One on One With Joe Camberato at National Business Capital
May 23, 2021I sat down with Joe Camberato (@GrowByJoe), CEO of National Business Capital in Bohemia, NY. He shared tips about how to run a successful business and gave me a personal tour of his company’s office.
North Carolina Joins States Proposing Commercial Financing Disclosures
May 12, 2021
North Carolina is the latest in a series of states to introduce a commercial financing disclosure bill.
The “Small Business Truth in Financing Act” introduced on May 11th, would cover business loans, factoring, and merchant cash advances.
The language was copy and pasted from bills elsewhere, like the recent one in Connecticut. The “double dipping” term is noticeably absent from this one, however.
The North Carolina bill was introduced by Rep James D. Gailliard (D). If it succeeds in moving forward, it’s written to go into effect on May 1, 2022.
Forward Financing Wins Customer Service Award, Originates $165M in 2020
May 10, 2021
Forward Financing won a Silver Stevie Award for the Best Customer Service Department of the Annual American Business Awards, for their work helping clients during the pandemic year. The firm originated a total of $165,826,203 across 6,142 advances in 2020, a representative said.
“We are truly honored to receive recognition for the fantastic job our Account Servicing team does every day to help our small business customers,” Justin Bakes, co-founder and CEO, said. “Particularly in 2020, that help was needed more than ever before to help small business owners get through the most difficult months of the pandemic.”
The firm said that in 2020, thousands of customers reached out to the Account Servicing Department (ASD) to request payment relief from the pandemic shutdown. The company trained 18 team members from different departments to join ASD, nearly tripling the size of the team, the firm said.
Forward competed with more than 3,800 nominations submitted this year for organizations across the US. Since 2012, Forward Financing has provided more than $1 billion in funding to more than 26,000 small businesses.
How Funders Survived PPP and a Year of Covid
May 4, 2021
A year into the pandemic and from the deBanked office in Brooklyn, it looks like the world is opening up again.
After a year of Zoom and LinkedIn networking, those in the industry lucky or talented enough to have survived can still complain without restraint about big government lockdowns and misguided legislation. Competing with Uncle Sam’s deep PPP pockets have slowed deals down, and with a new fund opening this week for restaurants, it might be more of the same.
But two funders said that though there is an initial slowdown when a new stimulus is rolled out, the programs have still been vital for business– and if firms kept up with contacts, the business could be booming even after the pandemic.
CEO David Leibowitz of San Diego-based Mulligan Funding said that his firm survived the worst of the shutdown. That was due in no small part to government programs that kept merchants in business.
“People forget where we were sitting in April, May last year, 20 million people filed for unemployment. The segments of the market that we serve in general don’t have more than 30 days of cash on hand at any time,” Leibowitz said. “There’s no chance that our market survives that without the level of government support that they’ve been given.”
Sure, there’s a dampening effect at first, but there wouldn’t be B2B without businesses to fund. Leibowitz said he thinks the macroeconomic effects of printing money will have consequences in the long term, but it’s the lesser of two evils.
Matthew Washington, the well-known CRO of PIRS Capital, has also been vocal about PPP. Like Liebowitz, he said it has its pros and cons, creating a slowdown and demand for capital in one stroke. In his experience, because the stimulus was limited to payroll and rent, merchants were hungry for other products.
“They’re only able to allocate it for certain things, payroll, and hiring people, right,” Washington said. “Our funding allows them to be able to use capital for other opportunities, like buying supplies, buying inventory. Although it’s kind of been somewhat slow, they need to have other working capital needs to be provided for.”
Washington also said some merchants used their PPP funds as low-interest loans, paying off and refinancing advances. PIRS has succeeded through the pandemic due to its relationship-based model.
“It’s all about keeping in touch with your merchants during this time, having a big pulse with the people you do business with,” Washington said. “We’re really a lean and mean company, we kind of have the community bank approach to this space; we’re more relationship-based.”
PIRS had only paused for 60 days and was lucky enough to be set up with recurring merchant partners that turned out to be essential businesses.
“We were very blessed; a lot of our portfolio was operating during the shutdown,” Washington said. “Our portfolio did very well for the circumstance.”
That was how they survived, a lot of good faith and hard work, but pinches of luck as well. Leibowitz said that contrary to popular belief, many good people lost their business during the pandemic. It wasn’t just bad actors and funders with terrible underwriting.
“In March, we had customers who, for reasons totally beyond their control, couldn’t pay. And we weren’t sure in March, how long that would go on for, we weren’t sure how bad it would get,” Leibowitz said. “If you’d asked me in March, April, were we going to survive this thing. There’s no way I would have been able to give you a confident answer.”
