collaboration with Bryant Park Capital. We measured the industry’s growth, learned of its diversity, and got a numerical sense of the confidence for the future. A sample of that report is included within.
That was 2015 summed up, the year that Marty McFly met us all in the future. 2016 will undoubtedly mean robots, laser beams and interplanetary colonization. Sprinkled in between all that will be online loans, merchant cash advances, bitcoins, and financial disruption. In 2016, the world may become deBanked once and for all.
–Sean Murray
Letter From the Editor – September/October 2015
September 1, 2015If you hadn’t noticed, we’ve got an executive on the cover of this issue. And why shouldn’t we? However alternative the industry’s roots might be, today’s small business funders are more like bankers than ever before.
But they didn’t all start off that way. Some of the industry’s leaders come from modest backgrounds outside of finance and we explore one of those stories in this edition.
Jared Weitz got his start in the industry at a company that was founded before the financial crisis. And that got me wondering if the funders that have been around for a decade or more possessed some secret recipe or knowledge that made them so successful. In The Decade Club, we reached out to several leaders to hear their perspectives and glean advice for you, the reader, somebody who potentially has not been in this business for at least ten years.
And if you’re new and just now walking through the industry’s front door, you’ll want to make sure your deals don’t slip out the back door. As some brokers have shared here, there is a potential for a deal to end up somewhere you may not have intended it to.
There is a reason that the term ‘deal’ is most often used to describe some of the business financing products we cover and that’s because at the heart of each transaction is a deal worked out between at least two commercial entities. A small business is still a business (just smaller) but there are folks that don’t exactly agree. I consider it important to point out the distinction and the extent to which the differences are respected in American culture. Even if you disagree with my assessment, surely there are opinions and viewpoints where we can find common ground.
A wide array of ideas has been shared lately and some of those have been expressed more vocally and more publicly than others. One thing that I have learned is that there is no perfect concept or methodology for success in this business. All you can try to do is serve your clients and yourselves as best you can.
–Sean Murray
Deal Alert: Angelo Gordon Acquires Reliant Funding
July 14, 2015
Angelo, Gordon & Co, a $27 Billion private equity firm has acquired San Diego-based Reliant Funding. Reliant was recognized a year ago as the 385th fastest growing private company in the nation on the Inc. 500 list as well as the 28th fastest growing financial services company.
A person who claims to have worked on the deal and is currently employed by the company shared the news publicly.
The deal is at least the second in the space for the private equity firm, who acquired Long Island-based Merchants Capital Access last year.
OnDeck Q2 Earnings Announcement
July 6, 2015Update: The news reports that said OnDeck was reporting earnings today on July 6th were false
An OnDeck representative said they have not yet scheduled a date.
OnDeck (ONDK) was reportedly going to release 2015’s Q2 earnings after the market closed on Monday, July 6th (That information was confirmed as false.) Analysts predict the company will show a loss of 7 cents a share.
The company has faced a fierce sell-off in recent weeks, moving the stock to all time lows and down more than 50% from its high. The trend began after the Q1 report in which company executives argued that a decrease in the interest rates charged to their customers was not a response to competitive pressure.
Bloomberg’s Zeke Faux ran the following headline anyway:
Since then, the stock has struggled to recover. I posted a summary of why that might be on June 29th, in a short piece tiled, What Happened to OnDeck.
Barron’s was particularly tough on them, labeling them a subprime lender in dot-com clothing. For now, the key to an OnDeck rebounds seems to be about shedding that toxic label and convincing investors that despite a crowded field, they are the clear standout choice.
An increase in the default rate this quarter however would probably evoke a further negative response.
Letter From the Editor – July/August 2015
July 1, 2015G’day mates,
Merchant cash advance and similar financial solutions have expanded beyond the United States. Canada was always the next logical option but it’s made its way far beyond that, all the way to Australia. And in the land down under, Australian natives are competing with American-based companies for market share. There’s not a lot of information available about the landscape there so we went out and got the inside scoop, fair dinkum!
Speaking of international, the race is on here at home to obtain a national or state bank charter. Loans allow for much more customization than is possible with merchant cash advances, noted Glenn Goldman, CEO of Credibly. But is the industry setting itself up for a stable future or are some companies betraying their roots as a bank alternative by in essence becoming banks themselves?
And even while the crowd cheers for charters, a baffling appellate court ruling in New York State threatens to undermine that strategy completely. If you haven’t heard of Madden v. Midland Funding, we’ve got some information about it inside.
