Members of New Jersey’s state legislature are trying for a fifth year in a row to advance a commercial financing APR disclosure bill. Senate Bill 819 was introduced on January 18th. Senate Majority Whip Troy Singleton (D) is the primary sponsor.
Similar to what was just introduced in the Virginia legislature, the bill is mainly aimed at “sales-based financing.”
“Sales-based financing means a transaction that is repaid by the recipient to the provider, over time and as a percentage of sales or revenue, in which the payment amount may increase or decrease according to the volume of sales made or revenue received by the recipient. ‘Sales-based financing’ includes a true-up mechanism where the financing is repaid as a fixed payment but provides for a reconciliation process that adjusts the payment to an amount that is a percentage of sales or revenue.”
DoorDash has made its way into the small business financing game. DoorDash Capital, as the financing arm is so named, claims to provide merchant cash advances to DoorDash partners against future sales orders placed through the DoorDash app.
The DoorDash website explains the product in detail.
“There is no interest rate because a merchant cash advance is not a loan,” the website says. “There is a fixed fee stated up front which will be collected together with the capital advance. Your fee will never change after you have accepted the offer.”
All of these deals are processed through Parafin, a Silicon Valley-based funder who was started by former Robinhood data scientists and engineers. They spoke to the Wall Street Journal in September about their launch and the onboarding of their first customer, Mindbody.
As a software provider with a financing arm of their business, Mindbody reportedly uses Parafin’s funds to provide financing through Mindbody Capital. When speaking to the Journal, Parafin’s Chief Executive Sahill Poddar said that Mindbody customers would pay fees between 6%-15%.
“We are categorically distinct from online lenders,” Poddar told the Journal.“We only get paid back when the [small business] makes sales.”
It’s still unclear the amount of DoorDash merchants getting financing from DoorDash Capital. From the looks of it, the program is still in its infancy.
When deBanked reached out to DoorDash for a progress report on the program, the company declined to speak. “No comment at this time,” said a DoorDash representative when asked about the progress, usage, and ideas behind DoorDash Capital.
“Our goal is to provide our partners with fair, fast and convenient financing,” the DoorDash website says. “To help partners gain access to additional capital, we partnered with Parafin, a business financing provider, to offer cash advances that you pay back automatically with your DoorDash sales. You can use the capital for inventory, payroll, rent, marketing or for your cash flow needs.”
Add Virginia to the list of states introducing initiatives to codify disclosures in commercial finance. Virginia House Bill 1027 is aimed squarely at “sales-based financing providers.”
The Virginia bill calls for an estimated APR to be disclosed on sales-based financing contracts using methods conceived in New York’s recent legislation.
As has been witnessed, however, New York’s regulators recently discovered weaknesses in their own law.
The Virginia bill is in its very early stages. It was introduced on Wednesday, January 12th by Delegate Kathy K.L. Tran (D).
Implementation of the New York Commercial Financing Disclosure law originally intended to go into effect four days ago, is now subject to another delay on top of the existing one, with no official date on when compliance will be required.
Seeing as the New York Department of Financial Services (DFS) was still accepting comments on the proposed regulation through December 20th, DFS had originally granted covered companies a six-month reprieve on compliance. But after having reviewed the comments, DFS determined that it’s actually back to the drawing board on a regulatory proposal. Sometime “early in the new year,” DFS said, it will publish a revised proposal for further public comment.
“Given the complexity of the disclosures required by the CDFL (Commercial Financing Disclosure Law), we believe the Legislature intended that the Department first provide regulatory guidance regarding the standardized disclosures required to be provided under the CDFL,” said Serwat Farooq, a Deputy Superintendent at DFS, in a published statement. “Waiting to commence CDFL obligations until implementing regulations are in place will ensure that the disclosures are made in a consistent, standardized fashion. This will help businesses understand the terms and conditions of the various forms of credit being offered to them, the very intent of the CDFL.”