Some with public securitizations, well-run businesses, dropped out and disappeared. Leibowitz said Mulligan was able to keep every employee on staff and got through the “sh*t show.” In part, it was with help from competitors who specialized in PPP funding that Leibowitz said his firm was still going strong.
“So I think for all of its shortcomings, I have a world of respect for the SBA and the program. I think of Brock and guys at Lendio, I think of the guys at BlueVine and Kabbage, who really have done a truly extraordinary job of distributing that product to our target market,” Leibowitz said. “And I’m sitting here today, unquestionably, enjoying the benefit.”
So PPP helped, despite the slowdowns, in the short term, and Liebowitz said in the long term, the government overspending might get hairy. But with talk about the world opening back up, with bars open down the block for the first time in a year, what does Washington think about the near future?
The world just isn’t going to stop; it’s just evolving with the new temp of what’s going on; I think there’s a lot of positive things on the horizon for our business,” Washington said. “Once the vaccine rates, and everyone’s ‘cured’ how are they not going to open up.”
At Least One Firm is Leaving New York before Disclosure Law Lands
April 29, 2021
New York MCA firms are in the dark. In January, the governor delayed implementation of the APR disclosure bill until 2022. But the bill leaves it to the Department of Financial Services (DFS) to finalize how it will all work and not everyone is confident the outcome will be positive for business in New York State.
For example, Greenwich Capital, a small business funding company, has decided to move from Manhattan to Hoboken, NJ in preparation for the law. They anticipate that the cost of compliance will be high enough to warrant a trip on the PATH starting now rather than when it may be too late to contemplate later.
“There’s a lot of ambiguity, and our five-year lease was up,” Rich Gipstein, General Counsel at Greenwich Capital, said. “We’ll be moving to Hoboken for the time being and see what’s going on with this law. But in the meantime, it’s a lot cheaper for us.”
Based on vague wording language like double-dipping, Gipstein said there is no clear way to tell who or what the law aims to regulate. At least for his firm, it’s better to sit this one out.
“I think there’s quite a lot left open, and it’s intended to be broad,” Gipstein said. “There won’t necessarily be much time to know what the law means until it’s effective. I think there will probably be some lead time, but likely not quite enough for most businesses in the industry to adapt.”
For example: when does a deal become a “specific offer” and come under the purview of the law? In an industry where deals are won through cold calling, social media blitzes, and emails, when would it become necessary to disclose an APR? In a DM on LinkedIn? Rich said it is unclear what a “provider” is, whether it be funders, brokers, or ISOs. In the bill, a provider is required to make commercial financing disclosure clear and let a recipient know at the time of the “specific offer” the all-inclusive rates of a product. Without clarity, it’s hard to predict what the cost of compliance will be.
“I think, from my reading of it and from my understanding of New York’s position, it would seem that they are trying to regulate both funders and brokers under the same regulation,” Gipstein said. “I think it’s possible that the legislature intentionally left some things vague for DFS to fill in. The law basically says, ‘there’ll be regulations that will make this make sense.'”
Gipstein said it’s common for politicians to leave it to the regulators to finish the job, after all, the DFS has its nose to the grindstone in the day-to-day. But when a law affects an entire industry like this, Gipstein said it is uncommon for changes to be left until the last moment.
“It’s more than just disclosure requirements; this is not similar to what California did,” Gipstein said. “The law also dictates how to calculate the projected sales volume. You’re required to either use the historical method, in which you must always use the same number of months leading up to the deal, or you can opt-out and use your own projection. But if you use your own projection, that opens you up to disclose the results of all your deals to the government… It’s almost like an annual audit.”
The historic method doesn’t really work, Rich said when the industry comprises atypical merchants who wouldn’t be looking for funding if traditional methods could predict their sales volume. When it comes to self-declaring and letting the government poke around: Gipstein said the way a funder evaluates deals is proprietary. It’s what sets them apart; it’s the value proposition.
Greenwich Capital isn’t alone in their assessment. The Small Business Finance Association (SBFA), a trade group comprised of similar financial companies, has also been vocal about the law’s perceived shortcomings.
“You have a group of companies that are pushing these types of disclosures, for no reason other than their own self-interest,” said Steve Denis, executive director of the SBFA, back in October. “We’re fine with disclosure, we are all for transparency, but it needs to be done in a way that we believe is meaningful to small business owners.”
Denis had further said that those firms taking credit for writing the laws are the same companies that will end up suffering under the strict tolerance of an APR rule.