I must note that deBanked celebrated its 5-year anniversary this past July. The world was much simpler when I started it. In 2010, I was able to quantify the industry’s size with ease, but today it’s a challenge to define what the industry even is, let alone calculate how big it is.
Everything is evolving and quickly, but some things still say the same, like when a broker’s commission is pulled back because a deal defaulted. Shouldn’t lenders take full responsibility for their own underwriting decisions? Not all brokers thought so apparently when we asked them. It appears that today’s broker is thinking more like a lender and if long-term growth is one of their goals, they’re probably thinking about becoming a lender themselves. That of course brings us right back to bank charters and court rulings to make that possible.
And if those topics are exhausting to think about, then sit back, relax and let us guide you through the beautiful Australian Outback. From Uluru to a kangaroo, alternative lending is never out of reach.
–Sean Murray
Letter From the Editor – May/June 2015
May 1, 2015Alternative lending is full of bubbles. I’m referring to the inefficient exchange of information, not runaway valuations, though that’s something to explore in a future issue.
New financial products can be just as intimidating to the professionals working within the wider industry as they are to the customers they’re being offered to. I’ve blogged often of my experience investing in Lending Club and Prosper notes, something I assumed everyone in the business finance world could relate to. Alas, I find that usually raises more questions with readers than it does answers.
Are you just nodding your head and smiling when your peers talk about their alternative lending portfolios? There’s no better way to understand today’s loan marketplaces than being an investor in them, even if it’s just a small amount. Whether it’s merchant cash advances, real estate loans, student loans, or credit card debt, there are plenty of opportunities and worlds to explore. You should conduct research, diversify, and be smart of course. You don’t want to be trapped in a bubble.
Outside the knowledge bubbles, we have regional enclaves. There are entire city neighborhoods being overrun by small business financing startups. In New York City, it had long been Midtown, but some shops started moving south and before anyone realized what was happening, Wall Street had been overrun by a new breed of broker. The culture in lower Manhattan is different than you might find in Midtown or in the next two largest industry hubs, Miami and San Francisco.
In this issue, we’ll begin to explore the industry’s bubbles, both geographically and structurally.
–Sean Murray
Ready to Trade ONDK and LC?
November 16, 2014
On November 10th, OnDeck Capital finally made their S-1 public. Immediate reactions from inside the industry were mixed. The bears criticized the years of losses while the bulls pointed out that the tide is turning. With a profitable 3rd quarter, OnDeck’s bet on the long game might finally be proving itself.
And without delving into their S-1 for now, the industry should be bracing itself for change. The mysterious world of daily funders (financial companies that deal in daily payments) is about to come under the scrutiny from another body, stock analysts.
Unlike journalists which have bruised the industry with sensational headlines and surface level criticism (high costs, light regulation), analysts will be tasked with truly understanding the fundamentals of nonbank business lending. Not to mention that everyday retail investors looking for an edge will want to learn more about the industry than what a single company’s quarterly financials will tell them.
Daytraders might make decisions based on melodramatic stories but those buying and holding for the long run will be conducting something that’s rarely taken place in this industry, research. Expect these questions to be asked and deeply considered:
- Who are OnDeck’s competitors? (and not just the top 3, but the hundreds that follow them)
- What are ISOs/brokers and how do they operate?
- How do they generate deal flow?
- What is Merchant Cash Advance and how is it similar or different to OnDeck?
- What is the real regulatory environment? (Because there are actually applicable regulations despite articles that say there aren’t any)
- Why does OnDeck collect payments daily?
- Why is OnDeck’s model so much different than Lending Club’s?
Look for the last bullet point to be explored greatly. If OnDeck and Lending Club are both innovative small business lenders broadly targeting the same market, why is OnDeck charging an average of 50% APR paid daily over 6 months and Lending Club charging as low as 5.9% APR paid monthly up to 5 years?
Their products couldn’t possibly be more different. And while Lending Club’s IPO path has curiously stalled, there is nothing to indicate that it will not proceed. That means we should expect comparisons between the two upcoming tickers LC and ONDK, a lot of them.
Details about commissions, closing fees, marketing practices, and transparency will be talked about in open forums by the general public. If it’s controversial, it will be debated. If it’s unique, it will be scrutinized. To an extent, OnDeck, Lending Club, and many of their competitors will cede control of their destiny to the general investing public.
There are folks in the industry giddy over the chance to buy and sell stock in both companies. They have years of experience on the front lines. But just as they’re gearing up to trade ONDK and LC, so too is everyone else.
Get ready for major change…