Debt settlement companies are still using their tricky tactics, according to Efraim Kandinov of Fundfi Merchant Funding. He says a large group of funders are currently strategizing a mounted response to activity he believes is illicit.
Fundfi’s lawyers have already begun to send out Cease and Desists to the companies that have been telling his clients to breach their contracts and stop paying. He says it has become such an issue, that merchants in other parts of the country have begun ignoring his calls because of his New York area code, which they now associate with this kind of scam.
“[The merchant] said,‘I’m having all these New York numbers specifically, call me and plead with me ‘why are you doing this to yourself? Stop paying. Don’t pay these guys, pay me a fee and I’ll take care of it.’”
”This merchant was smart enough to say, ‘hey, this sounds like a scam’ and gave me the rundown.”
According to Kandinov, his company is one of the many that merchants are being told not to pay, while there are other funders who the debt settlers instruct to keep paying.
“They’re specifically targeting certain funders,” said Kandinov. “Whether they’ve been sued before by other ones, or have agreements, I have no idea. However I’m starting to realize, they’re specially targeting certain companies.”
It’s not a loan, Pipe says. Instead businesses can sell their future recurring revenue to investors on a trading platform for cash upfront today. Led by CEO Harry Hurst, the former founder of a rental car delivery service, Pipe has provided an astounding $1.2B worth of capital to businesses this year, putting them on pace to become one of the largest small business finance companies nationwide.
The company claims to have made recurring revenue into an asset class while making Miami their home base, much to the joy of the city’s tech-friendly mayor.
I am so grateful for everyone participating and joining forces to make Miami a global hub for innovation.
Read more: https://t.co/OtxrRad0yq
— Mayor Francis Suarez (@FrancisSuarez) December 22, 2020
Pipe considers itself to be the “Nasdaq for revenue” and calls its employees “plumbers” instead of sales agents, underwriters, and engineers.
People wonder how big @pipe is.
In our first full year of trading we’ve provided access to over $1.2B in financing to companies of all shapes and sizes, from bootstrappers to public co’s – all on their terms.
Proud of our team of 76 plumbers is an understatement.
Bring on ‘22!
— Harry Hurst (@harryhurst) December 21, 2021
Pipe has already raised $300 million of equity financing in the last year from investors including Shopify, Slack, Okta, HubSpot, Next47, Marc Benioff’s TIME Ventures, Alexis Ohanian’s Seven Seven Six, Chamath Palihapitiya, MaC Ventures, Fin VC, Greenspring Associates, Counterpoint Global (Morgan Stanley) and more at a valuation of over $2 billion.
“Pipe is levelling the playing field for companies in the capital markets,” said Chamath Palihapitiya, Founder & CEO, Social Capital, to finledger. “By taking the underlying contracts that generate recurring revenue streams and making them tradable for the first time, Pipe has unlocked a multi-trillion dollar asset class, revenue.”
Monday kicks off Broker Fair 2021 at Convene at Brookfield Place in lower Manhattan. The venue can be found on the 2nd floor of 225 Liberty Street. You must have a ticket and proof of vaccination to enter. The event is sold out.
deBanked TV will be streaming live from inside the venue where host Johny Fernandez will be talking to attendees throughout the day. You can tune in to watch live on debanked.tv starting in the morning on December 6th.
If you see the below entrance on the 2nd floor of the building on December 6th, you’re at the right place:
Broker Fair 2021 ticket registration will shut off days before the December 6th event. The broker-centric conference is now officially counting down to its kickoff at Convene in New York City.
“This pretty much happens every time we put on a show,” said Broker Fair founder Sean Murray. “Even though this event is post-covid, we’re looking at the number of registrations so far and are very pleasantly surprised.”
Hundreds of small business finance brokers are registered to attend Broker Fair. The annual event first launched in 2018.
“I don’t know what day we’re going to disable registration yet, but based on the pace I’d say there’s no way we make it until Friday,” Murray said.