“The companies pushing this, the trade associations pushing it, they like to take credit for writing the bill in California and writing the bill in New York: I don’t even think they’ve read it,” Denis said at the time. “It’s going to subject their own members to potentially millions if not hundreds of millions of dollars in potential liability [fines.]”
When the DFS finalizes the terms, it will likely make dealing with disclosure too costly to remain in New York State, Gipstein said.
Gipstein said we’ll have to wait and see if NY-based brokers will have to go through extra compliance even if their funders or merchants are out of state. The worst-fear scenario is a possibility that after New Years’ 2022, out-of-state funders will stop working with NY brokers entirely, just because they live in NY. Merchants in the state, subject to the law, may find commercial finance a barren marketplace.
“We’ve got a lot of different things to manage as we grow, and one of the things we don’t want to do is create is a large compliance department,” Gipstein said. “It’s just cheaper for us, after doing a cost-benefit analysis, to move to a different state. We’re probably not going to be a New York funder by 2022.”
BFS Capital is Now Nuula
April 29, 2021
“The reimagined future of BFS starts now, and today I’m proud to announce that BFS Capital has become Nuula,” wrote BFS Capital CEO Mark Ruddock on LinkedIn. In a lengthy post, he explained that the company has shifted its “philosophy from solely selling loans acquired primarily from brokers, to providing a more holistic, customer-centric mobile app that entrepreneurs would find useful each and every day.”
“Nuula is a mobile application that gives small business owners instant access to critical business metrics anytime, anywhere.
It allows real-time monitoring of cash flow, personal and business credit activity, and social ratings and reviews. Small business owners know immediately if there’s an issue with their cash, credit, or reputation that requires action.
But this is just the beginning.”
“With regards to our legacy business, our team will continue to support our existing customers and partners as we transition all our services to Nuula,” he added. “Our existing customers will be the first to be offered a chance to experience Nuula. And over the next few weeks, our existing working capital customers will be able to unlock additional capital from the first of our Nuula ecosystem partners, with exciting incentives and in a way that is as seamless as possible. We expect to make that announcement soon.”
You can read the full post here.
Shopify Capital Q1 SMB Funding Soars
April 28, 2021
Shopify Capital posted monster figures on Wednesday, originating $308.6 million total in MCA and loans. Across the US, Canada, and the UK, Shopify saw a 90% increase from Q1 last year.
In total, Shopify Capital originated $794 million in 2020, and with a blistering first quarter, it may be on track to originate over a billion dollars this year.
“Shopify’s momentum continued into 2021 as digital commerce tailwinds remained strong and merchants took advantage of the range of capabilities offered by our platform,” Shopify CFO Amy Shapero said in an earnings statement. “We are focused on building a commerce operating system that will help shape the future of retail. Our merchant-first business model positions us to capture the massive opportunity presented by the growth of digital commerce, benefiting both our merchants and Shopify.”
Overall, total revenue for Q1 was $988.6 million, a 110% increase year over year. Nearly a third of the posted revenue was small business lending and MCA funding.
The Death of A Thousand Financial Companies
April 28, 2021Unfortunately, Deleting Your Business May Not Be An Option One Can Risk.
In March 2021, deBanked revealed that 7.5% of DailyFunder’s user base that had existed in March 2020, was lost during the pandemic. DailyFunder, of course, is the most widely used forum for small business finance brokers and the statistic offered one of the most compelling insights into the damage inflicted on the industry.
A loss was defined as a user whose email address ceased to exist. It was either deleted or the domain name was not renewed. It was a startling revelation. And yet, in a sign of optimism, DailyFunder added more new users in that 12 month time frame than were lost.
And yet, is anything ever truly deleted in the digital age? And how did it come to pass that the owners of these companies believed deletion to be a preferable outcome to transference? Surely as a thousand brokerages closed, there would have been an eager buyer to scoop them up, even if the sales price was for pennies?
And so I arrived at a theory, that companies that simply wound up and disappeared rather than sold themselves off, probably left behind a digital footprint that still drew in prospective customers, a path that ultimately led nowhere. A competitor might rejoice at that outcome but it’s not exactly a net gain because that customer may have decided to go somewhere else or nowhere else instead. Someone else’s loss wasn’t their win. Even the customer was a net loser. That could be resolved, of course, if the competition simply acquired the expired domain names of their fallen competitors, something that could be reasonably achieved for the price of ten bucks through any domain name registrar.
Outside of the small business finance industry, such tactics are commonplace. One can simply go on Godaddy’s domain auctions to see the never-ending revolving door of expiring domains which are often ranked and priced on the basis of how much traffic they stand to generate, mainly because of the past owners’ efforts.
According to WhoIsHostingThis, 70% of all web domains fail to be renewed 1 year after they’re purchased. “[41% of these expired domains] go on to be snapped up and registered by other users to potentially benefit and profit from,” they say. And there is nothing controversial about this. This is simply a standard of the world wide web. Your fallen online business is recycled as someone else’s marketing tool.
Applying that math to the small business finance industry at hand, that would mean that of 1,000 brokerage failures, 41% of the expired domain names are going to be acquired by someone else or they already have been. And if the expired domain only costs $10 (and they’re not all this cheap), then theoretically one could acquire the web traffic of 410 failed brokers for roughly $4,000.
WHOA.
The realization led me to conduct a controlled experiment, one in which I would try to prove this theory for a deBanked story.
I bought roughly twenty expired domains, intentionally leaning toward older ones, domains that had been expired for 2-10 years rather than recent casualties of the pandemic. Once completed, I jotted down my hypothesis, that these domain names probably produced some level of prospective customer traffic.
When my experiment concluded, I became alarmed, even sick, over what the results taught me. Deletion, I learned, is an outcome that no business, let alone a financial services company, can afford to surrender themselves to.
Here’s why:
Among the first steps taken was to create a “catch-all” email account on each domain so that if a former owner of a domain came along and tried to contact me, I would get it no matter which address they tried and that I would be able to tell them that I had acquired it accordingly and even tell them my theory!
No marketing or anything was done for any of the domains. I simply acquired them and let them sit stagnant. I did not resurrect whatever their old websites were. And yet, I received thousands and thousands of emails, none from what I could tell were from former owners.
It’s important to state that I did not use these accounts to actually do anything, but that these vulnerabilities came to light by virtue of monitoring the inbound emails these domains accrued.
Some domain names still had control of social media accounts like business facebook pages and twitter accounts. Someone could not only acquire your old domain, but use it to resurrect and use dormant social media accounts, including being able to view all past private correspondence on them. Yikes.
Some domain names were still attached to active bank accounts, credit card accounts, or financial services. Correspondence regarding these accounts was still being transmitted to them. When you delete a domain, you need to make sure its access is revoked from every account you have, especially bank accounts. Some received NSF notices or were being subject to debt collection efforts.
Every domain name was subscribed to newsletters or communities or some service in which one could use to learn personal information or business information about the previous owner.
Unknown but likely is that some of these domains may have been the “lost password” email address of record for other accounts online, a particularly troubling thought.
As the litany of stroke-inducing vulnerabilities piled up, then came live correspondence. Lenders wanted to know where to send a still-owed commission, a borrower was reaching out for customer service, old business partners were trying to rekindle past relationships.
Presumably such domains could give someone access to portals or databases where previous customer data was held. This implies that not only is the old domain owner at risk but that business vendors that had not disabled access to their systems for the defunct users could also be at risk from nefarious actors now in control of email addresses belonging to former customers.
A nefarious actor could surely dream up still more ways to carry out compromising acts. I disabled incoming email altogether for the domains pretty soon into my aforementioned discoveries so that emails to those domains would simply bounce back and indicate to the sender that there’s nobody there anymore.
And my original hypothesis had been blown to smithereens. These domains generated no material web traffic of note, except for probing “bots” instead of human users. What I thought might be a hidden source of web traffic, a clever insight on internet marketing 101, instead turned out to be a glimpse into a business’s worst nightmare.
No matter how much one’s business has failed, control over the domain name should be preserved at all cost, that is unless, all of the above vulnerabilities are addressed first and completely.
Originally, the costs of this journalistic experiment were to be recouped by simply reselling the domains onto the public market for fair market value. Instead, they were simply cancelled, cast back in the sea anonymously, where anyone else could buy them and do whatever they want with them. I, however, made no effort to alert anyone’s attention to them.
The publication of this story was delayed as I, the journalist, had to weigh the merits of disclosing my findings. But as the data says, 41% of expired domains are going to get snapped up anyway. And true to form, I was actually outbid by other unknown buyers by some of the original domain names I had hoped to acquire for my experiment. A financial service company’s domain and all the vulnerabilities with it, were sold to bidders willing to pay $30, $40, or $50+ versus my $10-$20 or so budget. That seems a terrifyingly small cost. And I highly doubt they were journalists.
Perhaps those domains are generating web traffic, but if they’re not, one has to ponder why someone would want to acquire the lapsed domains of so many dead financial service companies. And post-pandemic, there are too many to count.
If the death of a thousand companies has taught me anything, it’s that even business failure needs a well thought-out security plan. Otherwise one risks death by a thousand cuts.
